Fluminense director Rodrigo Caetano claimed the European champions were close to tying up a deal for the 18-year-old, who has also been linked with Manchester City.
According to reports, Chelsea have held 40 per cent of Wallace's economic rights since 2010 following Deco's free transfer from Stamford Bridge to Fluminense and were ready to pay £4.4million for him.
The Brazilian club's manager, Abel Braga, told Terra, a Brazilian news website: "Wallace has been negotiated for a long time. He is a player that has impressed. Do you think people abroad sign someone based on one game?
"They watch a player for two, three months - sometimes even a year. They are taking a great player and Fluminense are completely right in selling him."
Caetano said the necessary paperwork had still to be completed for a player who has also reportedly attracted interest from Juventus and Napoli.
"I can't deny there are ongoing negotiations with Chelsea, but the deal isn't done yet - we still have to exchange documents," Caetano said.
He added: "And there is a non-disclosure agreement clause, and in case the information leaks, the deal might not happen.
"Let's hope this problem doesn't prevent the deal from happening."
- Sports & Recreation