It is not easy to hold a liquor license in Illinois. Nightclub operators must provide fingerprint samples and financial records during lengthy police background checks. Liquor commissioners can deny licenses to bar operators who file fraudulent tax returns or fail to pay taxes.
But somehow, despite his tangles with tax officials and vice cops, Michael G. Wellek has flourished.
Wellek’s 20,000-square-foot dance club Sound-bar–awash in laser-projected images and music that radiates from beneath the floors–lights up the night at 226 W. Ontario St. And he runs three lucrative suburban strip clubs: Heavenly Bodies near Elk Grove Village, Skybox in Harvey and Cowboys in Markham.
Chicago liquor commissioners have accused Wellek of making false statements on license applications and said in a 2003 license denial that he did “not possess the character necessary” to own a liquor establishment.
In police raids of Wellek’s three strip clubs since 1999, 25 dancers and managers have been arrested on prostitution charges, although prosecutors later dropped those cases.
Last month, U.S. Treasury Department officials subpoenaed Harvey police personnel records as part of an investigation into officers moonlighting at Wellek’s clubs.
And federal tax officials have imposed a $1.1 million fraud penalty on Wellek, who did not file tax returns from 1989 through 1999, claiming he had no income. The fraud penalty is pending in U.S. Tax Court.
During a 2003 search of his Elk Grove Village office, IRS agents seized more than $12 million in cash. They kept the money, saying Wellek owed that much in unpaid taxes. Wellek says he owes less than $12 million and wants some of the money applied to future tax liabilities.
Wellek has not been charged with any crime, and he declined interview requests. In court, he has denied wrongdoing. From thousands of pages of Liquor Commission and court files, a portrait emerges of the politically connected 57-year-old who uses aggressive attorneys and complex corporate arrangements to exploit loopholes in state liquor-license laws and delay the resolution of enforcement actions against his clubs.
`Structured’ arrangements
IRS officials and Chicago liquor commissioners say in court papers that Wellek conceals his interest in nightclubs. Chicago officials say Wellek is trying to evade taxes and to keep misconduct at one club from affecting the licenses of the others.
Wellek “told me that he had structured his entire life and business arrangements so that if he were ever on the stand and had to answer the question, `Do you own something?’ under oath, he could say `No’ and not be lying,” IRS official David Perlman testified in a 2004 federal court hearing.
One example of that approach is the Heavenly Bodies club near Elk Grove Village. In his ongoing legal battle with the IRS, Wellek does not contest IRS assertions that he operates the club. But on Cook County liquor license applications, another woman is listed as the club operator and Wellek appears only as a “property manager.”
Illinois laws meant to flush out silent partners force tavern operators to disclose who has a financial stake in clubs. But Wellek devised a strategy that he says legally allows him to avoid disclosing his interest: He agreed to buy the former biker bar for $850,000 from a couple in 1989, but paid them only $825,000. Because Wellek still owed $25,000, he didn’t have to disclose any interest in the establishment to county officials, his attorneys argued in a separate Chicago license case.
City officials said the arrangement violates state disclosure laws, but Wellek disputes that. State liquor officials would not comment on the legality of Wellek’s strategy.
County officials said they were unsure because they learned of Wellek’s arrangement from the Tribune.
“He has weaved his way through a loophole,” said county Liquor Control Commissioner Jack Weinrauch.
Wellek saw the revenue of Heavenly Bodies rise nearly 15-fold during the club’s first three years, to $4.2 million in 1992 from $284,894 in 1989, federal court records show. (Subsequent earnings reports are not available.)
Wellek used a similar strategy when he opened Cowboys strip club in Markham in 1999.
The low, gray roadhouse at 2829 W. 167th St. is still listed as “Agha’s Pizza & Pub” on Markham licenses. Wellek’s name appears only once in the inch-thick licensing file Markham officials provided to the Tribune–he signed a 2003 letter as an “authorized agent” for Agha’s. Markham records said Agha’s is operated by south suburban entrepreneur Premsagar Mulkanoor and his wife, who declined to comment.
In March 1999, other records show, Wellek agreed to buy the business from the Mulkanoors for $95,000. Because he paid only $55,000, Wellek did not take full ownership of the business and didn’t have to disclose his interest on Cowboys’ license to Markham officials, his attorneys argued in a separate Chicago license examination. The arrangement was not disclosed to Markham officials.
