Slatkin Is in Plea Bargain Discussions
Fallen money manager Reed E. Slatkin has signed a consent decree with securities regulators and is discussing a plea bargain with the U.S. attorney’s office over his role in what has been described as one of the largest potential Ponzi schemes investigated by government officials.
Slatkin’s moves signal that he is trying to avoid a court showdown over an investment management business that took in hundreds of millions of dollars from wealthy investors. But investors said they were worried that plea negotiations could short-circuit government investigations and make it harder for them to find out what happened to their money.
Securities and Exchange Commission documents filed in U.S. District Court in Los Angeles on Thursday show Slatkin neither confirmed nor denied any wrongdoing in signing the consent decree, the strongest remedy the SEC can seek. As is standard in such agreements, Slatkin agreed not to violate federal securities laws in the future.
The SEC reserved the right to levy a penalty against Slatkin and order him to repay money to investors, although how much the SEC may seek is unknown.
Slatkin is still under criminal investigation for investment fraud by the FBI, which raided his Santa Barbara home and his offices in Goleta, Calif., and Santa Fe, N.M., last month.
The U.S. attorney’s office handles prosecutions in FBI criminal cases and has been talking to Slatkin about a plea bargain, sources close to the talks said.
The U.S. attorney’s office did not return calls for comment, and Valerie Caproni, outgoing director of the SEC’s regional office in Los Angeles, said she could not comment about the investigation or the consent decree.
Slatkin’s attorney Brian Sun said the agreement with the SEC was one more sign that Slatkin was trying to cooperate with government investigators and his creditors.
“It’s a reflection of Mr. Slatkin’s desire to avoid unnecessary expense and litigation and concentrate the parties’ efforts on locating and maximizing the value of assets” for investors, Sun said. He declined to comment on the plea discussions, which sources described as preliminary.
That the U.S. attorney’s office was negotiating with Slatkin worries some of Slatkin’s investors, who fear that a criminal plea deal will end the FBI investigation and reduce the likelihood of getting their money back.
Government officials have estimated claims in the case could reach $600 million.
“The SEC boggled it, so good riddance,” said John K. Poitras of Woodside, Calif., who invested $15 million with Slatkin. “But [FBI investigators] don’t know anything yet,” so a plea deal would be premature, he said.
The U.S. attorney’s office has not filed charges against Slatkin, but such talks in the early stages of investigations are not unusual, securities attorneys said.
Slatkin’s attorneys have said investigators need Slatkin’s cooperation to unravel his investments and return the maximum amount of money possible to investors.
Investors have been skeptical, however, of Slatkin’s claims and government regulators’ ability to ferret out the truth.
Poitras is one of several investors who have been sharply critical of the SEC, which had questioned Slatkin about his unregistered money management practice at least as early as 1997. Slatkin and his securities attorney, Gerald Boltz, former director of the SEC’s regional office in Los Angeles, assured SEC investigators last year that Slatkin was getting out of the business of managing other people’s money.
Instead, Slatkin continued to take in tens of millions of dollars from existing and new investors, SEC documents allege.
Slatkin told the SEC that investors’ money had been funneled through Swiss bank accounts, but regulators have found no evidence that the accounts exist, according to SEC documents. The SEC won an order freezing Slatkin’s assets last month, accusing him in court documents of running an investment fraud since 1985. The consent decree extends that freeze, which covers 41 brokerage and bank accounts as well as Slatkin’s home, office in Goleta and vacation property in Solvang.
The decree allows the SEC to later specify a penalty and an amount of money to be disgorged to creditors. The amounts of the penalty and disgorgement could be negotiated between the SEC and Slatkin or ordered by a court after regulators complete their investigations.
Documents seized from Slatkin’s home and turned over by his attorneys last month list more than 750 people as investors. Slatkin’s client list included Hollywood actors and producers, Internet executives including fellow EarthLink Inc. co-founder Sky Dayton and members of the Church of Scientology, of which Slatkin was an ordained minister.
Poitras and two other investors sued Slatkin in April, claiming Slatkin failed to return $34 million of their funds.
Slatkin resigned from EarthLink’s board April 26 and filed for Chapter 11 bankruptcy protection May 1.
