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Scientology Minister Reed Slatkin sentenced to 14 years in prison

September 2, 2003

Ex-EarthLink Executive Is Heading to Jail
September 02, 2003 5:50:00 PM ET
By Ben Berkowitz

LOS ANGELES (Reuters) - Financier Reed Slatkin, a key player in the creation of Internet service provider EarthLink Inc. (ELNK), was sentenced on Tuesday to 14 years in prison after pleading guilty to bilking investors out of hundreds of millions of dollars.

A federal court in Los Angeles also ordered Slatkin to pay more than $240 million in restitution to clients of his fund management business.

The government had asked that he be sentenced to the minimum in a range from 11 years and three months to 14 years after defrauding investors of nearly $600 million, but Judge Margaret Morrow chose the more severe option.

"The havoc that the defendant has wreaked is immense, the loss is immeasurable," she told a courtroom packed with attorneys and victims of Slatkin.

Appearing in prison garb with manacles around his hands and waist, Slatkin asked the court for leniency, with his lawyers saying that he had been under psychological pressure.

Referring to the 500 or so days he has already spent in federal custody, Slatkin said, "Not one of these days has gone by without (my) feeling the overwhelming responsibility for the harms I caused these people."

Slatkin pleaded guilty in 2002 to 15 counts, including mail fraud, wire fraud, money laundering and conspiracy to obstruct justice.

Slatkin, who had a number of celebrity and high-profile clients, had portrayed himself as a shrewd manager whose investments were outstripping the market, but prosecutors said he was actually running a Ponzi scheme.

His attorneys blamed much of his behavior on the influence of the Church of Scientology, of which he was a member and from where many of his victims came.

"There is no question that the hold the Church had on Mr. Slatkin was significant," lawyer Brian Sun told the court. "It took us a while to de-program Mr. Slatkin."

But an attorney for the Church told Reuters that Slatkin's claims, and those of his lawyers, were all a ruse designed to draw attention away from his crimes.

"We were pleased the judge saw through it," said David Schindler, an attorney from the firm of Latham & Watkins who represents the Church. "It was shameful of (Slatkin). He sold the psychiatrists a bill of goods."

One of Slatkin's victims said he was happy the judge acknowledged the severity of his frauds.

"I think under the circumstances, given the reality (of the situation), we're happy the judge went higher than the government recommended," Gregory Abbott told Reuters.


An anonymous correspondent reports from the floor of the Slatkin
sentencing courtroom ...

The Necessity of Consequences

To understand how far Reed Slatkin has come, know that even some of
the people who knew him, who invested with him, and who had him over
to their homes, did not recognize him seated at the defense table. But
then, Reed hardly looked at the Los Angeles courtroom audience of
approximately 40 who filled every available seat and even stood at the
back, at least at first. Many were the very people he had both
befriended and defrauded. Perhaps it was his significant bald spot;
did he used to have a toupee? Wearing a green windbreaker, grey
t-shirt, blue pants, and white slippers, Reed's prison garb was not
the type of clothing seen at Hope Ranch. Neither were the handcuffs,
tied to a chain around his waist, nor the leg cuffs, that he wore the
entire time of the four-hour proceeding, but they were pretty much not
noticed by many in the courtroom until he rose to speak.

Most of the time he just faced the judge's bench, though it did not
appear he was engaging the attention of Judge Morrow. He appeared
sedated. His eyes spent a considerable amount of time closed though he
was not asleep. He said a very few words in response to the judge
early on. He made a few comments and facial expressions to his
attorney. But more than anything he did not look at the gallery.
Except for his statement at the end of the trial he sat in silence in
a world that had become just one bad dream for a lot of people.

Two attorneys at his table, the lead attorney being Brian Sun. Two
attorneys for the government led by Steve Olson. The FBI, the IRS and
the US Attorney's Office was there. Todd Neilson was "enroute." In the
gallery...who knows? Scientologists were there. Regular members.
Staff? No one in a mock-Navy uniform. No Miscavige to speak for his
former parisioner (in fact no one spoke for Reed except his
attorneys). On the other hand, Janet Weiland and Helena Kobrin were
there (I think but could not swear).

Judge Morrow. Late 40's. Short hair, (the kind mommies like).
Articulate, to the point. No nonsense.

The issue of the day was: what would be Reed's punishment? The
argument this day would be about adjusting the sentence from what the
sentencing guidelines required. The phrase of the day was "downward
departure" and both the defense and the government were arguing for
that. The defense because that's what defense attorneys do. The
government because of Reed's cooperation.

Certain filings were going to be kept under seal and would not be
discussed in open court (many related to Reed's "social/psychological
history"). Reports of the psychiatrists.

