Slatkin Investors Sue Bank

Pacific Capital Bancorp’s Santa Barbara Bank & Trust is accused of knowingly participating in EarthLink Inc. co-founder’s Reed Slatkin’s $593-million Ponzi scheme in a lawsuit filed by former investors.

The nine plaintiffs, including one who lost more than $1 million, claim that Santa Barbara Bank & Trust aided Slatkin’s plans by allowing him to co-mingle their money with his personal funds.

Slatkin last month pleaded guilty to orchestrating a Ponzi scheme that solicited more than $593 million from about 800 investors. As part of the plea, he acknowledged responsibility for at least $254 million in losses.

“Santa Barbara Bank & Trust lent their name and prestige to Slatkin for the sole purpose of adding a layer of legitimacy to Slatkin’s scheme,” according to the suit filed Thursday in Los Angeles Superior Court.

Santa Barbara-based Pacific Capital didn’t immediately return a call for comment. Pacific Capital, which has $4.12 billion in assets, operates banks in Central California.

The investors claim that the bank made “substantial profits on the hundreds of millions” it held for Slatkin over 15 years. The suit, which seeks class-action status on behalf of hundreds of investors, asks for unspecified punitive damages. Slatkin investors filed a similar suit against UnionBanCal Corp., the second-largest California-based bank, in December. Slatkin filed for Chapter 11 bankruptcy protection last year.

Prosecutors said Slatkin collected money from investors from 1986 to 2001, telling them he would buy securities on their behalf. Instead, they said, Slatkin provided false statements that showed fabricated returns and used the money to purchase cars and artwork.

Slatkin resigned last year from the board of EarthLink, the third-largest U.S. Internet service provider. EarthLink has said Slatkin’s activities were separate from the Atlanta-based company.

Shares of Pacific Capital fell 99 cents to $32.95 Friday on Nasdaq.