July 31, 2001

Slatkin Trustee Warns Investors Their Recovery Chances Are Slim

By MAUREEN TKACIK Staff Reporter of THE WALL STREET JOURNAL

SANTA BARBARA, Calif. -- The court-appointed trustee in a bankruptcy filing who is seeking to recover as much as $554 million on behalf of as many as 800 investors said it will take years to sort through the affairs of money manager Reed Slatkin.

In his first appearance before creditors, R. Todd Neilson, the trustee charged with overseeing the disposition of Mr. Slatkin's assets, said that an outside expert he had called in to value the money manager's holdings called it "the worst portfolio he'd ever seen." Mr. Neilson, a partner in the Los Angeles accounting firm Neilson, Elggren LLP, said it was difficult to say what could be recovered on behalf of investors.

"I can say with certainty from what I know now that you are not going to get all your money back," Mr. Neilson told about 200 investors gathered in a hotel conference room here.

Mr. Slatkin, a former director of Internet portal EarthLink Inc., filed for Chapter 11 bankruptcy protection in early May. Shortly after, he was sued in Los Angeles federal court by the Securities and Exchange Commission for allegedly defrauding Hollywood celebrities and other investors through "Ponzi-like" schemes in which he used money from new investors to pay off older ones.

In a brief appearance Monday, prefaced by an attorney's statement that he would plead Fifth Amendment rights to all questions, Mr. Slatkin said: "I just wanted to say that I'm here today because I'm not hiding and I wanted you to know that."

Mr. Neilson characterized Mr. Slatkin's level of cooperation differently. He said that Mr. Slatkin had failed to fill out bankruptcy schedules and had only agreed to meet twice with the trustee. Mr. Slatkin's attorneys won't comment on any of the allegations about their client, but say Mr. Slatkin is cooperating with investigators.

An initial tally of Mr. Slatkin's holdings, filed July 23 by Mr. Neilson, list assets of $44.67 million against liabilities of $576 million. But complicating the reckoning of liabilities is the fact that for years, Mr. Slatkin sent his clients quarterly statements reporting portfolio gains. Creditors who had been investing with Mr. Slatkin for a decade or more say their accounts were "worth" as much as six or seven times the amount they initially invested.

As for the list of over 200 assets filed with the court, Mr. Neilson said that most of them have yet to be valued and that several are highly illiquid. Among Mr. Slatkin's holdings are nearly 67,000 shares in Incomnet Inc., a once-highflying multilevel marketing company that sold long-distance services before filing for Chapter 11 bankruptcy protection in September 1999, and 500,000 shares in PriceNet USA, an Irvine, Calif., Internet-services company, whose shares trade for under a nickel on the over-the-counter market.

The bankruptcy filing has hit two main groups of investors; residents of Santa Barbara, where Mr. Slatkin found early backers among many of his neighbors and golf buddies, and members of the Church of Scientology, where Mr. Slatkin is an ordained minister.

George Hudak, a retired aerospace engineer who lives in Goleta, Calif., said Monday he was planning on returning to work or consulting part time, because he had invested nearly all of his savings with Mr. Slatkin. "But it's okay for me," Mr. Hudak said. "I can do consulting and still play golf. There are others who are a lot worse off."

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