“I don’t know if it’s totally legal, but it’s unique,” said Markham City Atty. Steven R. Miller.
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After Wellek took charge in 1999, Agha’s Pizza changed its name to Cowboys in the phone book while keeping the same phone number. In May of that year, Markham’s building commissioner alerted the town’s fire chief that the pizzeria was operating as an adult cabaret.
Ten months later, in March 2000, a Markham fire inspector wrote to the Mulkanoors that city officials had been patient “with building modifications you’ve made without permits [but] can no longer let your business compromise the health and well-being of others.”
As a result of police raids and prostitution arrests, the Markham Liquor Control Commission suspended Cowboys’ liquor license for 10 days in 2000, calling it an “ill-governed and disorderly place of business.”
In 2001, when Mayor Evans Miller retired, a company Wellek ran called United Fire Protection Corp. donated $5,500 to the political campaign of David Webb Jr. Elected mayor in April 2001, Webb automatically became local liquor commissioner. His administration leveled no further license infractions against Cowboys, records show. In 2003, United Fire Protection Corp. gave Webb’s political committee an additional $2,000.
Webb said that he didn’t know the money came from Wellek and that it had no bearing on enforcement at the club. “I don’t have any relationship with these clubs,” he said.
In Chicago, Wellek managed a version of Heavenly Bodies on Grand Avenue in 1993, but that strip club shut down after only four months after police indecency raids. City officials said Wellek made false representations when they denied his 1994 application for a second bar he said was “going to be like a Hooters with a little sexier outfits.” They gave him a license for a third club, but he never officially opened it.
In 2001, Wellek began renovating 226 W. Ontario St. into the plush River North dance club he would call Sound-bar.
Trouble with the city
City liquor commissioners put Sound-bar’s October 2002 opening date on hold, saying Wellek had concealed his interest in his suburban strip bars, failed to disclose important details about the financing of Sound-bar and had not filed proper income tax returns, according to a denial letter from Chicago Liquor Commissioner Winston Mardis.
Mardis concluded that Wellek did not meet the legal requirement of possessing the character necessary to hold a city liquor license. City officials determined that Sound-bar managers Stefan Billen and Mark Jurczyk were to receive $3,000 a week from the club, as well as 3 percent of its gross income. Jurczyk also received $20,000 a month under a construction agreement, Mardis noted.
That “translates into a significant ownership interest in the business,” Mardis wrote.
As Wellek’s attorneys appealed Chicago’s denial of Sound-bar’s license, Sound-bar held an April 2003 grand opening party, then closed the next day, its future still uncertain.
That month, with Sound-bar’s license in administrative limbo, Jurczyk and Billen borrowed $360,000 apiece from a company controlled by Chicago organized crime figure Sam Sarcinelli. Records do not explain the purpose of the loans, and none of the three would comment.
Sarcinelli, who was imprisoned in the 1970s and ’80s for an insurance scam, a major cocaine-selling operation and a stock swindle, also invested with Wellek in an Internet service provider called American Wireless Broadband, whose headquarters are above Sound-bar, in the dust-covered and mostly vacant fourth floor of the building.
Sound-bar appealed Chicago’s license denial to the city’s three-person License Appeals Commission, and prevailed in a 2-to-1 decision in December 2003. Writing for the majority, Appeals Commissioner Irving J. Koppel issued a terse, three-paragraph order dismissing Mardis’ contention that Wellek possessed poor character.
“Apparently, the applicant had not filled in his application properly,” Koppel wrote.
As for Wellek’s IRS tax debts, Wellek “did nothing illegal and the facts showed that the matter was resolved with the government,” wrote Koppel, who declined comment for this article.
In March 2004, three months after Sound-bar’s license appeal victory, the club opened with four lounges, two deejay booths and nine bars.
But Sound-bar was not yet in the clear. In November, a Chicago investor filed a lawsuit alleging that he poured more than $250,000 into the club, taking an ownership stake under an unwritten agreement, then was cheated out of his share of the profits.
David Lynn is not listed as an investor on Sound-bar’s city license application, although state and local liquor license laws require written disclosure of people with an ownership interest in nightclubs.
In addition, Lynn says Wellek’s conversion of the warehouse into Sound-bar cost $2.5 million, not the roughly $400,000 Wellek claimed in Chicago Liquor Commission filings. Wellek has not yet filed a court response to Lynn’s pending case.