Remarkable downfall of Internet guru
The Times
THURSDAY DECEMBER 20 2001
http://www.thetimes.co.uk/article/0,,37-2001585129,00.html

WALL STREET DIARY BY CHRIS AYRES

EARLY on Monday morning, a 2,024-page report arrived at the Santa Barbara Bankruptcy Court in California, detailing the remarkable downfall of man once hero-worshipped by Wall Street investors.

His name is Reed Slatkin. Until late last year he was a millionaire Internet guru, a friend of Hollywood celebrities and an ordained minister in the Church of Scientology. Now he is the subject of investigations by the FBI and the Securities and Exchange Commission. His creditors describe him, according to their mood, as either a "financial predator" or a "monster".

It was all very different at Slatkin's lavish fiftieth birthday party in 1999, to which the Hollywood stars Kevin Costner and Arnold Schwarzenegger sent videotaped greetings. The stunt was arranged by Armyan Bernstein, one of Slatkin's friends and the producer of Spy Game, the movie hit starring Robert Redford and Brad Pitt.

Slatkin first moved to California in 1974. Initially he wanted to do little other than work for the Church of Scientology. But in the 1980s he began dabbling in the stock market with a fellow member of the church. By the end of the decade Slatkin was investing for a growing group of scientologists. They handed him everything from retirement funds to college money and he produced healthy but not suspiciously large returns.

Slatkin's luckiest break came in 1994 when he was introduced to a 22-year-old called Sky Dayton, who wanted to start an Internet access business. Slatkin thought the business, EarthLink, would be a dud, but invested $75,000 (£50,000) anyway.

It was a good move. By early 1999 Earthlink was one of the three biggest Internet service providers in the US with a stock market value of nearly $8 billion. Slatkin's stake in the company was worth about $200 million.

By last year, the court report says, Slatkin was "managing" more than $600 million on behalf of 800 clients. But it claims that although hundreds of millions of dollars in purported stock market profits were distributed to a handful of investors, Mr Slatkin made only $65 million in real gains.

Investors became suspicious early this year and by May Slatkin had filed for bankruptcy amid a storm of lawsuits. So far only $30 million of Slatkin's assets have been recovered, with another $255 million still owed to investors.

Slatkin's few remaining friends say he was simply the victim of the stock market crash. His creditors, however, accuse him of organising a classic "Ponzi scheme", which used money collected from new investors to pay bogus profits to existing investors.

Slatkin's lawyer declined to comment on the report's allegations. Instead, he informed the court that Slatkin was co-operating with the authorities to "make sure that they recover as much as possible for the estate". But no matter how much Slatkin co-operates, the missing quarter of a billion dollars is unlikely to return.