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Feds charge Wheeler with tax evasion

Rochester Business Journal
April 17, 2014

Federal prosecutors have charged Christopher Wheeler, accused of running “pump-and-dump” penny stock scams, with tax evasion.  

Filed Tuesday, a three-count information accuses Wheeler of failing to report $10.3 million in income with the Internal Revenue Service in 2007 and 2008.

Wheeler formerly ran OTCstockexhange.com., a website touting penny stocks, out of his Victor home. He faces a maximum of three years in prison and a $75,000 fine on the tax-evasion charges.

Not clear is whether prosecutors plan to further criminally charge Wheeler with violations  related to the alleged $7.6 million they have linked to the OTCstockexchange website in civil court filings.

In papers filed in a civil forfeiture suit some three years ago, Michael Tallon of Michael Tallon P.C., a Rochester lawyer representing Wheeler in the tax case and the forfeiture suit, said he expected Wheeler to negotiate a global deal with the Justice Department to the forfeiture case as well as unspecified criminal charges.

Wheeler filed the 2007 and 2008 tax returns in question and completely paid the taxes and all penalties and fines after he was targeted in the forfeiture action, Tallon said.

Whether the Justice Department plans further criminal charges in the alleged pump-and-dump scheme or plans to add felony tax evasion to misdemeanor charges filed against Wheeler this week are open questions, he added.

“I am prepared to defend (Wheeler) against any criminal charges and in the civil forfeiture,” Tallon said.

Western District of New York Justice Department spokeswoman Barbara Burns declined to comment.

As described by Justice Department lawyers in the 2010 civil forfeiture action and by Securities and Exchange Commission lawyers in a separate 2011 civil suit, the alleged pump-and-dump scheme involved Wheeler touting stocks on his website but failing disclose that issuers had given him large blocks of free shares.

Wheeler drove up share prices with online touts of the penny stocks and then sold his shares for hefty profits, prosecutors and SEC attorneys claimed in the court complaints

After taking the Fifth Amendment to avoid self-incrimination, Wheeler signed a consent order in the SEC action in 2012.  In the order, he agreed, without admitting to wrongdoing to accept a judge’s determination of how much he should pay to settle the complaint.

The SEC is seeking disgorgement of some $4.2 million. How much Wheeler should disgorge or whether he should cough up any amount remains a matter of dispute.

In court papers, Wheeler argued the SEC has produced no admissible evidence proving that he collected ill-gotten gains and that he therefore should not be made to pay.  

SEC attorneys countered in answering papers that Wheeler signed away any right to claim such objections when he inked the consent order.

Initially before U.S. District Judge Michael Telesca, the case was passed to District Judge Elizabeth Wolford, who recused herself. It now awaits further action before District Judge Charles Siragusa.   

In the forfeiture case, Wheeler and his wife, Kelly Wheeler, agreed to let the feds take a stable of vehicles, including a $75,000 Ferrari Modena 360, a $43,000 BMW M6, a Hummer H2 and a Honda SUV.

The couple is due to file papers next month to show why federal officials should not also take their $600,000 Victor residence, a second home on Keuka Lake valued at $407,000 and $52.000 in cash seized in 2010.
 
The OTCstockexchange site remains in operation and continues to tout penny stocks.

In a court filing, Tallon wrote that Wheeler had cut ties to the website.

State records show the OTCstockexchange’s current owner to be an entity headed by Lisa McElvie, a Webster nurse linked to Wheeler and his wife on social networking sites.

The penny-stock site now features a disclaimer stating that its operator collects cash fees from stock issuers as payment for promoting stocks.  
     
(c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.
 



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