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