An incredibly strange and
complex tale involving Scientology, EarthLink, Hollywood and this man, Reed Slatkin.
|-- You know, there's a policy in
Scientology talking about motivation. I'm just going to read it into the record. It's very
short. It talks about money motivation. And it says here, "People in business that
are motivated only by money are wobbly people. The primary cause of failure is money
motivation. The scale of motivation from the highest to the lowest is duty. Below that,
money, and it's indicated lowest." So you know, these people have got to know that I
consider this to be my duty to be taking care of them. - Reed Slatkin, from the transcript
of his interview with federal investigators, January 2000 --
John Poitras was not looking to get
rich when he handed $15 million to his friend Reed Slatkin to invest for him last year.
Poitras was already rich - but perhaps he wouldn't have minded getting just a bit richer.
A brash fifty-seven-year-old retired venture capitalist who limps because of a bad back,
Poitras lived in Silicon Valley but often visited Santa Barbara because his girlfriend, a
professional pilot, lived there. And for some time, Poitras had been working his way into
local society. He bought property. He joined the yacht club. And he became interested in
an elite if irreverent arts group called Sings Like Hell, which brought singers and
songwriters such as Tracy Chapman, Randy Newman, and Tom Rush perform for music lovers at
Santa Barbara's six-hundred-seat Lobero Theatre. Poitras puts up $5000 to become a Sings
like Hell Patron.
The Sings Like Hell klatch included
some prominent and very rich few friends. Reed Slatkin and his wife, Mary Jo, appeared to
be particularly fine people to meet. A founder of EarthLink, Slatkin was a member of the
new-establishment aristocracy who lived with his wife and two sons in a richly landscaped,
hacienda-style home in the exclusive Hope Ranch area of Santa Barbara. With a fortune of
more than $100 million, Slatkin had a
private jet on twenty -four hour call. He owned houses and other property in California,
Oregon, and New Mexico. He took great pride in his collection of traditional American Art.
And he seemed to take an affable interest in Poitras.
Soon after becoming a Sings Like
Hell patron, Poitras hosted a festive dinner at the Wine Cask with the Slatkin and another
music-loving couple, Hale and Anne Milgrim. The bearded Hale was the former head of
Capitol Records and renowned Deadhead. That night, he bought expensive wine for the table.
"Sings Like Hell is going to be a big money hole," Poitras told Slatkin
jovially. "I think of this as venture capital for the soul."
Poitras knew that Slatkin invested
money for many of his friends. And while Slatkin didn't solicit anything from Poitras, he
wasn't modest about his skills. Last year, as tech stocks were flaming out, the two met at
a benefit for the Santa Barbara Bowl. "Centimillionaires are going to be wiped out,
but I made 14 per-cent last quarter," Slatkin boasted. And Poitras was impressed.
A few months later, Poitras sold
four acres of expensive Silicon Valley Property for nearly $25 million as a prelude to
buying himself a house in Hope Ranch. Slatkin, now not only a friend but also a
prospective neighbor, had visited Poitras' home and knew that he was sitting on a pile of
cash. He told Poitras about sophisticated computer models that he used for day-trading.
Poitras was intrigued and agreed to join a new fund
that Slatkin was creating to dabble in investments.
"I didn't need more
money," Poitras says. "I did the partnership with Reed to be connected to Santa
Barbara , to meet people and have some fun." He did a little homework and found that
Slatkin "checked out impeccably". On December 28, 2000 he put up $5 million
toward the new investment fund. In February, he gave Slatkin another $10 million to invest
in specialized cash instruments that could be liquidated on very short notice. Slatkin was
supposed to get him significantly higher return than the rates typically paid by
money-market funds. Poitras planned to use some of the money to buy a house near
As it happens, Poitras was one of
the last pigeons to be plucked in an alleged Ponzi scheme that attorneys are now calling
one of the biggest investment frauds in American history - a fifteen year operation
involving as many as 850 investors. A preliminary filing in a California bankruptcy court
this summer says that Slatkin owes more than $575 million and appears to have assets of
less than $45 million. Although the amount said to be owed is probably inflated by dubious
investment records, the final tally is still expected to be in the hundreds of millions of
The dimensions of the scheme began
to emerge at the end of April, when investors learned that their money was all but gone.
in early May, Slatkin was forced to seek refuge in bankruptcy court. The horror was
compounded when investors realized that the Securities and Exchange Commission has been
suspicious of Slatkin since at least 1997; federal lawyers had even interrogated him and
his bookkeeper at length more than a year before the investors finally ran him to ground.