The defense was going to argue about diminished capacity and duress.
And they wanted to do it in closed session. Denied by Morrow.

The starting point for discussion was something called the
"pre-sentencing report" or PSR. To Reed, by Morrow: "Have you had the
chance to review the PSR?" "Yes" "Are you prepared to move forward?"
"Yes" The third question I believe related to correcting, had he had
time? "Yes." That was the last Reed spoke in open court for three

First, the defense gets the chance to correct various paragraphs in
the PSR. Most seem inconsequential or are nuances. One, which the
defense objects to, jumps out. Apparently a statement from Dan Jacobs
that "Slatkin told me that he was going to misrepresent the COS's role
to get a more lenient sentence." The defense objects -- clearly this
is going to be the diminished capacity and duress thesis. The word
Scientology has not actually been mentioned in the court, but it is
going to be mentioned. A lot.

Before downward departures can be made, one needs to know the starting
point of the sentencing guidelines. (This part is a bit confusing, I
apologize. It's not clear what was added to what, what was already in
the plea agreement, etc. The number at the start of the next paragraph
IS correct.) According to the discussion, it's 151-188 months per one
guideline, but the court is not bound by that (per Morrow) and nothing
prevents an upward adjustment by the court. Because the court finds 5
or more people were involved as perpetrators (McMullen, Jacobs, Rakow,
Rogers, Janeau, and Didier Waroquiers; Hitchman and Riso?? [ed.'s
note: possibly Brian Reso, a Scientologist and profiteer?] are also
mentioned) and the extensiveness of the fraud (800 victims, $593
million involved) this bumps up the sentence 4 "levels" in the
sentencing guidelines Ungrouping the wire fraud and money laundering
charges bumps it one "level." Because the fraud was over $80 million,
up another three "levels"

The "new starting point" (my term and again, this is correct) for
discussion is Level 38, which works out to 235-293 months, 2-3 years
supervised release. On top of that: restitution of $240,295,910.21 and
a $1,500 "special assessment."

The discussion of downward departure begins with the defense and
focuses on three things. First, his cooperation. Second something
called "extraordinary acceptance" which is essentially "above and
beyond" cooperation. Finally, there is Reed's "association with
certain individuals and groups."

Sun contends the plea agreement helped the trustee in Riblet's court.
Even though "passions run high" in this case and a lot of people are
"sore," guidelines are just guidelines. Slatkin saved the government
time and effort. The judge responds that she does not dispute the
utility and significance of what Slatkin has done, but is in doubt
about his truthfulness, his completelness and timeliness. This is very
troubling. According to Morrow, Slatkin got good counsel who said "you
have to cooperate" but it really doesn't come across.

Sun: There was "fear of retaliation." Morrow: "I know what you are
talking about."

Sun: Slatkin was influenced by other factors and had issues with
certain individuals and groups. Let's just say it "We're basically
talking about the Church of Scientology." The hold it had on him was
significant. Many of us shared the viewpoint we needed to separate him
from the Church. It affected Slatkin. It affected the attorneys. "It
took us a while to deprogram Mr. Slatkin." I hear a smirk in the

Sun: The fear and took several months for the
influence of this group to wear off. Breakdowns by the defendant were
seen by the guards. He was better by last August. "I think the
government will agree that the Church is all around this case and it
affects us even in this court...The spectre of this organization is
all around this case. Lawyers have concerns too." Another smirk in the
gallery, or am I hearing things? "The process we witnessed [Reed] go
through is one I'll never see again. It was a painful tortuous path to
get there. Even his business was conducted on Scientology principles.
It affected his cooperation....Now only a few family members keep in
touch with him. He cut himself off from the Church and is estranged
from his wife who has filed for divorce."

The upshot of all this? The defense wants the sentence lowered to
level 28, 78 months. 5 levels down from the plea agreement, but 10
levels down from the "new starting point."

The defense wants to follow up on its objection about Dan Jacobs'
statement. After some discussion, Dan Jacobs is called to the stand.
Dan looks like an old hippie even if he is in a jacket and tie. His
grey hair pulled back into a small ponytail. He swears to tell the
truth "so help you God" and I want to say Scientologists have no God
to swear to. I want to talk to Brian Sun about acceptable truths,
about TR-L. But that's not going to happen.

Testimony elicited by the government reveals Jacobs knew Reed since
1975 when they were on staff at a Scn Mission in Berkeley. After two
years they went separate ways and did not see each other all that
much. In the late 90's Reed's son Justin actually lived with Jacobs at
Reed's request and Reed asked Jacobs for help with his business.

Get to the point, says Morrow.

