2 Jun 2001
Slatkin Is in Plea Bargain Discussions
Courts: Ponzi scheme suspect also signs consent decree. Investors worry
that a deal would hurt efforts to recover their money.
By LIZ PULLIAM WESTON, Times Staff Writer
Fallen money manager Reed E. Slatkin has signed a consent decree with
securities regulators and is discussing a plea bargain with the U.S.
attorney's office over his role in what has been described as one of the
largest potential Ponzi schemes investigated by government officials.
Slatkin's moves signal that he is trying to avoid a court showdown over
an investment management business that took in hundreds of millions of
dollars from wealthy investors. But investors said they were worried that
plea negotiations could short-circuit government investigations and make it
harder for them to find out what happened to their money.
Securities and Exchange Commission documents filed in U.S. District
Court in Los Angeles on Thursday show Slatkin neither confirmed nor denied
any wrongdoing in signing the consent decree, the strongest remedy the SEC
can seek. As is standard in such agreements, Slatkin agreed not to violate
federal securities laws in the future.
The SEC reserved the right to levy a penalty against Slatkin and order
him to repay money to investors, although how much the SEC may seek is
unknown.
Slatkin is still under criminal investigation for investment fraud by
the FBI, which raided his Santa Barbara home and his offices in Goleta,
Calif., and Santa Fe, N.M., last month.
The U.S. attorney's office handles prosecutions in FBI criminal cases
and has been talking to Slatkin about a plea bargain, sources close to the
talks said.
The U.S. attorney's office did not return calls for comment, and
Valerie Caproni, outgoing director of the SEC's regional office in Los
Angeles, said she could not comment about the investigation or the consent
decree.
Slatkin's attorney Brian Sun said the agreement with the SEC was one
more sign that Slatkin was trying to cooperate with government investigators
and his creditors.
"It's a reflection of Mr. Slatkin's desire to avoid unnecessary expense
and litigation and concentrate the parties' efforts on locating and
maximizing the value of assets" for investors, Sun said. He declined to
comment on the plea discussions, which sources described as preliminary.
That the U.S. attorney's office was negotiating with Slatkin worries
some of Slatkin's investors, who fear that a criminal plea deal will end the
FBI investigation and reduce the likelihood of getting their money back.
Government officials have estimated claims in the case could reach $600
million.
"The SEC boggled it, so good riddance," said John K. Poitras of
Woodside, Calif., who invested $15 million with Slatkin. "But [FBI
investigators] don't know anything yet," so a plea deal would be premature,
he said.
The U.S. attorney's office has not filed charges against Slatkin, but
such talks in the early stages of investigations are not unusual, securities
attorneys said.
Slatkin's attorneys have said investigators need Slatkin's cooperation
to unravel his investments and return the maximum amount of money possible
to investors.
Investors have been skeptical, however, of Slatkin's claims and
government regulators' ability to ferret out the truth.
Poitras is one of several investors who have been sharply critical of
the SEC, which had questioned Slatkin about his unregistered money
management practice at least as early as 1997. Slatkin and his securities
attorney, Gerald Boltz, former director of the SEC's regional office in Los
Angeles, assured SEC investigators last year that Slatkin was getting out of
the business of managing other people's money.
Instead, Slatkin continued to take in tens of millions of dollars from
existing and new investors, SEC documents allege.
Slatkin told the SEC that investors' money had been funneled through
Swiss bank accounts, but regulators have found no evidence that the accounts
exist, according to SEC documents. The SEC won an order freezing Slatkin's
assets last month, accusing him in court documents of running an investment
fraud since 1985. The consent decree extends that freeze, which covers 41
brokerage and bank accounts as well as Slatkin's home, office in Goleta and
vacation property in Solvang.
The decree allows the SEC to later specify a penalty and an amount of
money to be disgorged to creditors. The amounts of the penalty and
disgorgement could be negotiated between the SEC and Slatkin or ordered by a
court after regulators complete their investigations.
Documents seized from Slatkin's home and turned over by his attorneys
last month list more than 750 people as investors. Slatkin's client list
included Hollywood actors and producers, Internet executives including
fellow EarthLink Inc. co-founder Sky Dayton and members of the Church of
Scientology, of which Slatkin was an ordained minister.
Poitras and two other investors sued Slatkin in April, claiming Slatkin
failed to return $34 million of their funds.
Slatkin resigned from EarthLink's board April 26 and filed for Chapter
11 bankruptcy protection May 1.
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