Month after month, the government did nothing while Slatkin sucked in tens of millions of
additional dollars from those who now have little hope of recovering more than a fraction
of their money.
|-- You know, we've had no
complaints from any investor. I don't know, if you have, you've got me fooled. I mean,
maybe that's where this all started, I don't know. But I have, you know, a lot of very
happy people and people I've been a stable point for, and I've kept their money really
safe. -- Reed Slatkin, first SEC interview. --
LAST NOVEMBER, not long before
Poitras turned over his first $5 million, Slatkin flew to New Jersey to meet with one of
his long-term investors, the seriously ill Sidney Azeez. Other investors say the
sixty-eight-year-old Azeez regarded Slatkin as a son. Together with his actual son,
Michael (who was also a longtime investor), Azeez handed over another $10 million before
he died a few weeks later.
Slatkin was actively luring in new
investors last winter at the same time that his attorneys were repeatedly promising
federal regulators that he was getting out of the business altogether. All told, from late
last year through the first few months of 2001, Slatkin raised as much as $50 million from
friends in the form of loans and investments.
Soon after giving *his* money to
Slatkin, however, Poitras had become anxious. "I didn't feel comfortable at
all," he says. "I thought about it and thought about it." He decided to get
his $10 million back and invest it in a more plain-vanilla account. When Slatkin started
stalling, Poitras called a lawyer. Slatkin seemed so rich and successful that it hardly
seemed likely that anything was seriously amiss, the lawyer said. "He said, 'You must
be a pimple on this guy's butt. He just doesn't have time for you,'" Poitras recalls.
Over the next four weeks, Poitras
sent four letters asking for his money with interest. He started leaving unpleasant
messages on Slatkin's machine. "You're not going to win," he said in one.
"I'm smarter than you are. I'm tougher than you are. My lawyers are better than
Poitras wasn't the only one getting
upset. Slatkin told financial manager Stuart Stedman, who had invested $18.4 million on
behalf of a wealthy Texas family, that the funds were frozen because of some sort of
far-reaching money-laundering investigation. By this point, another investor -- a
screenwriter who wishes to remain anonymous -- also was becoming alarmed. He wanted to
retrieve his money to pay a tax bill, but when he
talked to Slatkin's bookkeeper, Jean Janu, he was shocked to hear that his money was in a
Swiss account and, for the time being, inaccessible. Janu said she didn't know when the
situation might change.
Early in April, the screenwriter
drove up to the Santa Barbara suburb where Slatkin maintained his office in a drab house
that he'd occupied before he became seriously rich. "When I saw it before, it was
buzzing with activity," the writer says. "There were four of five Young Turks,
and it just looked so real." But now he found "one secretary who was manning the
phones like a deer in headlights... I knew by then I was pretty much had."
Meanwhile, Poitras had sent a
letter to Slatkin with the heading "GAME OVER". The FBI would be picking up
documents from him that day, Poitras warned. "Reed, this is as serious as it can
get," he wrote. "If we do not get all the funds due me ... by noon on Wednesday,
we cannot stop the train."
THE TRAIN FINALLY HIT SLATKIN in
late April. His attorneys held a meeting of the many "friends" who had entrusted
their money to him and announced that Slatkin was preparing to file for bankruptcy
protection. The room was packed with frightened investors, and dozens of others were
connected by phone. Some were still wealthy; others were looking at utter devastation.
"A bunch of lawyers were arguing," remembers an investor who was there, "
and this woman from "Florida blurted out, 'What am I
going to do about my mother? I have no money!' There was a moment's pause. And then the
lawyers ran over her like a dove in the road."
No one at the meeting was sure
where anyone else stood. Some had taken more money out of Slatkin's accounts than they had
put in, but no one knew who was on that list and whether any of the creditors had colluded
in the alleged scheme. "It was one of the worst days of my life," says one of
the biggest losers. "Everybody was suspicious of everybody else."
Several days later, some of the
major investors met in Santa Barbara to organize a creditors' committee. Among those
headed to the meeting were George Kriste, the six-foot-eight-inch chief executive of
broadcast company called New Century Media, and Gregory Abbott, an early EarthLink backer
who had bolstered the company by helping to bring in billionaire George Soros as an
investor. Abbott and Kriste had tens of millions on the line and decided to stop at
Slatkin's house. They stood at the gate before the long, sloping driveway and rang the
bell. Suddenly, a
red Mercedes sedan peeled off the road and a paunchy man with wavy white hair emerged.
"Who are you?" Kriste asked, expecting that this was another disappointed
The stranger in sweatpants
identified himself as Ron Rakow, Slatkin's neighbor and friend. "What do you mean,
who am I?" Rakow demanded. "Who are you?" You're menacing Reed?"
