EarthLink Co-Founder Fraud May Top $600 Million
A downward slide for EarthLink (Nasdaq: ELNK - news) co-founder and former
executive Reed Slatkin turned into a headlong plunge this week as
allegations multiplied that he ran a pyramid scheme. The amount out of
which investors may have been defrauded has now been pegged at over US$600
million.
Slatkin, who resigned from Atlanta-based EarthLink's board of directors
last month and filed for bankruptcy in California last week, allegedly
bilked fellow venture capitalists and Hollywood bigwigs through a
pyramid-like "Ponzi" scheme in which early investors are paid by new
investors.
The Los Angeles Times reported this week that the U.S. Securities and
Exchange Commission (news - web sites) (SEC) is investigating Slatkin.
While SEC officials would not confirm the investigation, at least three
investor lawsuits alleging fraud or theft have been filed and Slatkin
reportedly owes the IRS $6 million.
Blown-Up Returns
An estimated 100 investors, including EarthLink co-founders Sky Dayton and
Charles Betty as well as members of the Church of Scientology, of which
Slatkin was a member, met with lawyers this week.
The claims against Slatkin, which include allegations that he collected
more than $300 million and pocketed over $35 million, could total as much
as $600 million or more, according to attorneys.
Published reports indicate that the SEC investigation involves investment
fraud and an alleged computerized day-trading operation that would produce
annual returns of 60 percent for investors.
Bankruptcy and Stock
While Slatkin filed for Chapter 11 bankruptcy protection last Tuesday,
lawyers were working this week to freeze the former EarthLink executive's
estimated $20 million in assets, which consist primarily of EarthLink
stock.
An attorney for Slatkin told news sources that more than $140 million had
been returned to investors over the last two years, and that some
investors got more than they invested. Others, however, invested more than
they got back, based on Slatkin documents and information gleaned from
computer hard drives.
Another attorney reportedly said that Slatkin intended to cooperate with
investors and authorities investigating the matter.
White-Collar Crime
Slatkin, who allegedly told investors that his funds are tied up in legal
wrangling, is just the latest prominent technology executive accused of
fraud or other crimes.
An executive with Cisco was recently fired for alleged embezzlement, and
allegations of insider trading and fraud involving executives at European
Infomatec have also surfaced.
The co-founders of Belgium's Lernout and Hauspie Speech Products are
currently in jail on allegations of fraud. The high-tech firm, suffering
from a scandal involving accounting errors and allegations of fraud, filed
for bankruptcy protection in Belgium, South Korea and the U.S. earlier
this year.
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www.NewsFactor.com
Friday May 11 06:38 PM EDT
By Jay Lyman
http://dailynews.yahoo.com/h/nf/20010511/tc/9687_1.html
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