Slatkin Investors May Have to Repay Gains

Investors who profited from Reed Slatkin’s alleged Ponzi scheme will be asked--and if necessary sued--to pay back millions of dollars they received in bogus gains, a U.S. Bankruptcy Court trustee said Thursday.

Trustee R. Todd Neilson said he is reviewing a list of 75 people who allegedly reaped $151 million in profits from their investment with Slatkin to determine who will receive a letter demanding they return the money. Those who do not comply could face lawsuits, Neilson said.

The list of investors includes CNN legal commentator Greta Van Susteren, actor Peter Coyote, Hollywood producer Armyan Bernstein and HGTV host Susie Coelho--all of whom said they were unaware they were benefiting from a Ponzi scheme.

The investors were among the 800 people who gave Slatkin $593 million to invest during the last 15 years, according to a report Neilson filed Dec. 14 in Bankruptcy Court in Santa Barbara. Slatkin told investors he was buying stocks, but instead used money from new investors to pay bogus returns to prior investors in what’s known as a Ponzi scheme, the report alleges.

About half of Slatkin’s investors ultimately lost money and about half got back more than they invested, Neilson said. The 75 investors on his list got back much more than they put in, he said.

Slatkin, a co-founder of EarthLink Inc., filed for bankruptcy protection May 1 and is now under criminal investigation for alleged investment fraud.

Neilson said he would decide “in the near future” which investors would be asked to return money under laws that prohibit “fraudulent conveyance,” or the transfer of money or property to one party when it rightly belongs to another. Neilson said he can legally recapture phony profits that were paid out in the last seven years, when the bulk of the $151 million was distributed.

Even innocent parties usually are required to return money that was fraudulently transferred, Neilson said. A request for repayment doesn’t necessarily mean the investors are suspected of fraud or that they knew Slatkin was operating a Ponzi scheme, he said.

“It would be an inaccurate assumption to say that all 75 were involved,” Neilson said.

Several of the investors said this week that they would resist any efforts to get them to pay back sums that range from $629,000 to $5.9 million each.

Slatkin’s investors have paid millions of dollars in taxes on capital gains on profits Slatkin said they earned--profits that turned out to be illusory, said attorney John Coale, Van Susteren’s husband and a noted anti-tobacco litigator. The couple invested $2.1 million with Slatkin but received $2.7 million in payments, according to a report Neilson filed Friday with the bankruptcy court.

“I’ll fight this thing for 100 years,” said Coale, who said he made the decision to invest the couple’s money with Slatkin starting 10 years ago. “Most of that money went to the IRS.”

Other investors said they believed Neilson’s assessment of their gains was inaccurate. Actor Coyote is listed in the report as receiving nearly $1.4 million from an initial investment of $393,000, but said he “didn’t receive nearly that much” from Slatkin.

“If I had to give it all back, that would wipe out my retirement money,” said Coyote, who said he stopped investing with Slatkin five years ago. “I don’t know what to do.”

Neilson said in the report that his conclusions were preliminary.

Bernstein, whose movies include “Air Force One” and “13 Days,” said he believes that he lost money on his investments with Slatkin, even though the report said he gained $2.9 million.

“I wish I’d never met [Slatkin],” he said. “He preyed on good people who were trusting. Now his mess has unfairly become our mess.”

Coelho, who hosts “Surprise Gardener,” and her husband, Robert Rounds, are listed as receiving a $1.8-million profit. The couple was unaware Slatkin’s investments were a scam, said their attorney, Michael Stoller.

One of the largest beneficiaries of Slatkin’s alleged scheme was Ron Rakow and his family, according to Neilson’s report. Rakow, a former manager for the Grateful Dead, pleaded guilty to one felony count of mail fraud in 1987 for his role in an Irvine-based milk-culture investment scheme that defrauded 27,000 investors of $80 million.

In his investments with Slatkin, Rakow was paid $2.4 million more than he invested. His cousin was paid $5.2 million and his parents $700,000. Denise Del Bianco, described in Neilson’s report as Rakow’s wife, received profits of nearly $2 million.

Rakow’s attorney, Robert M. Sanger, said Rakow and his family were unaware that Slatkin was running a Ponzi scheme and would resist efforts to repay the money.

Another large beneficiary listed in the report was Joel Kreiner, a former Santa Barbara attorney who, according to the report, once represented Slatkin. The report said Kreiner was paid $5.9 million more than he invested. Kreiner did not return calls for comment.