Investment guru Wade Cook was charged Thursday with evading federal income taxes on millions of dollars he made selling stock-trading advice...

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Investment guru Wade Cook was charged Thursday with evading federal income taxes on millions of dollars he made selling stock-trading advice during the 1990s bull market.

In papers filed in U.S. District Court in Seattle, federal prosecutors alleged Cook and his wife, Laura, avoided paying taxes on more than $8.9 million in royalties in 1998, 1999 and 2000. The money came from sales of books, tapes and CDs featuring Cook’s controversial strategiesto make it big in stocks.

Cook, 56, who now lives in Fall City in rural King County, said in a telephone interview that he and wife had done nothing wrong and claimed they were being pursued by vindictive government officials.

“We’re not worried at all,” he said. “This is just a speed bump on the road of life. We will win this so handily it will be an embarrassment for them.”

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Cook’s heyday was in the mid- to late 1990s, a time when the stock markets repeatedly set new highs and millions of first-timers ventured into investing.

A former part-time cabdriver in Tacoma, Cook used his taxi experience to derive his “meter-drop” theory of investing: It was better to make a lot of small profits through quick in-and-out trades than to buy and hold, hoping for riches in the long term.

In his books, tapes and especially his pricey investment seminars — run by his publicly traded company, Tukwila-based Wade Cook Financial — Cook advocated frequent short-term trading, buying aggressively on margin and using options and other relatively arcane instruments.

Many finance experts derided Cook’s strategies as overly risky, worthless or both. He and his companies had repeated run-ins with state and federal regulators over the claims made for his system, culminating in a 2000 settlement with 14 states and the Federal Trade Commission.

But his books became best-sellers, and tens of thousands of people paid to attend his workshops. In 1997, Wade Cook Financial earned $15 million on $104.9 million in revenue, and the Cooks received more than $10 million in royalties, according to Thursday’s charging papers.

After an IRS audit of their 1994-96 tax returns, the charging papers say, the Cooks set up a complex web of trusts and partnerships designed to shelter their future income from taxes.

The centerpiece was a “charitable remainder unitrust,” designed to let people lower taxes by donating securities, interests in a business or other assets to a specified charity. The donors can receive taxable income from the donated assets until they die, after which the assets pass to the charity free of estate or capital-gains taxes.

Federal prosecutors allege the Cooks set up such a trust, created a new partnership to receive Cook’s royalty payments, donated their partnership interests to the trust and named The Church of Jesus Christ of Latter-day Saints as the ultimate beneficiary.

However, the Cooks continued to spend the royalty money on themselves, without paying taxes on it, and the trust was depleted without the church getting any money, prosecutors say.

Among other things, prosecutors allege, the Cooks spent royalty money on oil wells, Arabian horses, “his and her” Cadillac Escalades and suites at KeyArena for Sonics games.

Cook’s company took a nosedive after the 2000 crash soured many investors on stocks. Wade Cook Financial was forced into bankruptcy in December 2002.

According to the bankruptcy trustee’s Web site, there is $920,000 to distribute to people who paid for seminars or other Cook materials but never got them. Deadline for submitting claim forms was last month.

The former headquarters in Tukwila now houses Teamsters union Local 174.

In addition to seven counts related to the alleged tax evasion, the Cooks face one count of obstructing justice. According to a grand jury indictment, they allegedly created a fake promissory note to make it appear as though they were merely borrowing money from the royalty-receiving partnership.

The counts carry maximum penalties of three to 15 years in prison and fines of $100,000 to $1 million per count.

Cook, who said he still conducts seminars and writes books — his latest, “Stock Market Money Machine,” came out in April — said he and his wife had paid millions in taxes over the years and vehemently denied breaking any laws.

“If I’m guilty of anything, it’s loving my job and loving my church,” he said. “What’s wrong with that?”

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com