Earthlink founder Slatkin to plead guilty to fraud

Earthlink founder Slatkin to plead guilty to fraud
3/26/02 5:15 PM
Source: Reuters

By Ben Berkowitz

LOS ANGELES, March 26 (Reuters) - EarthLink Inc. co-founder Reed Slatkin, accused of defrauding investors out of hundreds of millions of dollars in an investment scheme, has agreed to plead guilty to 15 federal charges after nine months of talks, prosecutors said on Tuesday.

Prosecutors said the 15 charges would carry a theoretical maximum of 105 years in prison but he is expected to face between 12 and 15 years under federal sentencing guidelines when sentenced.

Slatkin agreed in the plea agreement that he defrauded investors out of $254 million but it is not clear whether he can pay back any of that sum as he has filed for bankruptcy protection from creditors.

The 53-year-old Slatkin, who helped finance EarthLink and make it one of the nation's largest Internet service providers, was charged with orchestrating a massive Ponzi scheme in which he solicited more than $593 million from some 800 investors -- including members of the Church of Scientology, where he is a minister.

He began having conversations with the U.S. Attorney's Office last June about a plea deal, two months after resigning from EarthLink's board and one month after filing for Chapter 11 bankruptcy protection and having his assets frozen.

ACCEPTS RESPONSIBILITY

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

Slatkin was charged with five counts of mail fraud, three counts of wire fraud, six counts of money laundering and one count of conspiracy to obstruct justice during an investigation being conducted by the U.S. Securities and Exchange Commission.

U.S. Attorney's spokesman Thom Mrozek said that Slatkin admitted in the written plea agreement that he portrayed himself as a successful financial adviser and provided investors with account statements which purported to show that his investors were achieving above-market returns.

However, Slatkin generally did not buy securities as he told investors, Mrozek said. Instead, he provided victims with false account statements that showed the fabricated returns.

Mrozek said Slatkin used the bulk of investor funds to operate a Ponzi scheme in which he perpetrated a fraud by paying investors returns that were largely made up of funds raised from other investors.

He has been sued by investors who found the money they gave him no longer exists. His home and office were raided last year by the Federal Bureau of Investigation as part of the examination into his business dealings.