Kriste and Abbott were trespassing, he continued. "Reed's doing his best," he
said. "I got hurt like everybody else. We're all hurt. We're all in this
The two men left without seeing
In the meantime, Poitras wasn't
nearly satisfied with the sluggish pace of the government investigation. So he and his
attorney, Richard Conn, alerted the Los Angeles Times to the unfolding story. Days after
the newspaper weighed in this May, the SEC finally swung into action. The FBI and the IRS
weren't far behind. When they raided Slatkin's house in Hope Ranch,
sources familiar with the case say, they found a couple of passports and some silver
The search was just the beginning.
In late June, the FBI also raided Ron Rakow's house. Rakow turned out to be more than just
Slatkin's concerned neighbor. A onetime manager of the Grateful Dead, Rakow was a
Scientologist and sometime art dealer who had gone to federal prison for mail fraud in
connection with a cosmetics scam in 1985. According to someone close to him, Slatkin told
associates that he had driven Rakow to prison in 1987, weeping all the way.
After the FBI and the IRS finally
raided Slatkin's office and then his home, a federal grand jury was impaneled. And a
court-appointed bankruptcy trustee began sifting through cartons of documents -- many
apparently fake -- in search of the loot. But for the investors, it was far too late. They
were left to ponder a couple of shattering questions: Who was Reed Slatkin --
a man who has seemed to be a genial nerd in a baseball cap -- and where in the world were
the missing millions?
FOR MOST OF THE LAST TWENTY YEARS,
Slatkin, now fifty-two, was a personable if somewhat eccentric private investor who didn't
appear to have the slightest need to trouble himself with other people's money. Some of
his investors say they were charmed because Slatkin was so unassuming. "His
brilliance is how ordinary he is," says a movie producer who lost money. "He
asks you, 'Hey, how're your kids? God, your son is good-looking. Family life is the
greatest.' The market goes down and you call him and he goes, 'We're on the sideline.' And
you get off the
phone and you say 'He's good news.'"
"He was so regular,"
remembers another wealthy investor who joined the "friends" account last year.
"He wore sensible shoes and battered chinos and old shirts and baseball hats which he
would change for luck. Kind of an adorable guy."
"A bad hairpiece," adds
his wife. But the husband says Slatkin dazzled prospective investors with his knowledge of
the market and his web of contacts. He was brisk and, above all, reassuring.
But what really gave Slatkin his
credibility, what was far more attractive than mere manner, was his position as a titan of
the tech revolution. That association had seemingly come to Slatkin as a gift from his
friend and fellow Scientologist Kevin O'Donnell.
In 1994, O'Donnell invited Slatkin
to meet a young man named Sky Dayton, who had been a schoolmate of O'Donnell's son. Then
just twenty-two years old, Dayton had graduated at age sixteen from the Delphinian School,
a Scientology-affiliated boarding school in Oregon. Slatkin and O'Donnell listened as
Dayton explained his idea for a company that would make the Internet more accessible.
After hearing what Dayton had to say, Slatkin
glanced at O'Donnell and made a funny face. Dayton's idea sounded crazy.
But O'Donnell persisted. "He's
a friend," he said significantly. So O'Donnell and Slatkin agreed to put up $100,000
together in exchange for a 40% share of the new company. And the business became
Earthlink, now a billion dollar business and the third-largest Internet service provider
in the country.
By his own account, Slatkin's
investments had already made him a millionaire many times over. But Earthlink bumped him
to a whole new level. Slatkin had dabbled in venture capital before but had never made any
money - or so he later told the SEC.
"You know, $50,000 here,
$25,000, just lose, lose, lose," he said.
He wasn't consistent on this point:
Elsewhere in the same interview with regulators, he said he'd made millions in the
eighties investing in two businesses.) But Earthlink would shock him.
"It created a very nice
windfall," Slatkin said. "It has allowed me to be very charitable to my church
and other groups."
|SEC ATTORNEY: Can you please
describe for the record your education after high school?
SLATKIN: Okay, I'm going to explain what I
would call my secular education first, and then I will explain to you scientology and
religious education second ... I don't know if you guys have heard much about Scientology
... [but] it's an area of reverence for myself."
In January 2000, nearly a year and
a half before Slatkin was forced into bankruptcy proceedings - lawyers from the SEC
questioned him in two lengthy depositions. The only subject that Slatkin seemed eager to
discuss was his love for Scientology. Asked a simple introductory question about his
education, Slatkin embarked on a lengthy riff that continued for more than 20 transcribed
pages. He knew Scientology was "controversial" and that the SEC lawyers
"may have heard bad things" about it, he said, but Scientology was "the
basis of almost everything I've done in my life." At one point, he whipped out a book
called "What is Scientology Doing In The World?" "There's much bigger books
I could have brought," he confided, "but I didn't bring them."
