Icon Accused of Fleecing Celebrities

Source: National Post
Date: January 9, 2002

Former minister cheated investors out of millions, authorities say

U.S. security regulators trying to piece together an investment scam that reached the highest levels of Hollywood - and a number of unsuspecting Canadians - have banned the alleged operator from ever associating with a financial advisor.

The U.S. Securities and Exchange Commission handed down the punishment following negotiations with former Wall Street icon Reed E. Slatkin, who is accused of running one of the largest Ponzi schemes in American history.

Authorities say Mr. Slatkin, an ordained minister in the Church of Scientology, offered people huge returns on investments in such legitimate companies as Colgate-Palmolive Co. and Schering-Plough Corp.

But instead of investing their money, Mr. Slatkin allegedly maintained a US$593-million triangle scheme in which early investors - which included Fox News commentator Greta Van Susteren - would be paid off with the funds collected from later clients.

Mr. Slatkin, who allegedly pocketed more than US$65-million in the scam, denies any wrongdoing.

The recently announced punishment is just the latest chapter in the high-profile probe into the 53-year-old, who already faces three civil lawsuits, including working as an unregistered investment advisor.

In recent weeks, a court-appointed bankruptcy trustee in Santa Barbara, Calif., who is trying to recover nearly US$230-million in lost investments, said 75 people who unknowingly profited by the scam may be asked to pay back the money they "earned."

"They'll either do it voluntarily or they'll be sued," said Richard Wynne, a Los Angeles lawyer who represents more than 800 bilked investors. "It's not a co- operation issue."

Some of those who may be forced to co-operate include actor Peter Coyote, who played the lead scientist in Steven Spielberg's E.T., and Ms. Van Susteren, who last week jumped to Fox from her post at CNN, where she became a household name as a legal analyst during O.J. Simpson's double murder trial.

"I will fight it," said Ms. Van Susteren's husband, John Coale, who made nearly US$500,000 on his US$2.1-million investment with Mr. Slatkin. "There's not some Mercedes sitting in my driveway. That money went to taxes. Plus, I was stupid enough to pay this a--hole fees."

Mr. Coale, a prominent anti- tobacco lawyer in Washington, said he sympathizes with the people who lost their life savings - he talked to a quadriplegic who gave Mr. Slatkin all her money - but he said he was ripped off, too.

"I'm getting whooped at home, if you know what I mean," he said yesterday in an interview from Baltimore. "I'm not even allowed out of the house to buy cigarettes any more. For a couple of years, I looked like an investment genius. Now I'm just a dope."

Even if some of the investors end up returning their profits, creditors are pessimistic they will ever recoup a substantial amount of their money. The exchange commission has not fined Mr. Slatkin because they do not expect him to be able to pay.

"We're taking a very philosophical approach for the time being," said Jas Butalia, a Calgary tax partner who represents a man whose relative lost more than $1-million in the Ponzi scheme.

Mr. Butalia, who would not name his client, has filed the necessary paperwork in a California bankruptcy court, but he said it is highly unlikely any of the money will ever be returned.

"We've got to put the claim in," he said. "If you don't go through the efforts, you know you're going to get nothing."

Mr. Slatkin filed for bankruptcy last May, leaving creditors few options but to sit and wait for the courts to divide his assets, which thus far have been valued at less than US$30-million.

"I'm just waiting to absorb everything and then just see what happens," said an unidentified Montreal man who lost money in the scheme. "I'm hoping for the best for everyone."

Born in Michigan, Mr. Slatkin earned a living during the 1970s and early 1980s as an ordained minister with the Church of Scientology.

It was not until the mid-1980s, however, that the charismatic clergyman began dabbling in the stock market, making a number of small investments for himself and a handful of fellow Scientologists.

Soon after those first investments, authorities say, the minister began to steal from the people who trusted him the most.

A 2,024-page interim report filed in a California bankruptcy court says that, as far back as 1986, Mr. Slatkin was defrauding close friends and acquaintances, some of whom invested their retirement savings and children's education funds.

Included in the piles of evidence is a handwritten note dating back to 1988, in which Mr. Slatkin writes that "instead of working on stocks, I was working on fabricating statements."

"It's pretty rare that you actually find an admission by somebody about the fraudulent conduct they have committed," Mr. Wynne said.

By the mid-1990s, Mr. Slatkin had become the buzz of Wall Street. Consequently, officials say, the alleged Ponzi scheme grew to include high-level investors ranging from the mansions of Silicon Valley to the movie studios of Hollywood.

It was during this time that the minister-cum-millionaire co- founded EarthLink Inc., a US$75,000 investment that turned into one of the leading Internet providers in the United States. The technology start-up not only boosted his bank account - in 1999, he was worth more than US$100-million - but brought an air of legitimacy to his other, less credible operations.

"A person may be living the high life with several homes, a 75- foot yacht, and as many cars as he could want, but he keeps taking more money," said Tom Zaccaro, a lawyer with the exchange commission.

"I guess once you get into it, you just don't stop."

By the time the new millennium arrived, Mr. Slatkin had lured even more high-profile investors into the alleged Ponzi scam.

One of them was movie producer Armyan Bernstein, whose recent projects include Spy Game, starring Robert Redford and Brad Pitt, and Air Force One, featuring Harrison Ford as the U.S. President.

"I wish I'd never met [Mr. Slatkin]," Mr. Bernstein recently told the Los Angeles Times. "He preyed on good people who were trusting. Now his mess has unfairly become our mess."

Mr. Slatkin has since left his position on EarthLink's board of directors and authorities have cleared the company of any wrongdoing.

Clearing up what really happened to Mr. Slatkin's "investments" will likely not be as easy.

"We were all stupid," Mr. Coale said yesterday. "Anybody out there who thinks something is too good to be true, it is. I'm not a dummy. I went to school, but this one got me."

( categories: )