SkyBox Heavenly Bodies and Cowboys Strip Club Owner Makes NO $$$

Strip-club owner jousts with IRS
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By David Jackson and Ray Gibson
Tribune staff reporters

July 4, 2004

Suburban strip club owner Michael G. Wellek once said there was a simple reason
he didn't file personal income tax returns for years: He wasn't making enough
money.

"It's been more than a few years since I had any taxable income," Wellek told
Chicago liquor commissioners in a 1995 hearing.

So it was somewhat unexpected when IRS agents who visited Wellek's Elk Grove
Village office with a search warrant last year found $12 million in cash. The
money was bagged and sorted by the burlesque houses.

Wellek has not been charged with any crime, and he declined to comment for this
article. But in May he filed a federal lawsuit seeking the return of his seized
money and a recalculation of his tax debt, which the IRS pegs at $11 million.
The case has thrown a spotlight on this politically connected and intensely
private veteran of the suburban burlesque circuit.

While keeping his name out of the papers, Wellek operates three strip bars,
according to IRS notices and his attorney: Heavenly Bodies in Elk Grove Village,
the Skybox in Harvey and Cowboys in Markham. State records show he also operates
Chicago's Sound Bar, a pulsating, 20,000-square-foot River North dance club
awash in laser-projected images and music that radiates from beneath the floors.

Wellek's strip clubs have come under sheriff's police surveillance. In 2001,
Cook County sheriffs arrested nine Heavenly Bodies dancers on prostitution and
public indecency charges, as well as a Skybox manager. County prosecutors
dropped the criminal cases against the dancers and the manager several months
later, but county liquor commissioners used the sheriff's reports to fine
Heavenly Bodies $2,400 and suspend its liquor license for five days.

Justice Department spokesman Blain Rethmeier would not confirm or deny whether
Wellek is now under criminal investigation. Federal court records show Wellek's
$12 million is being held by the IRS' Criminal Investigation Division, and the
revenue service has proposed penalties of more than $1 million for unspecified
"fraud"--a charge Wellek disputes.

At 6 feet tall and 185 pounds, the 56-year-old has waged years-long court
battles to keep his clubs open. Two of Wellek's land-holding companies, United
Fire Protection and SBX Management Corp., donated $19,100 to local political
candidates between 1999 and 2002. Among the recipients was Nick Graves, who was
Harvey's mayor and liquor commissioner in 1997, when aldermen accused him of
allowing Wellek's Skybox to start operations in violation of Harvey's zoning
ordinance. Wellek's United gave Graves $3,500 in 1999. Graves could not be
reached for comment Friday.

In assessing tax penalties against Wellek, IRS officials said in court papers
that he used numerous aliases and multiple addresses while maintaining assets
"in liquid form so that they may be easily concealed."

Wellek, who did not file income tax returns from 1989 through 1999, responded in
court filings that he has never used an alias--he says he simply runs several
businesses at several locations. He says his clubs generate substantial cash,
which he holds only long enough to count and deposit in a bank. He said he
wasn't hiding the $12 million; in fact, he guided revenue agents to it.

Over the years, Wellek has combined public protestations of poverty with
impressive demonstrations of wealth.

In a 1989 county liquor license filing, Wellek claimed he had lived for all but
one year of his adult life at his parents' home, at 9250 Golf Rd., in Des
Plaines. Wellek's father is 90 years old and his mother is 89. Wellek's father
used to install fire sprinkler systems, and Wellek said at a 1995 Chicago
license appeal hearing that he was vice president of his father's United Fire
Protection company. He said he took no salary from the firm.

"I don't personally have any income," Wellek said. When he needed money, Wellek
said he borrowed it from United. "I live very humble, all right?"

Chicago License Appeals Commissioner William D. O'Donaghue said at the hearing
that Wellek seemed to be using his father's firm as a personal bank.

"No, I am not," Wellek responded, according to a transcript. "I have had a lot
of tough luck in business and luckily I have got a wealthy father and a loving
mother that want to try and help their son, OK? They are 80 years old and they
are still trying to help their son overcome some very serious financial problems
that he had about five or 10 years ago in the real estate business. ... I am not
going to allow anybody to cast any negativeness on my parents."

Asked how many corporations he was involved in, Wellek told O'Donaghue: "I don't
recall as I sit here."

Corporate records list Wellek as director or agent of at least 17 companies,
most of them headquartered at his parents' house.

Wellek has used some of the companies to run his clubs and others to amass a
multimillion-dollar real estate portfolio that stretches from Lake County to 226
W. Ontario St., the site of the Sound Bar, which his H.B. Ontario-Franklin Corp.
bought for $3 million in 1999. Describing Wellek's $1.2 million purchase of an
Oswego farm in 2000, his attorneys wrote in court papers: "This was a cash
transaction."

Wellek's attorney Harvey M. Silets said there was no conflict between the land
purchases and Wellek's lack of reported income. Silets said that starting in
roughly 1989, the U.S. Department of Labor said that Wellek owed wages to the
dancers at Heavenly Bodies. Wellek disputed the wage claim, which grew over the
years to about $7 million, Silets said. And until the issue was settled in 1999,
with Wellek paying an undisclosed settlement to the dancers and labor officials,
Wellek counted the unresolved wage claim as a business expense--and
consequently, he paid no taxes, Silets said.

In that wage case, federal judges accused Wellek of flouting court orders.
Wellek's ABC York Estes company promised to turn over club records to government
lawyers, but "those assurances were worthless," U.S. District Judge William J.
Bauer wrote in one ruling. Another judge noted hearsay evidence suggesting that
Wellek perjured himself when he declared to the court that certain club records
did not exist--only a few weeks later, Wellek reportedly had his employees move
those very documents from one office to another.

Heavenly Bodies dancers petitioned to intervene in the case, then withdrew after
Wellek's ABC York Estes company assured them that it was vigorously defending
their status as independent contractors. "ABC's representation, of course, was a
lie," Judge Bauer wrote.

In a separate Chicago liquor commission case going on at the same time, Wellek
was accused of failing to disclose his interest in Heavenly Bodies. That case
arose in 1994, when one of Wellek's companies applied for a liquor license to
open "Buster's Bar," 207 W. Lake St. "It's going to be like a Hooters," Wellek
testified to the Chicago Liquor Appeals Commission.

Then-Chicago Liquor Control Commissioner Winston L. Mardis denied Buster's
application, explaining in a letter to Wellek: "Along with your failure to
cooperate and your false representations, it is obvious to this commission that
you are attempting to conceal your beneficial interest in another liquor
establishment, d/b/a Heavenly Bodies."

Wellek fought an unsuccessful, 4-year court battle to overturn Chicago's denial.

"This is insanity for anybody to think that I was trying to play cute and lie,"
Wellek testified.

Wellek told Chicago commissioners that his only role in Heavenly Bodies was as
unpaid "property manager." Wellek said he had an option to purchase the building
and was simply hoping to preserve its value.

But Wellek's attorney James R. Donoval later would sue Wellek for unpaid legal
bills and disclose in court papers that "on information and belief, [Wellek]
owns an interest in the real estate ... and in the business which operates under
the d/b/a Heavenly Bodies."


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