Slatkin then offered a crash course
in Scientology founder L. Ron Hubbard's theology, explaining that negative ideas and
experiences are stored in the "reactive mind". Slipping into Scientology-speak,
he talked about treacherous encoded negative experiences. "Over a lifetime - and
we'll get into what we call lifetimes momentarily - these experiences can reactivate a
person," he explained.
In his religion, he continued, the
aim is to ascend the "bridge" of spiritual awareness, which is accomplished by
purging those negative experiences. He talked about "field auditors" who learn
how to "clear" people using a device called an E-meter that helps ferret out the
Controversy has long surrounded
Scientology. In the early eighties, Hubbard's wife was among a group that went to prison
for breaking into and bugging federal offices. In 1991, Time published a series of
articles describing the church as a "cult of greed and power," a "depraved
yet thriving enterprise," a "hugely profitable global racket that survives by
intimidating members and critics in a Mafia-like manner." The church sued for libel
but lost on summary judgment. Though the decision was upheld on appeal, the church is
still fighting. A decade after the article appeared, its petition for Supreme Court review
Slatkin's avowal of lifelong
devotion to Scientology came as a surprise to a number of his investors when they learned
of it after his bankruptcy. Several say Slatkin had downplayed his affiliation with the
church. "He said, 'I just audited a few courses to keep myself alert'," one
says. "He said, 'I want nothing to do with the church.'" The wealthy couple say
they had once asked mutual friends if Slatkin was involved with Scientology. "I know
two people who asked him, and he said he wasn't, " the husband says. "He said to
one, 'Of course not. I'm Jewish.' He said to another, 'My wife had an interest in
Through spokesperson Aron Mason,
the Church of Scientology says Slatkin was a parishioner but never an official of any
kind. He also belonged to a "religious fellowship" of Scientologists in the
business world called the World Institute of Scientology Enterprises, or WISE, Mason
continues. But he adds, "Mr. Slatkin could not live up to WISE's ethical standards,
and he ended his membership [in] 1998." He declined to elaborate.
Slatkin didn't mention any such
thing during his deposition.
But he enthusiastically referred to
Scientology's curative effects: The church's followers believe it can eradicate a whole
range of ills, from drug addiction to broken bones. "The literature speaks of...
people who say they no longer have arthritis from doing this," Slatkin told SEC
headaches are gone. They get along with their husbands and wives." In his own case,
Slatkin said, the process had helped him face the sudden loss of his father. With
Scientology's help, he went from great grief to "feeling fine about it."
Milton Slatkin, Reed's father, was
the son of a tough Russian-Jewish immigrant who founded a successful construction business
in the Detroit area. A family friend says that Milt, one of five children, was "the
weak one," overshadowed by a charismatic brother. Milt failed when he tried to strike
out on his own in the building business, that friend says. With the
father's help, however, Milt's family lived well. They resided in an affluent and insular
suburb. Reed was sent to the exclusive Cranbrook School.
One April day in 1964, the friend
continues, Milt confided over lunch that he was profoundly unhappy and hinted that there
was strain in the marriage. Two days later, Milt shut himself in the family garage with
the engine running. Reed was fourteen years old.
Reed's uncle, Phil Spickler, who
lived in England and studied with L. Ron Hubbard, was helpful in guiding Reed and his
mother through their grief. Six months later, Reed had an accident in shop class and
nearly severed his finger. He wore a cast for weeks, but the doctor said the finger would
be rigid and useless for the rest of his life. Then his uncle visited again, and
within a couple of days, Spickler had effected a miraculous cure. "It was a big
moment for me," Slatkin told the SEC lawyers.
As it happens, Spickler's
daughter--Reed's cousin--would become known to filmgoers as Mimi Rogers, the actress (and
Scientologist) who at one time was married to the church's biggest star, Tom Cruise.
Cruise apparently became involved with Scientology during his marriage to Rogers (although
neither seems to have participated in any of Slatkin's investments.) Through a
spokeswoman, Rogers says she has not spoken to Slatkin in more than twenty years.
In an odd twist, former
Scientologists say that Rogers' father became disaffected with the church in the early
eighties. But after his encounter with his uncle, Slatkin told the government years later,
he went on to dedicate himself to the church for life.
As a teenager, Slatkin spent
summers in England and Scotland, taking classes from L. Ron Hubbard. When he attended the
University of Michigan in the late sixties, Slatkin pushed Scientology on campus. A
classmate who was active in the Scientology organization at Ann Arbor remembers him as a
"very charismatic, very dynamic guy--warm, but with sort of a distance to him."
