This article originally appeared in Real Estate investor’s Monthly.
Wade Cook and Wife indicted for federal tax fraud, obstruction, conspiracy
On 12/1/05, Wade Cook and his wife Laura were indicted in U.S. District Court in Seattle on eight counts of tax fraud, conspiracy, and obstruction of justice. Specifically, the feds said that the Cooks reported $980 of royalties in 1998 when, in fact, they received $4.28 million and they reported $19,704 in the next two years when the actual amounts totaled $4.67 million. The Cooks told the IRS that their total joint income for 1998 was $28,249 and that they owed tax of $5,129. In a 2000 mortgage application, they said their monthly joint income was $191,667. But their tax return said their annual personal income in 2000 was $243,806 and tax payable, $71,193.
‘Loan’ that wasn’t
The indictment (CR05-425JCC) says the Cooks gave the IRS and Department of Justice a “Secured Promissory Note” dated 3/10/99 that supposedly proved a secured line of credit of $3 million from Never Ending Wealth (NEW) LP to Cook and his wife. The indictement says,
“There were no loan agreements or promissory notes prepared and signed at or near the [purported] time of the transactions; no loan histories or account statements tracking amounts borrowed, interest accrued, and payments made; no acknowledgment of the obligations on financial statements; no substantial repayments; and no action taken on default. These transfers of funds were ‘loans’ only for the purpose of evading income taxes.”
The indictment says, “Later, as the criminal investigation proceeded and the spotlight more intensely shone on the royalty payments, Laura M. Cook created a false document, captioned ‘Secured Promissory Note,’ apparently to corroborate the Cooks’ claims that the repeated diversions of money from Never Ending Wealth to them personally were loans. At a date uncertain, but no earlier than July, 2003, Wade B. Cook and Laura M. Cook signed this note and backdated it to March 10, 1999. Thereafter, in a sworn statement given on April 8, 2005, Wade B. Cook provided a false and fraudulent explanation regarding the signing of this note.”
Cook allegedly used a limited partnership and a charitable remainder unitrust to evade taxes, then tried to deceive and mislead IRS agents.
The nominal beneficiary of the “trust” was the Church of Jesus Christ of Latter Day Saints (Mormons). In fact, the trust was worthless to the Mormons. The Cooks never even informed the Mormon Church of the existence of the “trust” although Wade bragged about his generosity to the church, i.e., establishment of the trust, to people in his seminars business.
No tax returns
The Cooks never filed any tax returns for the trust as required by law, “…notwithstanding Wade B. Cook’s self-proclaimed expertise in his numerous books, tapes, and CDs and in his many seminars on matters relating to investing, wealth management, estate planning, and Federal income taxes; his routine advice to audiences to seek the counsel of a professional accountant or attorney with the requisite expertise to assist with their income tax issues; the receipt by the Cooks of written notices from the IRS regarding filing delinquencies; and the express direction of the Cooks’ accountant who prepared their 1998, 1999, and 2000 returns…” that he was refusing to do their returns anymore.
Withheld info from CPA
The indictment alleges that the Cooks deliberately withheld personal information from their accountant, refused to complete his personal questionnaires, failed to turn over to him bank records showing money moving from Never Ending Wealth to the Cooks, and refused to sign a letter verifying that their 2000 personal income tax return correctly reported all of their income.
The indictment describes Cook as a “self-proclaimed expert in asset protection, real estate investing, and stock market investing, and income taxation, especially the elimination or reduction of income taxes.” Cook used over 20 entities to move money around. Among other things, one of these entities paid Cook, via Never Ending Wealth, royalties on seminars, CDs, and books.
Cook’s businesses were forced into involuntary bankruptcy by creditors in January of 2003. Prior to the bankruptcy, the indictment says Wade Cook Financial Corporation paid royalties to Cook even when it was in arrears in payments to other creditors and to its employees.
Siphon off income
The feds say Cook was “…determin[ed] to siphon as much income as possible from the publicly traded corporation, while creating and nurturing the appearance of sound corporate governance,” and that he agreed to reduced payments of future royalties while simultaneously “…insist[ing] on payments that the dying corporation could ill afford to make.”
