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Wednesday, February 21, 2007 - Page updated at 12:00 AM

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Former stock guru found guilty of tax fraud

Seattle Times staff reporter

A federal jury Tuesday found former stock-trading guru Wade Cook guilty of seven charges for failing to pay taxes on $8.9 million that the government says he should have reported as personal income from 1998 to 2000.

The jury deadlocked on an eighth charge that alleged Wade, 57, conspired with his wife, Laura, to commit the tax fraud. It also deadlocked on eight criminal charges against Laura Cook.

Sentencing has been scheduled for June 22.

"It's a sad day," Wade Cook said after the verdict was read.

"We're disappointed in the verdict, and we intend to seek a new trial and an appeal," said Angelo Calfo, Cook's attorney.

Laura Cook and her lawyers declined to comment.

Robert Westinghouse, the lead prosecutor, said it was too early to say whether the government will seek a new trial on the unresolved counts. But Westinghouse expressed satisfaction with the result.

After the verdicts were read, Westinghouse asked U.S. District Judge Thomas Zilly to place Cook in custody immediately. He said Cook was a flight risk and "continues to pose an economic risk to the community" by selling his investment books and providing financial advice online.

Zilly denied the request.

Last month, with the trial under way, Cook issued a news release promoting a free weekly newsletter "to teach people how to treat the stock market like a business and produce a monthly cash flow," as well as a weekly teleseminar.

Jurors deliberated for nearly four full days before delivering their verdict in the U.S. District Court in Seattle. The long deliberations reflected the complexity of the case, which included 15 days of testimony and more than 700 exhibits.

Cook and his wife, who live in Fall City, had been each charged with one count of conspiracy to commit tax fraud; three counts of filing false income-tax returns for the years 1998, 1999, 2000; three counts of income-tax evasion for 1998, 1999 and 2000; and one count of obstructing the Internal Revenue Service.

At the heart of the dispute was 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 government alleged that the Cooks improperly redirected royalties from Wade Cook's publications into a trust that, at least on paper, was eventually going to become a gift to the Mormon church. The government alleged the royalties were directed into the trust so that the Cooks would not have to report the money as personal income.

Then, the government said, the Cooks drained the trust and used the money to support a lavish lifestyle.

Attorneys for the Cooks argued that the money taken from the trust was loans that the Cooks documented and expected to pay back.

The collapse of the stock market in 2001 and a Seattle earthquake the same year ravaged Wade Cook's businesses and undermined the Cooks' ability to repay the loans, their lawyers argued.

A former cabdriver, Cook used his taxi experience to derive his "meter-drop" theory of investing in which he claimed it was better to make a lot of small profits through quick in-and-out trades than to buy and hold.

The theory was the subject of books, tapes and pricey investment seminars run by his publicly traded company, Tukwila-based Wade Cook Financial, which was forced into bankruptcy in December 2002. At the height of Wade Cook's popularity, he had four investment books on the New York Times best-seller list.

David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com

Copyright © The Seattle Times Company

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