This friend was surprised when Slatkin joined a
fraternity, which seemed at odds with the tone of Scientology. "Everybody around him
recognized that he had some special ability," she says. "He would have made a
Slatkin chose to go to graduate
school in Berkeley in 1971 because of a strong Scientology presence in the area. But he
decided to give up his graduate studies and devote himself to the church full time. He
moved to Los Angeles and took courses at the church from 9:00 AM until 10:00 PM daily
(with no weekends off), and by late 1975, he said, he had completed the highest courses
offered in Los Angeles. (In Scientology parlance, this would make him a high-level
The former church member and
college friend remembers that Slatkin seemed to have a gift for
"regging"--Scientology-speak for the extremely important process of
"registering," or soliciting donations. Critics say the church
"regges" its members ruthlessly and relentlessly for a broad array of
projects. Slatkin's college friend remembers talking to a fellow Scientologist who said
that Slatkin "could reg the birds out of the trees."
Slatkin married in the
mid-seventies, and he and his wife, Mary Jo, devoted themselves to working full-time for
the church until 1984. While they received what he called "honoraria," they
never made more than $45,000 a year. By 1983, they had two sons, and Slatkin was ready to
start making money. He handed over a "meager amount," borrowed from his mother,
to fellow Scientologist Robert Duggan.
Slatkin told investigators that
Duggan was a wealthy investor who quickly quintupled Slatkin's original investment. He
gave Slatkin a three-year apprenticeship in market strategy and finance. Around this time,
Slatkin said, he started developing a computer program to help guide his investments. With
the help of this software, which he dubbed "the Base Plate," Slatkin said he
became "a self-employed professional investor."
By 1985, Slatkin said, he had
earned about $1.5 million. When another three years had passed, he estimated, his personal
fortune had grown to $25 million, primarily through stock trading. Through sheer luck, he
claimed, he managed to pull his money out of the market before the Black Monday crash in
October 1987. That day, he dived back into the market and set himself up to make a
Slatkin wasn't the only beneficiary
of his good fortune. By this time, he had started investing for a group that he called his
"friends." At first, he said, most came to him through Scientology. He told the
SEC that he kept dutiful records, regularly sending out statements about his activities.
protected his grateful friends from the 1987 stock-market crash, and they prospered along
with him afterwards, he said.
That year, he told investigators,
he decided to put all the friends' money into an account at an institution in Zurich, NAA
Financial. Exactly why he made this choice was not clear. He told the federal lawyers that
he had met a man named Roland de Lamoussaye at a party, and that de Lamoussaye had
recommended NAA. Though Slatkin said he had deposited hundreds of millions of dollars,
including money of his own, into a couple of NAA accounts, he couldn't tell the government
lawyers whether NAA was a bank or a brokerage or some other type of institution. But he
said he had checked out NAA with other Swiss banks and paid several visits himself. His
principal contact at NAA was a man named Michel Axiall. "It's just been so many years
now that I've dealt with the. It's just so efficient, and [there's] reliability and a
feeling of safety," Slatkin said.
Slatkin told investigators he'd
opened the NAA account because "it was very important to have very clear records of
monies that didn't belong to me." He also hired a bookkeeper, Jean Janu, who worked
out of offices in New Mexico, to ensure that record-keeping was "done at the highest
possible standard." At the same time, however, he was vague when pressed on exactly
how the operation worked. For example, the SEC asked if any of his friends had wired money
from their own brokerage accounts to
Slatkin's NAA account. "I don't know the answer to that," Slatkin replied.
If a friend wanted to liquidate his
account, the attorney continued, would Slatkin ever keep stock that he had bought with
that friend's money and repay the friend from other funds? "You're thinking of things
that I haven't even thought of," Slatkin said. "That's good..... I'll have to
think about that
Asked to explain an outgoing wire
for $5 million to Beverly Hills Escrow with the notation "L. L. Dayton," Slatkin
said he'd need to look up the transaction. "I can know this, I can know," he
said. Then the SEC attorneys asked if Sky Dayton, Earthlink's chairman, had invested with
"No," Slatkin replied.
"Would there be money going to
Mr. Dayton from the friend's account?" the attorney asked.
"Well, we have some - how to
describe this?" Slatkin replied.
The SEC had a document showing that
$5 million from Dayton had been wired into, and then out of, the so-called friends'
account in June 1999. "You can go ahead and try to explain," one of the
government lawyers prompted.
"No. I'm not sure where I'm
headed here," Slatkin said.
The SEC then asked about Kevin
O'Donnell, who had first introduced Slatkin to Dayton. "Why would there be money
coming out of the friends' account to Mr. O'Donnell?" the attorney asked.