In June of 2001 Slatkin meets Jacobs at a restaurant. "'I'm going to
go to jail'" Jacobs quotes Slatkin as saying, and "He was talking
double digits." Reed had a plan according to Jacobs "He was going to
say the Church was a significant negative influence on him. He was
quite dramatic. He said 'They're after me' and 'I'm afraid for my well
being.' When he started he was talking to me, then it was like he was
talking to the prosecutors."

Had he ever indicated the COS threatened to use violence against him?

Jacobs said he told Reed "It wasn't a good didn't make
sense. You've said you were helped out by the Church and that they
hold you in high regard. This isn't consistent with your story."
According to Jacobs, Reed said "I probably won't say that anyway."
Reed's involvement was pretty much financial in recent years..making
donations. He wasn't taking services.

For a while, Slatkin's son Justin lived with Jacobs so he could have a
"stable, sane environment" outside the Slatkin home. (What the
problems were was not expanded upon. Justin was asked to join the Sea
Org at a large event at the Shrine.

The defense crosses but doesn't do a particularly good job of it in my

In response to questioning, Jacobs states his current status is that
he is not an active practitioner, but he has not been excommunicated.
About the Sea Org, it is a group of dedicated individuals. He has no
knowledge of any "paramilitary" organization in Scientology (implied
by the question as being the Sea Org). He said Reed was really angry
when he heard his son was being recruited to join the Sea Org. He was
"upset" not "fearful." Since Justin was only 17 he couldn't sign up

"I was -- am -- a committed Scientologist. I doubt a lot of what Reed
has said."

Q: Did you and Reed use Scientology principles in your business,
'admin tech'?
A: "I never mentioned Scientology when consulting."

Was Jacobs aware that Reed took some high-level counseling from the
Church in 2000-01? No.

And that was it for Jacobs.

The defense continues to argue duress and diminished capacity.

Reed was addicted to the Church, this according to the evaluation of
the psychiatrists (another smirk in the gallery). The hold the Church
had "was a bigger fact in his life than his family. It cannot be
overestimated the grip the Church had." Don't give credit to Jacobs, a
member of a group many have called a cult (silence in the gallery).
There is one thing that is not in doubt: the role of Scientology in
Reed's life. Look what he did with his own son. He had a mix of love
and fear with respect to Scientology.

"The Church is highly proficient in collecting funds and is ruthless
in so doing....$25-50 million in money flow went to the Church" The
COS kept tabs on Reed, and was aware of the deceptive practices
because of the Levine memo. Reed feared what would happen if the money
stopped flowing to the COS.

The government's turn. Yes we want to downwardly adjust the sentence,
Reed's cooperation was, and wasn't helpful. The government
acknowledges that Reed generated another $145 million when the jig was
essentially up. He did not minimize own role BUT PROTECTED OTHERS AS
OUTLINED IN UNDER SEAL FILING (author's emphasis and note: hmm...)

Reed's fear of reprisal should not be a factor. The fear resulted from
concern about being ostracised. If he feared Church members why'd he
take their money? He is no different than other criminals. If you are
kidnapped and forced by a gang to rob a bank that's one thing. If you
join the gang and rob a bank, that's different. This was a financial
crime with financial motives. Other factors were at work, yeah, but
not sufficient to factor in.

Defense again: the fears, feelings were genuine. Asks court to reject
Jacobs testimony. There are claims of hidden money; there is no
evidence of any. Government is under pressure from victims. There is
pressure to make an example.

"The whole world in general knows the intimidation tactics this Church
has employed. It has affected everybody." He relates how in discussion
with government attorneys they joked about who would sign certain
things, who would serve certain things -- for fear of retribution. It
was hard to find people willing to speak up.

Then representatives of the victims get to speak. What was interesting
is that, for once, Reed turned to the podium where people spoke and
looked at them.

The first was Micahel Azzeez, co chair of the creditor's committee. He
states that thousands have been impacted. Families devastated. Reed
didn't care where it came from. It went on for 15 was
carefully planned. He befriended us...visited our homes. Today is his
day of reckoning. He has not fully cooperated (Reed's eyes close) He
attempted to hide assets. He allowed co-conspirators to flee. Only
20-30% may be recovered. Sentence him to the maximum.

Next, Greg Abbott

An 11 1/2 year sentence "would overlook the utter depravity of the
crime." Reed was an indiscriminate predator. He took college money,
retirement money, insurance money. Collective suffering is monumental
-- thousands of lives permanently disfigured. There is a "domino
effect of misery". He has shown no remorse. If he is bankrupt, how is
he paying the attorneys? How is his family living?

His stalling helped friend Hitchman flee. Stories of gold away. Only a stiff sentence will encourage him
to come clean. (Abbott wants longer sentence than what government is

Finally, John Poitras

Plea agreement has not served victims well. We had to fight in court
and spend money. "I do not understand what makes a man evil, but I
know Reed is evil."

