A former Florida financial advisor has been indicted in Mississippi for running an illegal, multimillion-dollar tax shelter scheme in which he used $3 million in “royalties” he received from clients across the nation to buy a Delray Beach, Fla., home, Justice Department attorneys said.

Beginning in 2013, Stephen T. Mellinger III of Florida, a broker, financial advisor and insurance salesman, allegedly conspired with several others to defraud the IRS by promoting the tax shelter, according to a joint statement from Acting Deputy Assistant Attorney General Stuart M. Goldberg of the DOJ’s Tax Division and U.S. Attorney Todd W. Gee for the Southern District of Mississippi. The federal grand jury indictment was unsealed on September 26.

Mellinger, who is facing a maximum sentence of 68 years, has also been accused of stealing some of his clients’ funds and laundering them. He had been a registered representative for 19 years until 2016.

Mellinger “allegedly instructed clients participating in the shelter to transfer money to a company controlled by Mellinger or his co-conspirators in the amount they wished to claim as a deduction on their tax returns,” Goldberg and Gee said.

The advisor and his co-conspirators then returned the money to a bank account that clients controlled, the Justice Department claims, but charged a percentage of the transferred amount as a fee for their services.

“Even though tax shelter clients received their money back, Mellinger allegedly directed them to claim the transfer to the company as a deduction on their tax returns, and to label the deduction as a ‘royalty’ payment. Mellinger allegedly earned more than $3 million in fees from the shelter,” Goldberg and Gee said.

The government claims Mellinger was involved in a separate scheme tied to a January 2016 government seizure of funds from some of his clients, who were allegedly engaged in a scheme to defraud healthcare benefit programs, including TRICARE, the U.S. Department of Defense’s program.

Mellinger, government attorneys claim, conspired with a close relative to take advantage of the government’s seizure to steal some of the money that those clients had transferred through the tax shelter. Mellinger then allegedly laundered the stolen funds, which he knew were proceeds from healthcare fraud, the federal attorneys said.

Ultimately, Mellinger “used some of the funds he stole from his clients to buy a home in Delray Beach, Florida,” the indictment says.

The grand jury charged Mellinger with conspiracy to defraud the U.S., aiding in the preparation of false tax returns, conspiracy to commit wire fraud, conspiracy to commit money laundering and money laundering.

If convicted, Mellinger faces a maximum penalty of five years in prison for conspiring to defraud the IRS, a maximum penalty of three years in prison for each substantive count of aiding in the preparation of false tax returns, a maximum penalty of 20 years in prison for conspiring to commit wire fraud, a maximum penalty of 20 years in prison for conspiring to commit money laundering and a maximum penalty of 20 years in prison for each substantive count of money laundering, according to the DOJ.

“A federal district court judge will determine any sentence after considering the U.S. sentencing guidelines and other statutory factors,” attorneys said.

Mellinger was most recently registered with NY Life Securities from 2009 to 2016. According to his BrokerCheck report, the rep “resigned during the course of a review of outside business referrals. In the company's opinion, Mellinger exceeded the scope of approved business activities. Mr. Mellinger disputes the company's opinion.”

Mellinger had six customer complaints with customers over the 19 years of his registration, according to BrokerCheck, a site maintained by the Financial Industry Regulatory Authority. In April 2021, he settled a customer complaint seeking $1.4 million for $227,525.16. The customer alleged that beginning in February 2016, “as a result of misrepresentations and without full disclosure, [Mellinger] set up trusts, funded by life insurance and donor-advised funds that promised substantial charitable deductions that would reduce federal income taxes.”