"Again, I want to get the
detail of that for you, okay?" Slatkin said. "There's an answer." He
elaborated a little. "We're business partners," he said. "But when I get
any money from anybody... I put it in the friends' account to make sure that it stays
segregated, for bookkeeping purposes.... And, like, I know the companies that this money
went to. I'm just going to try and get you the detail on that, so I could tell you where
it went to, so you could trace it."
In fact, Dayton is listed as a
creditor in the Slatkin bankruptcy, though it is unclear - and a spokesperson for Dayton
refuses to disclose - how much money is on the line. O'Donnell is also on the list, as are
Earthlink's chief executive, Charles, "Garry" Betty, and others at the company.
In the early going, Slatkin served
as a financial and management advisor to Earthlink. He remained a member of the board and
audit committee until he resigned on April 26. EarthLink stresses that today there is no
connection between the company and Slatkin.
In the beginning there was
"not very much" in the NAA account, Slatkin told the government lawyers --
something between $7 million and $8 million. But then Slatkin produced a statement,
purportedly from NAA, showing that as of March 31, 1999, the amount had grown to more than
Hearing about this arrangement, an
SEC attorney brought up what seemed like a sensible idea. "If we can confirm with the
account in Switzerland that the funds exist," he said, " things like that
At that, Slatkin's lawyer, Gerald
Boltz, interceded. Boltz had been the SEC's regional administrator from 1972 through 1979,
and undoubtedly his prestige was not lost on the lawyers interrogating his client.
"Mr. Slatkin has told me that there is no doubt about that," he protested.
"And I think he's a person of substantial means. He stands behind this."
"I mean, my own net worth...
adds up to in excess of $100 million, and there's other assets out there, too,"
Slatkin said. "And I would never let these people lose their money."
Slatkin said he'd obliged his
investors only through a sense of duty, as prescribed by L. Ron Hubbard. Slatkin showed
the SEC lawyers a "duty scale" bearing Hubbard's autograph. "There he is,
L. Ron Hubbard," he said. "Like him or not, he's my man."
And so Slatkin had agreed to be of
service. "These people called me and said, 'I'm going to go on full-time
[Scientology] training down in Clearwater. Can you help me?' ... This gal came to me, she
said, 'I want to open up a Scientology church in Kenya. Would you give me a hand?' I go,
'Absolutely. Let me help you out here.' And that's sort of what happened.... I felt like I
was really helping, you know, really helping a lot. But I tell
you, it's gotten big."
Slatkin insisted that he never
asked for referrals. And clearly he didn't need to. When the wealthy couple was introduced
to him after having heard great things about him, the wife remembers, "We basically
felt it was a gift. We were privileged."
Someone who has been acquainted
with Slatkin for many years says he was capable of great generosity, especially to those
who worked for him. "he has to be a hero," the acquaintance says. "His
image is everything to him."
What mattered to Slatkin was "being a very important person, being a benefactor, a
Apparently Slatkin was a hero to
his many "friends," and they showered him with gratitude. Slatkin insisted that
he was never paid for his services, though some of his correspondence suggests he received
a fee or commission. The SEC asked about such references, since Slatkin was not a
registered investment adviser and therefore would have been breaking the law to accept
compensation. "It doesn't look too good, does it?" he replied. Slatkin said he
could only guess why his friends might have used such language. "That's their
parlance," he said. "It's not from me. You know I didn't say any of those
The wealthy couple says Slatkin
never asked to be paid. "He said, 'I'm very rich. If I'm successful for you, all I
ask is that you make a donation to the charity of your choice.'" the husband
remembers. The screenwriter, a far smaller investor, says Slatkin did request
compensation. "He said, 'If I do well, I would expect 10 percent,'" that
investor says. He told Slatkin to pay himself whatever he thought appropriate. But he
adds, "I never did see anything deducted from my statements over about two or three
The wealthy couple say they were
warned by their financial managers to steer clear of Slatkin, but he seemed to be doing so
well -- for them and for many of their high-powered friends -- that they pressed ahead.
"he wasn't going to old folks' homes and ripping people off for their social
security," the husband says. "This guy was capable of taking almost
By the time the SEC questioned him
last year, Slatkin said he had already decided to quit investing for his friends. He had
stopped accepting money by October, 1999, he said, and he had already "liquidated
accounts to the tune of over $27 million." It wasn't easy, he added, but "over
the next sixty or ninety days we will have this as virtually a fait accompli."
But he said he was struggling with
a sense that he was betraying those who counted on him. He said he literally wept over
some letters importuning him to keep going. "I've been somewhat nervous about telling
my Scientology friends that I was going to stop doing this," he said. "These
people who are..., working to help the church or working to get themselves [up] this
bridge I talked to you about.... And when they find out I'm not doing this anymore, some
of these letters are extremely angry at me."
