Slatkin Agrees to Plead Guilty
http://www.latimes.com/business/la-000022004mar27.story?coll=la%2Dheadlines%2Dbusiness
Santa Barbara money manager Reed Slatkin, who built an illusory investment
empire using money collected from Hollywood celebrities, Internet moguls
and fellow Scientologists, agreed Tuesday to plead guilty to 15 counts of
fraud, money laundering and conspiracy for masterminding one of the
largest Ponzi schemes in history.
Slatkin, who collected $593 million from 800 investors, faces up to 105
years in prison, although his sentence probably will be "in the
12-to-15-year range," said Thom Mrozek, spokesman for the U.S. attorney's
office in Los Angeles.
The sentence could be further reduced by a few years if Slatkin, 53,
cooperates fully with investigators, who still are trying to determine
what happened to investors' money, Mrozek said. Slatkin has acknowledged
that at least $255million is missing in the scheme, in which new
investors' money was used to pay bogus returns to prior investors.
"It's a very significant sentence for a consensual plea agreement," said
Richard Wynne, an attorney for creditors in Slatkin's bankruptcy case. But
he added, "We calculated he could have gotten a life sentence if this had
gone to trial, so it's a sweet deal for him."
In Tuesday's agreement, Slatkin was charged with six counts of money
laundering, five counts of mail fraud, three counts of wire fraud and one
count of conspiracy to obstruct justice.
Slatkin, who also faces a $3.75-million fine, has been ordered to make
restitution to his victims, although it is unclear how much money will be
recovered.
Investors greeted news of the plea agreement warily. Some fear Slatkin
might flee the country before his arraignment on an unspecified date next
month.
"He's had 11 months to pack," said investor George Kriste, "and now he's
got another 30 days."
The FBI and the U.S. attorney's office have said they don't believe
Slatkin will try to escape. Slatkin's criminal attorney, Brian Sun, said
his client was determined to cooperate with investigators.
"This is obviously a very emotional time for him, but he's committed to
doing the right thing," Sun said. "His conduct speaks for itself."
Slatkin has agreed to turn himself in to federal custody at his
arraignment, but he won't be sentenced until several weeks later, Mrozek
said.
Slatkin, an ordained minister in the Church of Scientology, started
soliciting money from fellow Scientologists in the mid-1980s. His stature
and reputation grew after he helped co-found Internet service provider
EarthLink Inc. in 1994. Before long, he was taking in large sums from
Internet executives, Hollywood players and socialites from across the
country.
Slatkin's investors included legal commentator Greta Van Susteren, actors
Peter Coyote and Giovanni Ribisi, EarthLink co-founder Sky Dayton and HGTV
host Susie Coehlo, among others. He managed money for entire families,
including retirement accounts, college funds and, in one case, lawsuit
proceeds for an accident victim who was paralyzed.
"I'm told I'm supposed to be happy with [Slatkin's plea]," said investor
John Poitras, who says he lost $15 million in the scheme. "But the
penalties here are just disconnected to the damage he's done."
Slatkin told investors he was putting their money to work in the stock
market. Although he paid out hundreds of millions in purported stock
market profits to investors, he made only about $65million in actual
gains, according to the trustee appointed by the U.S. Bankruptcy Court.
Slatkin, meanwhile, moved up from a suburban home in Goleta, Calif., to an
estate in the Hope Ranch area of Santa Barbara. He spent money on private
jets, million-dollar artworks and real estate across the country.
Slatkin's empire began unraveling in April, when several investors sued
him for failing to return their funds. On May 1, Slatkin filed for
bankruptcy protection.
The obstruction of justice charge stems from Slatkin's acknowledgement
that he lied to the Securities and Exchange Commission, which as early as
1997 investigated him for operating an unregistered money management
business. Slatkin's Ponzi scheme avoided detection, however, until
investors sued.
Investors have criticized the SEC for failing to uncover the scheme, but
SEC officials saw the plea agreement as a vindication.
"We're very pleased that Mr. Slatkin will be held accountable for
obstruction of our investigation," said Randall Lee, director of the SEC's
Pacific region. "We take misconduct and lies to us extremely seriously."
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Los Angeles Times
March 27, 2002
By LIZ PULLIAM WESTON
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