Due Diligence

Former Stanford Broker Connected to Wyly Brother's Scam

Dallas stockbroker Louis J. Schaufele III, who worked for Stanford Group between 2005 and 2009, was involved in an elaborate insider trading scam cooked up by brothers Sam and Charles Wyly, according to SEC charges filed Thursday.

Schaufele, who is currently employed at J.P. Morgan, and the Wylys were key figures in a U.S. Senate subcommittee investigation into tax haven abuses. That investigation resulted in a 2006 hearing and a 400-page report, more than half of which was devoted to the Wylys.

According to the SEC chrages, the Wyly brothers, billionaires in their 70s, accumulated over $550 million in undisclosed gains over a 13 year period by trading stock in public companies at which they had board positions. They hid their insider trading by creating an elaborate system of trusts and subsidiary companies in the Isle of Man and the Cayman Islands, the complaint says.

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