Slatkin Investors Seek to Curb Bankruptcy Case Fees

About 80 investors who say they lost $30 million to a massive fraud committed by convicted con artist Reed Slatkin have asked the trustee handling Slatkin’s bankruptcy to rein in the fees charged by the attorneys and accountants handling the case.

In a letter Wednesday to the office of the U.S. trustee in Los Angeles, the investors complained that 10 legal and accounting firms had submitted $19 million in bills as of June. Meanwhile, unsecured creditors in Slatkin’s bankruptcy have received only $12 million so far.

“We are petitioning you to step in and take action to stop the runaway fees in this case,” the investors wrote. “Many of us are middle-income people, who lost substantial sums to Slatkin.”

Slatkin, a Santa Barbara-based investment manager, pleaded guilty to operating a financial fraud that endured for 15 years before dissolving into bankruptcy proceedings in May 2001. Slatkin, who was sentenced in September to 14 years in prison, took in $593 million from investors, who wound up losing about $240 million.

R. Todd Neilson, the appointed bankruptcy trustee in the case, had said he expected that aggrieved investors eventually would recover more than 20 cents for every dollar they lost.

R. Alexander Pilmer, an attorney from Kirkland & Ellis who represents Neilson, said the lengthy litigation to recover funds from some Slatkin investors who came out ahead would be worth it in the end for those who lost money. Sales of Slatkin’s assets have netted $37.9 million, investors who came out ahead have agreed to pay $31.8 million, and the remaining claims against 287 other winning investors seek $138 million plus interest, Pilmer said.

Some investors suffered a shock recently when the Internal Revenue Service retroactively disallowed write-offs they claimed for theft losses in 2001, said attorney Steve Hayes of Los Angeles. The IRS ruled that the losses couldn’t be recorded until it’s known exactly how much will be recovered.

Those investors want to see the case wrapped up soon, even if Neilson has to settle for less than the 80 cents on the dollar he has obtained by suing some of the winners so far, Hayes said.

Bankruptcy Judge Robin Riblet in Santa Barbara has scheduled a hearing Feb. 6 on whether the fees were reasonable.