A Florida financial advisor has been hit with the full force of the law after pleading guilty to running a nearly decade-long scheme that involved promoting a fraudulent tax shelter and stealing more than $2 million from clients.
In a Wednesday release, the Department of Justice announced that Stephen T. Mellinger III of Delray Beach has been sentenced to eight years in federal prison.
The DOJ statement said Mellinger operated as an advisor, insurance salesman and securities broker across Florida, Michigan, Mississippi and other states.
Mellinger's multi-state profile is reflected on his BrokerCheck and IAPD records, which show a checkered history of customer disputes and employer separations. He was previously affiliated with Baird, NorthWestern Mutual, and New York Life, the latter of which ended in 2016.
"Customer alleges, among other things, that he does not fully understand the manner in which his investments were structured. He also states that he later discovered that some of his insurance policies were not being paid as had been discussed," read one customer dispute dated May 23, 2016. "Customer states that his assets have been drained over $1,000,000.00."
According to the DOJ, Mellinger conspired with others starting in 2013 to help clients reduce their tax obligations through false deductions linked to so-called "royalty payments."
The scheme, which was also detailed in an earlier IRS release published in February, revolved around creating the appearance of legitimate business expenses through circular money transfers.
Clients would send funds to bank accounts controlled by Mellinger and his co-conspirators, who would then return the funds – minus a fee – to separate accounts still controlled by those clients. Despite retaining control over their money, participants falsely claimed the transactions as deductible expenses on their tax returns.
Court records show that the fraudulent tax shelter generated more than $106 million in bogus deductions, leading to approximately $37 million in tax losses for the federal government. Mellinger and a relative, who also participated in the scheme, skimmed around $3 million in fees from clients for facilitating the transactions.
It was in January 2016 when Mellinger learned several of his clients were under investigation and their funds were being seized. At that point, Mellinger and his co-conspirator diverted more than $2.1 million of client money for personal use. According to authorities, he used a portion of those funds to purchase a home in Delray Beach.
Mellinger was originally set to be sentenced on September 16, according to the IRS notice, with a maximum penalty of five years in prison for conspiracy to defraud the IRS and commit wire fraud, as well as three years for aiding in the preparation of false tax returns.
US District Judge Keith Starrett of the Southern District of Mississippi imposed an eight-year sentence on Mellinger, further ordering him to pay approximately $37 million in restitution and serve three years of supervised release.
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