FBI and IRS Raid Offices of Slatkin
EarthLink co-founder's files are seized as a criminal probe opens into alleged Ponzi scheme.
Saturday, May 12, 2001
By LIZ PULLIAM WESTON, Times Staff Writer
[webmaster's note: There is a new website dedicated to tracking the Slatkin Fraud issue at http://www.slatkinfraud.com/]
Federal regulators pounced on EarthLink co-founder Reed E. Slatkin on
Friday, raiding his offices and persuading a federal judge to freeze his
bank and brokerage accounts to prevent Slatkin from hiding investors'
money or destroying documents.
The actions turn what had been a civil matter--with investors accusing
Slatkin of running a 16-year Ponzi scheme--into a criminal investigation.
Moreover, documents filed Friday revealed several Hollywood names on
Slatkin's list of investors.
At 8 a.m., agents from the FBI and Internal Revenue Service began hauling
boxes of documents from the converted garage of Slatkin's former home in
the Santa Barbara suburb of Goleta, which since the early 1990s has housed
his stock-trading and money management businesses. Regulators also took
documents from the Santa Fe, N.M., office of Slatkin's bookkeeper.
At the same time, the Securities and Exchange Commission asked a U.S.
district judge for the Central District of California to freeze Slatkin's
assets, claiming that he had been operating a fraudulent investment scheme
since 1986. The request was granted.
The SEC complaint alleges that Slatkin, 52, lied to investigators,
concealed investor accounts and set up partnerships and businesses that
would allow him to transfer assets secretly.
"The defendant has demonstrated that he cannot be trusted," the complaint
says. "Thus, an asset freeze is necessary to prevent the defendant from
spending or secreting funds."
Slatkin's attorney, Brian Sun, said his client was "fully cooperating"
with the investigations. Slatkin, through his attorneys, provided computer
passwords and a computer hard drive to investigators at the scene, Sun
"I'm not going to confirm or deny anything about him having committed a
fraud," Sun said.
He said the SEC's asset freeze was unnecessary because Slatkin had agreed
to a similar freeze in the U.S. Bankruptcy Court that is handling
Slatkin's Chapter 11 filing. The freeze prevents Slatkin, any of his
associates or family members from accessing any of his assets.
The SEC complaint claims that Slatkin accepted a total of at least $320
million from more than 500 investors across the country, including
Internet moguls, Hollywood executives, Santa Barbara socialites and fellow
members of the Church of Scientology, of which Slatkin is an ordained
The SEC filing also included Hollywood names among Slatkin's investors,
including husband-and-wife actors Giovanni Ribisi and Mariah
O'Brien-Ribisi. Giovanni Ribisi played a conflicted broker in the
investment-scam movie "Boiler Room."
Also on the list are Art Linson, who produced the 1998 remake of "Great
Expectations," and actor Jeffrey Tambor, who played the mayor of Whoville
in "Dr. Seuss' How the Grinch Stole Christmas." Attorney John Coale, a
noted tobacco lawsuit litigator, also was an investor, according to the
SEC Says Swiss Bank Accounts Don't Exist
According to the SEC, Slatkin told the agency that the money had been
invested through Swiss bank accounts into various publicly traded stocks
and other investments, and that the money had grown to more than $585
million as of December 1999, the documents allege.
The SEC said Slatkin provided investigators with investor account
statements and year-end summaries showing he had invested in a wide
variety of large- and small-company stocks, from tiny biotech firms to
Colgate-Palmolive Co. and Bell Atlantic Corp.
But the SEC said the Swiss bank accounts and the Swiss company Slatkin
said he was using to manage the funds apparently don't exist. The SEC said
that the company, NAA Financial, didn't have offices at the building
listed on Slatkin's account statements, and that the Union Bank of
Switzerland account into which the funds were supposedly transferred "does
not currently exist."
Even after Slatkin was subpoenaed by the SEC, he failed to produce any
records showing deposits or withdrawals from accounts at any Swiss banks,
the documents say.
Slatkin's attorneys have said he did trade some stocks, but they weren't
sure of the extent of his trading activities.
The SEC said its investigation of Slatkin's bank and brokerage records
showed Slatkin used part of a $10-million deposit made Feb. 20 by one
investor, John K. Poitras of Woodside, Calif., to make payments to other
investors "in a Ponzi-like fashion and to pay his personal expenses." In a
Ponzi scheme, money collected from new investors is used to pay bogus
investment returns to previous investors.
Slatkin used $7 million of Poitras' deposit to pay principal and interest
to other clients and spent $24,000 to pay his personal expenses, including
credit card debts, utility bills, pool maintenance fees and fees at two
country clubs, the documents allege.
The SEC also said Slatkin had been under its scrutiny since 1997 for being
an unregistered investment advisor. Slatkin promised regulators at that
time that he would liquidate his investment management business, the SEC
said, and made the promise again to regulators in 1999. Slatkin also sent
a Jan. 7, 2000, letter to some of his investors saying he would liquidate
But the SEC alleges that Slatkin repaid only a small portion of his
clients' money and continued taking deposits. Between Oct. 1, 1999, and
Sept. 29, 2000, Slatkin distributed $110 million to clients but took in
$63.9 million in deposits, the documents allege.
Slatkin Allegedly Lied About Amount He Took
The SEC charged that Slatkin repeatedly lied to agency investigators about
how much money he was managing and provided incomplete client lists to
investigators. In September 1999, for example, Slatkin said he had taken
in $230 million from investors, but after interviews with investors, the
SEC believes Slatkin took in at least $90 million more, the documents say.
In addition, many clients whose accounts Slatkin said he had liquidated
said they had not been repaid "and believe that they have substantial
balances with Slatkin," the SEC documents say. Several of the investors
listed in SEC documents as having zero balances with Slatkin attended a
creditors' meeting in Santa Barbara on Thursday, insisting he owed them
tens of millions of dollars.
At that meeting, Slatkin's attorneys told investors that he had less than
$21 million in various bank and brokerage accounts. The SEC put the figure
at $29.4 million. The SEC declined to comment on the discrepancy.
Slatkin resigned last month from the board of directors of EarthLink, one
of the nation's largest Internet service providers. --END of article
From the connect the dots department here at Citizens Against Corruption:
John Coale is husband of Scientologist Greta Van Susterin at CNN
Also see Slatkin mention in famous German Scientologist's appointment book sandwiched between Scientology's OSA Janet Weiland and an entry that says OSA INT [ coordinates scientologys dirty tricks dept ] here , the German Scientologist is also the very same one whose house was being visited in Clearwater by Lisa McPherson trusts Mark Bunker in the Hammer Attack incident.
Also see scientology's attempts to make Slatkin's name disappear
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