http://www.siliconvalley.com/docs/news/depth/slatk091001.htm
SiliconValley, Reuters - 10 september 2001 -
Investment counselor's legal troubles pose PR problem for Scientology
SANTA BARBARA -- His assets have been frozen, from valuable artwork and
software company stock down to a single share of Krispy Kreme doughnuts.
And Reed Eliot Slatkin, co-founder of EarthLink and a millionaire
investment counselor, sits holed up in his estate, under the icy glare
of federal authorities.
Investigators suspect Slatkin was running a huge international
investment fraud, bilking what now appears to be as many as 850
creditors out of about $600 million.
But Slatkin's troubles are also presenting a public relations challenge
to the Church of Scientology, a lightning rod for controversy since it
was founded in the 1950s. His longtime connections to the church have
some critics and investors wondering: Was the church a beneficiary of
Slatkin's? A victim? Or both?
Starting in the mid-1980s, Slatkin began investing for Scientologists so
they could devote themselves to church work instead of worrying about
making ends meet. He told investors he would pool their money to buy
stocks, according to the Securities and Exchange Commission. Some church
members profited; others lost their investments.
His most successful bet, a $75,000 stake in Internet service provider
EarthLink, made Slatkin rich. And by 1999, Slatkin was managing at least
$230 million for hundreds of investors, including non-Scientologists,
dot-com kings and celebrities.
But this spring, after one investor unaffiliated with the church tried
to get his $15 million out, things went sour. The SEC sued the Santa
Barbara socialite for fraud, saying he was acting as an unregistered
investment adviser. He filed for bankruptcy protection. The Department
of Justice launched a criminal investigation, with federal agents
searching homes and offices of Slatkin and associates.
Three non-church investors sued. One charged in court documents that
Slatkin parked funds in a Swiss account that could not be located.
While there is no evidence that Slatkin took investors' money and gave
it directly to the church, some non-Scientologists are asking whether
their life savings went to Scientologists who did make money -- and
ultimately to the church itself.
Church leadership has tried to distance itself, insisting Slatkin wasn't
the fervent Scientologist he claimed.
"This really hasn't had an impact on the church,'' said Scientology
spokesman Aron Mason. Alleging a church role here is "like saying
'Michael Milken was a Jew who used his relationship within his religious
community to develop a financial operation and people got hurt.'
"But you can't hold the church accountable for the actions of an
individual member,'' said Mason. "That's outrageous. I wish I knew where
all that money went, but it certainly did not go to the Church of
Scientology.''
A darker side
Critics of the church, many of them former members who say they have
been pestered for years for questioning Scientology policies, see
something more sinister. Many of the church investors who entrusted
their money to Slatkin were high-profile people in their fields. The
church must have profited, critics say, if only from huge charitable
contributions from investors.
"Slatkin has been a big donor to the church and so are a lot of the
people who invested with him,'' said Arnaldo Lerma, a former
Scientologist and longtime critic outside Washington, D.C.
Authorities are trying to determine if Slatkin's business was a classic
Ponzi scheme, in which returns are paid to earlier investors out of
money paid by newer investors.
If investigators can show the church somehow reaped rewards, Scientology
might have to give some of that money back. There is precedent: After an
Arizona businessman was indicted last year for defrauding investors in
an operation similar to, but smaller than, Slatkin's, authorities
discovered he had contributed $1.8 million to Scientology.
"We found $50,000 a crack going to the church, $200,000 another time,''
said the court-appointed receiver in that case, Phoenix CPA Larry
Warfield. After a lawsuit, "they've paid us back $1.3 million and have
promised to pay us back another $150,000 in 60 days. They've been very
honorable.''
Both sides agree the church had no prior knowledge of the source of the
money.
In the Slatkin case, if Scientology has to give money back, Lerma said
"that's money they won't have anymore to hire lawyers to sue us.''
With Slatkin, some worry about an awkward religious divide between money
makers and losers. "If Reed lost church members' money, that's
interesting,'' said Patrick Siefe, a non-Scientologist and former
Slatkin associate who helped design his trading software. "And if he
didn't, that's even more interesting.''
Indeed, while not all the Scientologists profited, at least two
high-profile members did. Anti-tobacco litigator John Coale told the
Wall Street Journal that he and his wife, CNN legal commentator Greta
Van Susteren, made money from their investments with Slatkin.
But Dr. Larry Wheeler, a Scientologist and Tucson dentist, feels
betrayed.
"Everybody thought he was god. Now everyone's in disbelief,'' said
Wheeler. "The church is a victim in this because a lot of these
investors were heavy donors, and now their money's gone.''
Slatkin, who turned down interview requests, has claimed he was just
doing good old-fashioned church work, freeing time for the faithful to
focus on the spiritual. But the church says it was never a party to
Slatkin's investment efforts.