Among other gyrations, the royalties were paid to USA/Wade Cook Seminars, Inc., a closely-held Nevada corporation nominally owned by Cook’s children but, “In truth, however, the corporation was entirely controlled by Wade B. Cook and Laura M. Cook and operated by them as one of their many alter egos…the Cooks used the money from the accounts to support their personal lifestyle, treating the USA/Wade Cook Seminars, Inc. bank accounts as their own.” The indictment says the Cooks bought groceries, “his and hers Cadillac Escalades,” jewelry, furs, sky box at King Arena (NBA), an oil well which he named after himself, federal income taxes, and household furniture with the money, yet deducted these purchases as corporate expenses on their tax returns.
One of Cook’s limited partnerships owned the Cook’s 40-acre personal residence. Another owned Laura’s Arabian show horse collection. Money was loaned to friends and relatives who immediately defaulted.
Other money went into failing business of the Cooks and high-risk, margin securities trades that lost money. Other funds were spent, “…to support and perpetuate the appearance of generosity by funding loans to relatives and friends; and to purchase houses for various family members.”
A piano given to a friend was deducted on the Cooks income tax return as business “Furniture and equipment.” Money spent on the Cook’s daughter’s domestic-relations lawyer and a horse legal defense fund was deducted as business “Legal & Accounting” fees.
‘Fig leaf’ protection
This points up warnings I have often given about the notion that using corporations, trusts, etc. gives you ironclad protection against lawsuits and such. In an article in the last year or so (in Real Estate Investor’s Monthly), I specifically recited this sort of language“alter ego” and suchas the way civil litigants and prosecutors “pierce the corporate veil.”
The indictment says of Cook’s many businesses, “all of which were registered in Nevada because of their belief that there were fewer regulatory and tax burdens imposed by the State and that Nevada was the only state that had not signed an information sharing agreement with the Internal Revenue Service.”
I believe Nevada ended its status as a state where corporate ownership need not be disclosed in corporate registration papers. Not signing an information-sharing agreement with the IRS may be little more than symbolic.
Nevada has IRS offices, federal courts, and U.S. attorneys. If the feds serve a subpoena on Cook, he will darned well share information with the all of them whether Nevada signed a general paper to that effect or not. Nevada is not a separate country.
The Cooks allegedly used some entities to shield personal-use funds from a Federal Trade Commission order to pay refunds to consumers defrauded by the publicly-traded Wade Cook Financial Corporation (WCFC).
The indictment says that Cook’s tax-evading scheme was concocted by a law student intern working for Wade Cook Financial Corporation. It further says that the student was correct, but that he was not aware that the Cooks were going to …treat the funds paid into the limited partnership as their personal
funds,… routinely commingle assets and funds with those of other business entities,… engage in self-dealing… [make investments that were] imprudent and reckless, and on some occasions motivated by the necessity of relieving Wade Cook Financial Corporation… from the burdens of bad investments undertaken primarily at the direction of Wade B. Cook; and that the Cooks would ultimately usurp virtually all of the limited partnership’s value, thereby rendering the charitable remainder unitrust worthless, and, that funds would systematically be taken from the limited partnership by the Cooks without reporting of the funds as income to themselves and without the payment of federal income taxes on said amounts.”
I quote this at length to try to get across to hard-core believers in convoluted asset-protection and tax-evasion schemes that the feds are not as dumb as you may think.
This is an indictment, not a conviction. Cook claims he is being “persecuted because he loves his friends and relatives and his church.” However, I have long recommended against Cook, whose first book was Real Estate Money Machine. He also wrote Wade B. Cook’s Book on Creative Real Estate, Wealth 101, How to Pick Up Foreclosures, and Brilliant Deductions.
He is fond of bragging about his humble origins as a cab driver. For a self-proclaimed financial genius, tax expert, and asset-protection expert, he sure sounds like a great cab driver in this indictment. He appears to have violated every bit of advice that competent experts would give. According to the indictment, he is dishonest, inept, and ham-fisted. He seems unable to run a business, make investments, or to get or follow competent advice, let alone give it. Yet this man has had numerous best-selling financial books in spite of three bankruptcies. The gullibility of a huge percentage of the American people continues to amaze.
On 2/20/07, Cook was convicted on seven counts of federal income tax evasion by a federal jruy in Seattle.
On August 2, 2007, Wade was sentenced to 88 months in prison, his wife Laura Cook was sentenced to 18 months in prison. Wade was also ordered to pay back $3.75 million in owed back taxes.
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