After giving his deposition in
early 2000, Slatkin continued to promise repeatedly that he was liquidating his accounts.
But he would not consent to let the SEC contact NAA to verify the existence of the funds.
Slatkin's counsel, Gerald Boltz, repeatedly assured the government that the accounting
firm Ernst & Young was in contact with NAA and that Michel Axiall and other NAA
officials were furnishing the needed documents. Court filings show a letter on NAA
letterhead to Slatkin's lawyer, dated February 2000, bearing Axiall's signature.
As time dragged on, Boltz
repeatedly put off the date on which the Ernst & Young report would be ready. It would
be complete by June 1, 2000, he said. The he said it would be finished at the end of
August. Then by September 15. Meanwhile, he supplied all sorts of detail about the funds
that were being held by NAA. In October -- just about the time that Slatkin was wooing
Poitras -- he offered documents showing that the liquidation was virtually complete. In
theory, that meant about $230 million had been returned to Slatkin's friends.
But more than a year after taking
Slatkin's deposition, the SEC was still waiting for the Ernst & Young report. In April
2001, Slatkin's attorney finally delivered the shocking news: The documents from NAA might
not be authentic. The accounts that were supposed to contain millions might not actually
exist. As for the Ernst & Young report, the firm said it would not produce one because
Slatkin's lawyer had invoked attorney-client privilege.
Boltz says now that all the
representations that his law firm made to the SEC appeared to have been fully documented
by Slatkin. "We believed that we had received accurate information," he says.
"We furnished the SEC only what we were given." When it became clear that the
Slatkin matter was turning into a criminal investigation, Boltz's firm withdrew from the
To the horror of investors, the SEC
revealed in May that NAA did not exist and apparently never had existed. Michel Axiall did
not exist. Roland de Lamoussaye, who had supposedly recommended NAA, did not exist.
Documents purporting to prove that most investors had been repaid turned out to be phony.
By then, the nonexistence of NAA
did not come as a surprise to Stuart Stedman. He told fellow investors that, once alerted
to the possible fraud, he found it "extrordinarily easy" to investigate
Slatkin's story. On a Friday morning this spring, he had a consultant send some documents,
which Slatkin had forwarded and which bore the NAA letterhead, to Switzerland for
verification. The following Tuesday, the consultant called and said that NAA's office in
Zurich was nonexistent. The next day, he checked further with Swiss attorneys. Within
twenty-four hours, they had verified what Stedman had already been told: The NAA documents
were bogus. Anyone who wanted to check Slatkin's story, Stedman concluded, could have done
so "in a day or two at most."
Throughout the SEC's long
correspondence, Slatkin had continued to collect huge sums from investors like Poitras. It
now appears that Slatkin raised tens of millions of dollars in the months before filing
for bankruptcy on May 1, 2001. Poitras counted up the times that Slatkin put the SEC off
after the deposition was taken in January 2000. "Thirty-two excuse letters and phone
calls," he says. "It's just mind-boggling."
Kelly Bowers, the assistant
regional director of enforcement in the SEC's Los Angeles office, says Slatkin's story had
been difficult for the agency to verify "because of the Swiss angle and the
information that we had available to us."
The game would have been over, says
Poitras' lawyer, Richard Conn, if anyone had "called five of his friends and asked
... whether they had liquidated their accounts."
Not all the money was impossible to
trace. After receiving the $10 million from Poitras, Slatkin promptly sent out nearly $7
million to investors - to which ones has yet to be revealed. He also paid a clutch of
personal bills, including membership fees at two country clubs. Now the country-club
memberships - along with his house and everything else he owns - are being sold off by the
bankruptcy trustee so that creditors can recover at least some small percentage of the
money that has been lost. The trustee's report shows that in the three months before his
bankruptcy, Slatkin paid out more than $26 million to various parties, including $3
million that went to his family members.
R. Todd Neilson is a former FBI
man, a grandfather, a Mormon from Utah, a friend of Senator Orrin Hatch. As bankruptcy
trustee, Neilson is supposed to find the money. He has dealt with high-profile rip-offs
before, notably in the case of Bruce McNall, the former owner of the Los Angeles Kings
hockey team who went to prison for bank fraud. His manner is one of studied calm.
"I'm generally very conciliatory," he says, "I can always get mean
At the moment, he is trying to
soothe angry investors who are pushing him to go faster and harder - to circle the globe
in search of their money. Neilson says he won't be rushed. "I want to gather the
cattle and count them before I start sending cowboys into the brush," he says.
