Wade Cook's criminal tax prosecution has gone to the jury.
Fate of Cook, wife now in jurors' hands
By David Bowermaster
Seattle Times staff reporter
When the stock market soared to amazing heights in the 1990s, Wade Cook gained fame and fortune as an investment guru. One of his specialties: helping investors minimize their tax burden.
Now, a federal jury will decide whether Cook and his wife, Laura, conspired to defraud the federal government by failing to pay taxes on $8.9 million that the government says they should have reported as personal income from 1998 to 2000.
The U.S. government filed criminal charges against the Cooks on Dec. 1, 2005.
The case went to trial in U.S. District Court in Seattle last month before Judge Thomas Zilly. After 15 days of testimony and hundreds of exhibits, the trial ended Tuesday with closing arguments. The jury is due to begin deliberations this morning.
At the heart of the dispute is a complicated flow of money through a web of partnerships and trusts that the Cooks created — in consultation with their advisers — in early 1998.
The previous year, Cook and his wife made nearly $10.l million from Cook's books, CDs and financial seminars. But they also owed the Internal Revenue Service (IRS) $4.2 million.
The Cooks decided to look for ways to pay less taxes.
Wade Cook
The solution came not from Cook — who wrote a book entitled "Brilliant Deductions" — but from a law student who was working for the Cooks in the late 1990s.
Tim Berry advised Cook to do three things, according to prosecutors: First, create a limited partnership, Never Ending Wealth; second, redirect royalties from Cook's publications to Never Ending Wealth; third, move 99 percent of Never Ending Wealth into an entity called a "charitable remainder trust."
A charitable remainder trust enables individuals to set aside money that will go to a charity when the person dies or the trust is dissolved.
The benefit of this plan was twofold, said defense attorney Angelo Calfo: First, income in a charitable remainder trust can accrue tax-free. Second, limited partnerships are allowed to make loans.
The Cooks could avoid paying taxes on the royalty income because it was going into the trust, not into their bank accounts. But the Cooks could take advantage of the royalties by taking loans against the money flowing into the trust.
The Cooks may have made errors in their bookkeeping, Calfo said, but that was not criminal behavior because it was not intentional.
Robert Westinghouse, the government's lead prosecutor, painted a darker picture.
"They knew exactly what they were doing," Westinghouse said. "They are just garden-variety tax cheats."
Westinghouse contended Never Ending Wealth and the charitable remainder trust was "an illusion ... like a facade on a Hollywood set."
From 1998 to 2000 and beyond, the Cooks made many extravagant purchases with money taken out of Never Ending Wealth, including Cadillac Escalades, Arabian show horses and a suite at KeyArena, he said.
Amanda Lee, an attorney representing Laura Cook, conceded that the couple lived an extravagant lifestyle, supported in part by money that came out of Never Ending Wealth. |
