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Slatkin may be half a billion short

Bankruptcy: Manager will face creditors Monday

7/27/01

By MARK VAN DE KAMP

NEWS-PRESS STAFF WRITER

Bankrupt money manager Reed E. Slatkin owes hundreds of investors and creditors more than $539 million but apparently has only $44 million in assets, the first official accounting of his finances by a court-appointed trustee found.

This lopsided profile appears to confirm creditors' fears that they are likely to recover only a fraction of any money entrusted to Mr. Slatkin. The eight-year Hope Ranch resident is the subject of a federal investigation for allegedly defrauding up to 850 investors through his unregistered investment advisory business.

But lawyers for Mr. Slatkin said the trustee's financial report considerably overstates the amount owed to creditors and greatly understates Mr. Slatkin's assets. They assert that the amount owed is closer to $250 million and think his assets may be closer to $100 million.

However, the trustee's conclusion that Mr. Slatkin is apparently nearly half a billion dollars short -- and that he paid $3.4 million this year to relatives prior to filing for bankruptcy protection in May -- will not endear him to a crowd of creditors due at a Santa Barbara hotel's conference room on Monday for a special case update. Mr. Slatkin is scheduled to face his creditors for the first time at that meeting.

There are individual investors who claim to have lost $1 million to $15 million, even a couple who lost $40 million. A News-Press review of court records found that approximately 75 creditors live in Santa Barbara County.

The new financial accounting of Mr. Slatkin's assets and liabilities was compiled by trustee R. Todd Nielson and his team after they spent thousands of hours poring over 330 boxes of documents seized from Mr. Slatkin.

Mr. Nielson's report closely matches earlier estimates by bankruptcy attorneys, who said Mr. Slatkin owes anywhere from $300 million to $600 million. It is still impossible to accurately state precisely how many people are owed money and how much they are owed, the trustee and creditors' attorneys say.

Lawyers for Mr. Slatkin on Thursday issued a statement that the $500 million figure in the report includes claims by investors who made more than they invested with Mr. Slatkin, but believe they are owed still more money. The statement said some of these investors might actually be required to return some or all of their profits to Mr. Slatkin's bankruptcy estate for distribution to investors who did not do so well.

Further, lawyers said, Mr. Slatkin's assets as outlined in the report are understated because they do not include the value of substantial assets in illiquid investments. By definition, such investments are not readily convertible into cash, such as a stock, bond or commodity that is not actively traded and would be difficult to sell at once without taking a large loss.

In any case, a better picture is now emerging about the large sums of money that Mr. Slatkin moved around. For the first time, his donations to local organizations such as the Santa Barbara Bowl Foundation are spelled out.

Mr. Slatkin paid $26,233,340 this year to investors, creditors and vendors such as the phone company before filing for bankruptcy protection in May, the report states.

That included paying $3,403,278 to six relatives, the trustee's report said. The payments ranged from $50,000 to his wife, Mary Jo Slatkin, to $76,836 to his son, Justin Slatkin. He also paid $1,808,768 to Sally Sovernisky, $853,575 to Irving Rubin, $600,000 to Ron Schmier and $14,199 to Joanne Berger. The report identified these people as relatives, but gave no further details.

Mr. Slatkin this year also paid $78,263 to Jean Janu, his bookkeeper in New Mexico.

He paid the Internal Revenue Service $2Êmillion this year and the state Franchise Tax Board $754,242.

He also donated $68,975 to the Church of Scientology this year, records show. Mr. Slatkin and his wife are ordained ministers in the church. When he began his investment club in 1987, Mr. Slatkin collected money from fellow members of the Church of Scientology with promises of high profits -- some did realize high returns -- and over the years added other investors.

Since moving to Hope Ranch eight years ago, Mr. Slatkin has made donations to various entertainment groups. Records show that in the past year he gave $224,000 to the Santa Barbara Bowl Foundation, including $14,000 on March 13. He gave $25,000 to the Lobero Theatre Foundation, including $10,000 in March. He also gave $5,000 to the Santa Barbara Children's Chorus and $3,000 to the Community Environmental Council.

Mr. Slatkin's personal property includes three country club memberships: The Alisal in Solvang, La Cumbre Country Club in Hope Ranch and El Caballero Country Club in Tarzana.

Mr. Slatkin owns more property than has been previously disclosed. The trustee is preparing to put the properties up for sale and use the proceeds to help reimburse creditors. The assets range from his $35,000 wine cellar to his country club memberships.

Mr. Slatkin has 10 properties worth more than $7,880,000, records show. These include his Hope Ranch estate at 4480-4484 Via Esperanza that includes two homes of 4,000 and 5,800 square feet, with an estimated market value of $4Êmillion. Other properties are: 96 acres of undeveloped land north of Solvang in Ballard Canyon, worth an estimated $1Êmillion; a two-story, 2,200-square-foot house at 890 N. Kellogg Ave. in Goleta worth $500,000; and an 1,800-square-foot house at 3125 Riley Road in Solvang worth $280,000.

Beyond that, he also owns land in Newport Beach worth $1Êmillion; 6 acres in Ashland, Ore., with an unknown value; land in Santa Fe; more property in Germany; and $1Êmillion worth of property in Sedona, Ariz., plus 40 acres of undeveloped land in Nevada.

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