Scientology's Reed Slatkin

27 Jun 2001

Probe Widens as FBI Searches Home of Slatkin's Neighbor


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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