With Poitras done, it's Morrow's turn: "This is a difficult case in
many respects. There are competing concerns. At the end of the day no
one will be particularly satisfied." The result is a product of
restraints in sentencing guidelines. Have to balance the government's
argument for substantial downward departure versus the harm done to so
many people.

Her ruling. Does not buy duress and diminished capacity argument. The
Church didn't make him do it and no concrete evidence they made him
continue. He never was robbed of independent thought to the extent he
didn't know what he was doing was wrong. Threats were implicit, not
explicit (cites US v. Sachdev).

Concludes Jacobs testimony is more credible than Slatkin statements.

The court wants to make clear it does not discount the influence of
the COS on Reed.

There was huge cost...havoc...loss. He cajoled those with fatal
illnesses. There was gold...a contract to buy a Lear
clubs..a nice home and real estate. The court looked hard to find a
diminished capacity case where Scientology relationship was involved.
Cites US v. Fishman. Did not lead to conclusion of diminished

Again she says: "The court does not discount the importance of the
Church in his life and that it colored his judgement." No evidence
that the Church urged defendant to maintain the fraud...only indirect
evidence. Defendant conceived defense after the fact. Even if she had
found duress or diminished capacity, she would have exercised her
discretion not to factor it in.

Yes he cooperated, but cooperation was "checkered." Some material
seized by warrant he said he was going to turn in but only after it
was siezed. Cooperation was less than complete. Morrow is concerned
about failure to disclose all assets but the court really can't make
any finding about that. (Reed looks at Brian Sun and shakes head as if
to say he had done all he could and there is no money.)

Morrow states she was originally not inclined to accept the
government's 5 level departure recommendation because Reed's
cooperation was lukewarm, but after hearing the arguments she agrees
to it. The sentencing is moved from level 38 to level 33 which works
out to a range of 135-168 months.

Reed addresses the court. This is pretty close to everything he said
after making the walk to the podium all cuffed up. He speaks softly
and haltingly. The courtroom becomes extremely quiet.

"Thank you for letting me speak. I've been incarcerated for 500 days
and...not one of those days has gone by without an overwhelming
feeling of the harm I've caused these people who gave me trust. I have
been somewhat confused. I join them in detesting myself for the damage
caused. The future for myself is only isolation and decline. I will
not recover my former life, family or friends. The only thoughts I've
had pertain to the necessity of consequences for these acts. I had
hoped for some leniency though had no expectation. I have found some
meaning in attempting to work with the government and the trustee to
see justice served to mitigate the (damage?). I only have that
commitment left and hope that I'll be able to participate."

Reed sits down.

The defense then asked that Reed be eligible for drug treatment in
prison(?), that he ultimately be kept in Southern California so that
he could see some of his friends and family, and that he be kept at
the Municipal Detention Center -- even though it is an unsavory place
-- for the immediate term since it would make communication with
various counsel easy.

Then Morrow had to settle on the final sentence. (Recall the range for
the level was 135-168 months.) Morrow stated the government requested
135, but the court had substantial issues about the downward
departure, and the court exercises its right to determine where in the
range the sentence should be. Given the enormity of the offense and
the length of time it went on, she sentenced Reed Slatkin to:

168 months (I later confirmed with one of the attorneys that the 15
months he has served counts toward this)
3 years of supervised release
1000 hours of community service
Restitution of $240,295,910, due immediately
A $1,500 special assessment fee, due immediately
Fines (not restitution or assessment) waived since he has no money

Then she breaks down the sentence by the various charges, describes
how some are concurrent sentences which was impossible to follow.
Regardless, the total remains 168 months. (That works out to 14

She grants all the defense requests for drug treatment (defendant to
pay for it), and that he can stay at the MDC. The issue of his
ultimate prison will come from the Bureau of Prisons, but she agrees
it should be in Southern California.

She then makes a mistake: she tells Reed that his plea agreement
states that if his sentence is level 34 or below, he has no right to
appeal. Because it was higher than that, he can appeal his sentence.
Attorney Olson quickly points out the final level was 33 and not
higher than 34. Judge Morrow informs Reed that because his sentence
was at level 33 he cannot appeal his sentence.

That's it. The the judge leaves. People stand and quickly head out.
The general feeling in the crowd seems to be simply that it is over.
Reed sits but eventually is led out. During this time I didn't see one
person other than the attorneys and the bailiff speak to him. Were any
of his family in the room?

The bailiff wants us to leave and we do. All except a woman in her
early 40's who sits in the front row, crying.

Dedicated to Shelley Thomson and the spirit of Biased Journalism
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