27 Jun 2001
Probe Widens as FBI Searches Home of Slatkin's Neighbor
By MAUREEN TKACIK and RUTH SIMON
LOS ANGELES -- In a widening probe into the money-management activities
of EarthLink Inc. co-founder Reed Slatkin, the Federal Bureau of
Investigation said it searched the home of Ronald Rakow, a neighbor of
Mr. Slatkin.
Federal agents spent eight hours Monday in the Santa Barbara, Calif.,
home of Mr. Rakow, a onetime road manager of the Grateful Dead who
presented himself to some investors as a business colleague of Mr.
Slatkin. Last month, Mr. Slatkin was charged with investment fraud by
the Securities and Exchange Commission.
The SEC accused Mr. Slatkin in federal court in Los Angeles of running a
"Ponzi-like scheme" to defraud Hollywood celebrities and other investors
by attracting new funds in order to pay earlier investors. Mr. Slatkin
hasn't commented on the allegations; his attorneys say he is cooperating
with the government.
According to an attachment filed with the warrant to search Mr. Rakow's
home, FBI agents were searching for financial records and other material
that could connect the two men. Among the items sought were business and
financial records for at least 10 entities operated by Mr. Slatkin or
Mr. Rakow "for the purported purpose of investing money for others since
1986 using Slatkin investor funds," according to the attachment.
FBI spokesman Matthew McLaughlin said he couldn't provide details on the
reasons for the search or the information sought. When reached at his
home Tuesday, Mr. Rakow said he had no comment.
Mr. Slatkin's woes first came to light in April when a handful of
investors sued him for fraud after they unsuccessfully tried to get him
to return funds that he was investing on their behalf. Shortly after,
Mr. Slatkin, who had provided seed capital for EarthLink, resigned as
co-chairman of the Internet service provider. On May 1, he filed for
personal bankruptcy protection. Ten days later, the SEC froze Mr.
Slatkin's assets and sued him in federal court.
The SEC said that Mr. Slatkin, who it claims never registered as an
investment adviser, was entrusted with at least $230 million by about
500 clients. A committee representing creditors has since compiled a
list of around 900 different investment-management accounts allegedly
run by Mr. Slatkin and said those accounts could have contained as much
as $600 million.
Mr. Rakow's name doesn't appear on the creditor list; nor was he
mentioned in a deposition given by Mr. Slatkin to SEC investigators in
January 2000. But at least seven investors say that Mr. Rakow
represented himself as an intimate of Mr. Slatkin who was somehow
involved in his money-management activities. Mr. Rakow "definitely made
himself out to be an insider," said Mark Zaplin, a Santa Fe, N.M.,
gallery owner who invested with Mr. Slatkin.
Mr. Rakow, 64 years old, served just under a year in federal prison in
California in the late 1980s after being convicted on criminal
mail-fraud charges in connection with an $80 million
lactic-culture-growing cosmetics operation that attracted 27,000
investors nationwide.
Write to Maureen Tkacik at
amaureen.tkacik@wsj.com
and Ruth Simon at
ruth.simon@wsj.com
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Staff Reporters of THE WALL STREET JOURNAL
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