Neilson says he's dealing with
"a deep level of concern on the part of the non-Scientologists" about the role
of the church. His preliminary findings show that Slatkin donated more than $200,000 to
various Scientology causes in the year before his bankruptcy. But so far, he says, he sees
no evidence of substantial sums going into the church's coffers. "There will be a
reckoning, and we'll find out what happened here," Neilson says. "Right now all
we have are allegations flying in from fifty different quarters."
Whether the trail eventually leads
to the church, as some investigators suspect, is far from clear, but a knowledgeable
source close to the bankruptcy investigation says one investigator told Neilson that he
and other Scientology-affiliated investors were likely to withdraw from the creditors
group should Neilson attempt to recover money from the church. Neilson is being
circumspect about his plans. For strategic reasons, it's in Neilson's interest to try to
keep the peace among his flock.
The Church of Scientology says it
knows nothing about the money. "The 'missing' funds did not go the the church,"
said spokesman Aron Mason in a written response to questions. "So why would we be
concerned about this? (We aren't.) Moreover, were this to become an issue, I can tell you
that the church does not instruct or govern its members as regards their personal
financial interests or how they protect their rights."
Perhaps Neilson will have an easier
time pursuing what he calls substantial evidence that large sums flowed to Ron Rakow, the
former Grateful Dead manager who served time for fraud. The earlier scheme, known as the
Culture Farms matter, involved twenty-seven thousand investors and $80 million. According
to Christopher Redmond, the Kansas City-based attorney who served as the bankruptcy
trustee in that case, Rakow was one of the first of the con men to settle civil
proceedings, a feat he accomplished by providing extensive information about the inner
workings of the scam. (As it happens, another Culture Farms figure, Christopher Mancuso -
who served nine months in prison for his role - is as on the list of Slatkin's creditors.)
Redmond says Slatkin was questioned
in the Culture Farms case and that he was part of a group of "ancillary players who
assisted knowingly or not," in the scam. Interestingly, Redmond also says expensive
artwork was used as part of "a sophisticated money-laundering process" in which
money was stowed in the Antilles, the Caymans, Liechtenstein, France, the Isle of Man -
and Switzerland. Normally, such information is of great interest to Neilson. (The Culture
Farms bankruptcy proceeding, which has
been unwinding for about fifteen years, has still not been concluded.)
More recently, Rakow is said to
have traveled in Peru and Switzerland in the months before the Slatkin scandal broke. A
Slatkin insider says Rakow was paid handsomely to consult with Slatkin on art. Now Neilson
says he has questions for Rakow about art that disappeared from Slatkin's home after he
filed for bankruptcy. And Neilson's preliminary report shows that
Rakow's girlfriend, Denise Del Bianco, received a $1.1 million loan from Slatkin before he
In the end, investors who entrusted
their money to Reed Slatkin will probably end up with pennies on the dollar. "My view
is that we will not find any pot of gold at the end of the rainbow in Switzerland or any
other municipality," Neilson says.
In late July, Slatkin made a
mandatory appearance with Neilson before a meeting of his creditors in a hotel ballroom.
It was the first time most had seen him in months. Looking pale and puffy, he pleaded the
Fifth Amendment and declined to answer any questions. He made only a brief statement,
saying, "I'm not hiding," before his attorneys escorted him out of the room.
Many of those present groaned at
Slatkin's words. What may ultimately harm Slatkin the most is the fact that he succeeded
in extracting money from so many high-powered investors - including many who still have
the money and resources to pursue this case with vigor. "We are relentless,"
says George Kristie, one of Slatkin's biggest investors. "We are not going to take
our teeth off his cuff. This is the end for him."
Kristie and the others will have to
be patient. Neilson is moving slowly to track the funds, and officials aren't releasing
details of the criminal investigation. Attorneys associated with the case insist that
Slatkin depends, in part, on his cooperation with federal authorities. As of the end of
July, Neilson said that Slatkin hadn't gotten good marks.
Meanwhile, Poitras is left to
wrestle with the magnitude of his loss. "You have nightmares about it all
night," he says. "You wake up thinking, I hope it's not real." Poitras says
he has given up a happy retirement to pursue his new job. "Now I have to work
full-time to put Slatkin in jail," he says.
Poitras has ruefully concluded that
when he joined Sings Like Hell, he inadvertently bought himself "a $15 million
concert series." To help erase the memory, he insisted on being airbrushed out of a
photograph in a Sings Like Hell brochure that showed him standing, wearing a broad grin,
with Reed and Mary Jo Slatkin. Thanks to computer magic, the organization
managed to insert the image of another couple. Everyone in the picture is still wearing a