In a court filing late on Friday, the SEC said the amount was justified by the finding of a New York federal court jury that the Wylys had engaged in a fraud that over 13 years earned them $553 million in profits that were not disclosed to investors in the companies.
"It is time to hold the Wylys accountable," the SEC wrote. "It is time to strip away the immense profits that flowed from their misconduct. It is time to impose the maximum penalty allowable under the securities laws."
Lawyers for the Wylys said in a court filing that "there would be nothing equitable about imposing such a massive judgment."
The SEC's call for the huge sum comes ahead of an August 4 non-jury trial before U.S. District Judge Shira Scheindlin to assess damages following the verdict in May in what was the SEC's largest case to reach trial in recent years.
Scheindlin will consider the SEC recommendation at the trial. Earlier this month, she found the Wylys not liable for insider trading in what was a small part of the overall case.
The SEC said the Wylys used a complicated system of trusts in the Isle of Man to conceal trading from 1992 to 2004 in four companies on whose boards they sat - Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd now called Scottish Re Group Ltd (SKRUF.PK).
The SEC said Sam Wyly, 79, should have to disgorge $371.1 million in trading profits plus $528 million in interest, pay a $72.3 million penalty and be subject to an injunction.
Sam Wyly last appeared on Forbes' list of the 400 richest Americans in 2010 with a net worth of $1 billion.
The SEC also sought disgorgement of $182 million in profits and $260.6 million in interest from the estate of Charles Wyly, who died in a car crash in 2011. An executor for his estate was substituted as a defendant after his death.
In their court filing, lawyers for the Wylys said the SEC had failed to demonstrate their clients' actions had caused any harm to investors.
"The facts and circumstances demonstrate that the amounts of any monetary profits resulting from or causally connected to the defendants' violations are far, far smaller than what the SEC claims," the lawyers wrote.
The case is U.S. Securities and Exchange Commission v. Wyly et al, U.S. District Court for the Southern District of New York, 10-5760.
(Reporting by Joseph Ax; editing by Lynne O'Donnell)
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