Scientology's Reed Slatkin

Litigation Release No. 16998 / May 11, 2001
01-04823 (C.D. Cal.)

On May 11, 2001, the Securities and Exchange Commission ("Commission") obtained a temporary restraining order and asset freeze against Reed E. Slatkin, a co-founder, former director and substantial shareholder of Earthlink, Inc., in federal district court in Los Angeles. The Commission alleges that Slatkin defrauded as many as 500 clients through his unregistered investment advisory business located in Santa Barbara, California.

From 1985 to April 2001, Slatkin managed at least $230 million for about 500 clients through purported securities trading accounts in Switzerland. The Commission's complaint alleges that in February 2001, Slatkin misappropriated $10 million in client funds that he had received purportedly to invest in a money market fund and misused the client's funds by using $6.975 million to pay other clients and using over $24,000 to pay personal expenses, including credit card bills, telephone and other utility bills, fees at two country clubs, and pool maintenance fees. The Commission further alleges that the Swiss trading accounts do not exist and that Slatkin was merely operating a fraudulent securities scheme.

The Commission's complaint alleges that Slatkin violated and is continuing to violate the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and the investment adviser registration provisions of Section 203(a) of the Investment Advisers Act. In addition to the temporary restraining order and asset freeze, the court ordered Slatkin to not destroy documents and to produce an accounting. The Commission is also seeking a preliminary injunction, a permanent injunction, disgorgement, and civil penalties.



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