EarthLink co-founder admits bilking millions from investors
He will plead guilty in a Ponzi scheme
San Diego Union-Tribune
By Matt Krasnowski
COPLEY NEWS SERVICE
March 27, 2002

http://www.uniontrib.com/news/business/20020327-9999_1n27ponzi.html

LOS ANGELES Ð The co-founder of EarthLink, one of the nation's largest Internet providers, agreed yesterday to plead guilty to operating a Ponzi scheme that involved $593 million and 800 investors, including celebrities.

Reed Slatkin acknowledged in court documents that he was responsible for $254 million in losses and agreed to plead guilty to mail fraud, wire fraud, money laundering and obstruction of justice charges.

Prosecutors said there is no agreement about Slatkin's possible prison time, but said they expect he will serve 12 to 15 years. He could also face a maximum $3.75 million fine.

Securities and Exchange Commission investigators began scrutinizing Slatkin, 53, of Santa Barbara, last year after investors started filing complaints.

In the agreement, Slatkin acknowledged he falsely portrayed himself as a successful financial adviser and gave investors phony statements showing they were achieving above-market returns on their investments.

"Mr. Slatkin's agreement with the government is a reflection of his decision to accept the responsibility for his conduct and move forward by continuing his cooperation with both government authorities and his creditors," his lawyer Frederick D. Friedman said.

Slatkin started his investment operations in 1990 and included fellow members of the Church of Scientology, Internet executives and Hollywood celebrities as clients.

Much of the money went into what prosecutors call a Ponzi scheme, in which investors are paid returns that are largely funds raised from other investors. He used the money for personal use and his business ventures, court papers state.

When the SEC started investigating, Slatkin allegedly gave false testimony and phony documents to the agency in an effort to cover up the scam.

Slatkin, who helped make EarthLink one of the nation's largest Internet service providers, resigned from the company's board in April and filed for Chapter 11 personal bankruptcy protection May 1.

Not all of his investors lost money. The U.S. Bankruptcy Court trustee overseeing the Slatkin case has reported that at least 75 people reaped $151 million in profits with Slatkin.

Some of those investors have been asked to pay back the money they received or face a possible lawsuit. Among those who profited included Fox News talk show host Greta Van Susteren, actor Peter Coyote, Hollywood producer Armyan Bernstein, and Susie Coelho, an author and host of a cable show on HGTV.

Many of the investors who profited have said they didn't know they were involved in a fraudulent scheme.

Slatkin will be arraigned on the charges in April and has agreed to surrender to federal custody then, said Thom Mrozek of the U.S. attorney's office.