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Trustee Named in Slatkin Case

TIMES STAFF WRITER

In a move to preserve what’s left of Reed E. Slatkin’s crumbling financial empire, a U.S. Bankruptcy Court judge Wednesday named veteran forensic accountant and former FBI agent R. Todd Neilson as trustee for Slatkin’s Chapter 11 case.

Regulators and investors had pressed for the emergency appointment after the FBI and Internal Revenue Service raided Slatkin’s offices and the Securities and Exchange Commission obtained a court order freezing his assets Friday.

Investor attorney Richard Wynne said the appointment of a trustee was needed to ensure that Slatkin, a co-founder of EarthLink Inc., did not regain control of his assets. Those assets include land, limited partnerships and brokerage accounts that SEC investigators believe contain about $30 million in EarthLink stock and cash.

“We frankly do not trust Mr. Slatkin,” Wynne, attorney for the creditors’ committee that represents investors, told Bankruptcy Judge Robin Riblet. “There’s $300 million to $600 million that’s missing that cannot be accounted for.”

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Neilson has served as trustee in several high-profile bankruptcy cases, including those of Bruce McNall, the former L.A. Kings owner who pleaded guilty to bank fraud in 1994, and Property Mortgage Co., a Sherman Oaks-based Ponzi scheme in which about 1,000 investors lost $100 million. Stanley Glickman, a principal in the company, pleaded guilty in 1998 to 17 felony counts of securities fraud, grand theft and selling unregistered securities.

While a special agent for the FBI, Neilson specialized in accounting investigations of white-collar and organized crime, according to a resume supplied by his company, Neilson Elggren of Los Angeles.

As trustee, Neilson will investigate what happened to investors’ money, oversee the sale of any assets and distribute to investors and other creditors whatever money is collected.

The SEC complaint filed Friday alleges that Slatkin, 52, had defrauded investors since 1985. The complaint also alleges that Slatkin lied to investigators, concealed investor accounts and set up businesses that would allow him to transfer assets in secret.

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Slatkin’s attorneys have declined to comment on whether Slatkin defrauded investors, saying only that their client is “fully cooperating” with investigators.

Slatkin has declined repeated requests for comment or interviews. He lives in Santa Barbara’s upscale Hope Ranch area but hasn’t attended any of the hearings on his case. His attorneys say he has been threatened and besieged with phone calls and letters from angry investors.

Slatkin, who was not a registered investment advisor, managed money for a nationwide network of more than 500 Internet executives, Hollywood players, socialites and fellow Scientologists.

Among the investors listed in SEC documents are CNN legal commentator Greta Van Susteren and her husband, attorney John Coale; actors Giovanni Ribisi, Mariah O’Brien-Ribisi and Jeffrey Tambor; former Capitol Records chief Hale Milgrim; and Oscar-nominated songwriter Tom Snow, whose compositions include the Pointer Sisters’ hit “He’s So Shy” and “Let’s Hear It for the Boy” from the movie “Footloose.”

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Slatkin was sued for fraud by three investors last month. He resigned from the EarthLink board of directors April 26 and filed for bankruptcy protection May 1.

Slatkin’s bankruptcy attorney, Richard Pachulski, asked Riblet to convert Slatkin’s Chapter 11 filing to a Chapter 7 liquidation, a move Riblet initially approved Wednesday before the hearing.

A Chapter 7 filing requires the appointment of a trustee but makes it more difficult for creditors--Slatkin’s investors in this case--to have a voice in the liquidation process, bankruptcy attorneys said.

Pachulski said not having a creditors’ committee, with attendant legal fees, would help preserve Slatkin’s assets for investors.

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But U.S. Trustee Maureen Tighe argued that investors’ involvement is appropriate and necessary.

Riblet reversed the Chapter 7 conversion, appointed Neilson and said she would review the case in 30 days.


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