Slatkin Agrees to Plead Guilty
Santa Barbara money manager Reed Slatkin, who built an illusory investment empire using money collected from Hollywood celebrities, Internet moguls and fellow Scientologists, agreed Tuesday to plead guilty to 15 counts of fraud, money laundering and conspiracy for masterminding one of the largest Ponzi schemes in history.
Slatkin, who collected $593 million from 800 investors, faces up to 105 years in prison, although his sentence probably will be “in the 12-to-15-year range,” said Thom Mrozek, spokesman for the U.S. attorney’s office in Los Angeles.
The sentence could be further reduced by a few years if Slatkin, 53, cooperates fully with investigators, who still are trying to determine what happened to investors’ money, Mrozek said.
Slatkin has acknowledged that at least $255million is missing in the scheme, in which new investors’ money was used to pay bogus returns to prior investors.
“It’s a very significant sentence for a consensual plea agreement,” said Richard Wynne, an attorney for creditors in Slatkin’s bankruptcy case. But he added, “We calculated he could have gotten a life sentence if this had gone to trial, so it’s a sweet deal for him.”
In Tuesday’s agreement, Slatkin was charged with six counts of money laundering, five counts of mail fraud, three counts of wire fraud and one count of conspiracy to obstruct justice.
Slatkin, who also faces a $3.75-million fine, has been ordered to make restitution to his victims, although it is unclear how much money will be recovered.
Investors greeted news of the plea agreement warily. Some fear Slatkin might flee the country before his arraignment on an unspecified date next month.
“He’s had 11 months to pack,” said investor George Kriste, “and now he’s got another 30 days.”
The FBI and the U.S. attorney’s office have said they don’t believe Slatkin will try to escape. Slatkin’s criminal attorney, Brian Sun, said his client was determined to cooperate with investigators.
“This is obviously a very emotional time for him, but he’s committed to doing the right thing,” Sun said. “His conduct speaks for itself.”
Slatkin has agreed to turn himself in to federal custody at his arraignment, but he won’t be sentenced until several weeks later, Mrozek said.
Slatkin, an ordained minister in the Church of Scientology, started soliciting money from fellow Scientologists in the mid-1980s. His stature and reputation grew after he helped co-found Internet service provider EarthLink Inc. in 1994. Before long, he was taking in large sums from Internet executives, Hollywood players and socialites from across the country.
Slatkin’s investors included legal commentator Greta Van Susteren, actors Peter Coyote and Giovanni Ribisi, EarthLink co-founder Sky Dayton and HGTV host Susie Coehlo, among others. He managed money for entire families, including retirement accounts, college funds and, in one case, lawsuit proceeds for an accident victim who was paralyzed.
“I’m told I’m supposed to be happy with [Slatkin’s plea],” said investor John Poitras, who says he lost $15 million in the scheme. “But the penalties here are just disconnected to the damage he’s done.”
Slatkin told investors he was putting their money to work in the stock market. Although he paid out hundreds of millions in purported stock market profits to investors, he made only about $65million in actual gains, according to the trustee appointed by the U.S. Bankruptcy Court.
Slatkin, meanwhile, moved up from a suburban home in Goleta, Calif., to an estate in the Hope Ranch area of Santa Barbara. He spent money on private jets, million-dollar artworks and real estate across the country.
Slatkin’s empire began unraveling in April, when several investors sued him for failing to return their funds. On May 1, Slatkin filed for bankruptcy protection.
The obstruction of justice charge stems from Slatkin’s acknowledgement that he lied to the Securities and Exchange Commission, which as early as 1997 investigated him for operating an unregistered money management business. Slatkin’s Ponzi scheme avoided detection, however, until investors sued.
Investors have criticized the SEC for failing to uncover the scheme, but SEC officials saw the plea agreement as a vindication.
“We’re very pleased that Mr. Slatkin will be held accountable for obstruction of our investigation,” said Randall Lee, director of the SEC’s Pacific region. “We take misconduct and lies to us extremely seriously.”