"This is all as much of a mystery to us as it is to investigators,''
said Mason. "We don't know anything about this Slatkin situation except
what we've seen in the media.''
Long involvement with church
Slatkin's life has been sculpted by Scientology: From coping with his
father's suicide when he was 14, to studying in England with church
founder L. Ron Hubbard, to starting a Scientology club at the University
of Michigan.
He told the SEC he helped put together the Sea Organization, Hubbard's
elite religious order; the church's Mason said he was not aware of that,
but did know Slatkin was never a member of that elite order. Slatkin
said he was kicked out of England in 1968 when the government cracked
down on Scientology. His fervor even determined where he did graduate
work -- UC-Berkeley, both for its Asian language program and proximity
to a good Scientology mission, and the woman he married and raised two
sons with, Mary Jo, another longtime devotee.
Since embracing Scientology in 1963, he said, it has "been the basis of
almost everything I've done in life.''
Church officials acknowledge Slatkin was a minister many years ago and
may have been a donor, but say he has not been active recently. In
contrast, Slatkin told the SEC in detail of working his way up the
church's spiritual hierarchy -- something members call "moving up the
bridge'' -- and remaining actively involved to this day. He testified
that he continues to take religious pilgrimages to Clearwater, Fla., the
church's spiritual headquarters.
In 1984, a fellow Scientologist taught Slatkin fundamentals of
investing. Soon he was playing the market on behalf of hundreds of
church members, according to his SEC deposition. Working in a converted
garage, he used software he and a programmer designed. One condition: He
would not accept "fees,'' which could have required an SEC license.
Instead, he encouraged investor-friends to make "gifts.''
As he told the SEC: "They used the largess that I was able to help them
with to, you know, donate things to the church.'' He added: "I can show
you letters of those, that people say, thanks to your assistance, I've
put X dollars over to the'' church.
One investor said he paid Slatkin $300,000 in "gifts.'' Terence
Honikman, a retired mechanical engineer, said Slatkin encouraged
investors to donate to him 10 percent of profits -- or least the profits
shown on now-suspect annual statements.
Slatkin hit it big with EarthLink, where his stake ballooned to $122
million. He served on the company's board, as it merged last year with
MindSpring Enterprises, but stepped down when the scandal erupted. An
EarthLink spokesman said that while some company executives invested
with Slatkin and have Scientology links, "EarthLink funds weren't
involved'' with Slatkin's dealings and "Reed wasn't involved in the
daily operation of'' EarthLink.
Well-known Scientologists present in the case
The ambiguities surrounding the Slatkin scandal are reflected in the
presence of`two well-known Scientologists in the case -- one after it
erupted, the other in the final days as Slatkin was scrambling to deal
with panicked investors.
Jack Dirmann, a longtime Scientologist who has served in administrative
posts, spent 10 days in March inside Slatkin's office, including time
spent going through his computer.
But Mason said Dirmann hasn't worked for the church for 21 years.
"Whatever he was allegedly doing in Reed's house,'' he said, ``was on
his own.''
Dirmann, who commented via e-mail, said he was in the house, invited by
Slatkin, simply as someone with money at stake, not as a church
presentative. "I had invested with Reed and encouraged my 85-year-old
father, among others, to do the same,'' he wrote. "Reed's repeated
assurances that everything was OK were wearing thin.''
Bennetta Slaughter, a longtime church activist and donor, began
contacting investors after the case became public, saying she was
organizing creditors. If they would send her $250 each, she would hire
legal counsel.
"Bennetta called me out of the blue,'' said one investor, a Sante Fe art
dealer. "She didn't say she was with the church. But she was very
articulate and seemed to have a real command of the issues.''
Some question her motives.
"Slaughter is the ultimate loyal volunteer and tireless worker in
Clearwater for Scientology,'' said Kady O'Malley, a freelance journalist
in Ottawa who writes about the church. Slaughter's involvement suggests
to O'Malley that the church is trying "to somehow control the agenda.''
Slaughter disputes any suggestion that she was doing this work for the
church. In a letter to the Mercury News, she said she was acting as a
private investor. Regardless of how various proceedings are resolved,
one thing is certain: Slatkin will likely become an outcast from the
church that had meant so much in his life.
"These things are now before the courts and law enforcement,'' said
Mason. "But if he's done the things alleged, he'll be excommunicated.
You can't be involved in this sort of thing and remain a
Scientologist.''
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BY PATRICK MAY
Mercury News
[NOTE: That's a lie. Scientology ringleaders that were sent to prison
back during the "Operation Snow White" domestic espionage
case are still running the criminal organization. Scientology's fake
"International President" rung up on endless felony charges
in Madrid, Spain was never ejected from the crime syndicate. Scientology
only publically ejects its ringleaders after they have made a big splash
on the world's media and it becomes -- in Scientology terms -- a
"PR flap.*quot; - flr]
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