Reed E. Slatkin, who took $593 million from investors in one of the biggest Ponzi schemes in history, was sentenced to 14 years in prison Tuesday by a Los Angeles judge who overruled prosecutors' recommendations for a lesser term.
Citing "the tremendous harm he has done," U.S. District Judge Margaret Morrow rejected the former Santa Barbara money manager's claim that he had acted under "duress and diminished capacity" because of threats from fellow Scientologists who allegedly urged him to continue his scam so they could profit. Morrow credited Slatkin with helping authorities unravel the financial fiasco, as Slatkin had pledged to do in his plea bargain last year, but raised questions about the timeliness and degree of his assistance.
"The cooperation has been, shall we say, somewhat checkered," the judge said.
Sentencing memorandums filed by prosecutors and the trustee in Slatkin's bankruptcy showed the defendant at times waited until confronted with search warrants or incriminating documents before providing key evidence or testimony, she said.
Investors who had criticized prosecutors' recommendation for an 11-year sentence praised the judge for coming down heavily on Slatkin, 54, who lived on a four-acre estate near Santa Barbara, accumulated an extensive collection of art and spent lavishly on cars and airplanes. But one Slatkin victim, former venture capitalist John Poitras, said the 14-year sentence was too little for someone who cost his purported friends their retirement funds, college savings and proceeds from sales of businesses.
The sentence was "a slap on both wrists" and "an insult to the victims," said Poitras, who lost $15 million. "The system is still broken."
A lawyer for the Church of Scientology praised the judge, saying she "saw right through" Slatkin's claims about Scientologists. "The church had nothing to do with the fact that he lied, cheated and stole," the lawyer, David Schindler, said after the hearing. Slatkin's fraudulent financial empire lasted 15 years, dissolving into bankruptcy proceedings in May 2001, leaving investors with a loss prosecutors set at $240 million. Taken into custody in April 2002, he pleaded guilty to 15 counts of fraud, conspiracy and money laundering.
Handcuffed and dressed in drab green jailhouse T-shirt and jacket on Tuesday, Slatkin addressed the court in a low voice. He described his days in custody as filled with "overwhelming feelings of responsibility" for betraying the trust of hundreds of investors, leaving him "detesting my conduct and detesting myself." Slatkin pledged to continue helping the bankruptcy trustee and creditors pursue assets held by the relatively few of his investors who came out ahead.
Over protests from victims, Assistant U.S. Attys. Steve Olson and Michael Wilner asked Morrow to reward Slatkin for his cooperation, recommending a sentence of 11 years and three months -- the bottom of the sentencing range mandated by federal guidelines after credit for cooperation.
They said Slatkin's cooperation wasn't perfect but that it has helped them file three criminal cases against former associates and has proved valuable to the trustee and creditors.
Morrow reluctantly agreed to make allowances for Slatkin's cooperation. But citing the "innumerable lives that have been destroyed," she handed down a term at the upper end rather than the lower end of the possible range mandated by the federal sentencing guidelines.
In his plea agreement, Slatkin gave up his right to appeal the sentence, Morrow noted. One of Slatkin's attorneys, Brian Sun, said he nevertheless would review the case to see if there were grounds to try to overturn it.
Summarizing their lengthy filings with the court, including reports on Slatkin by two psychologists and a criminologist, the defense argued that Slatkin feared Scientologists would harm him and his family if he shut down his scheme. His lawyers contended that Slatkin paid millions of dollars in purported profits to Scientologists who then made large donations to the Scientology organization, which knew of his long history of falsifying financial statements.
Slatkin was 14 when he learned of Scientology from an uncle, who converted him to the belief system based on science fiction author L. Ron Hubbard's writings after Slatkin's father committed suicide.
"The hold the church had on Mr. Slatkin was significant even up to the points of his surrender into custody," Sun told the judge. Morrow said she found "very little evidence of direct pressure on the defendant" to keep the scam going so donations would continue flowing to Scientologists.
She said she tended to believe the story of Daniel W. Jacobs, a Scientologist who has pleaded guilty to conspiracy for helping Slatkin stall a Securities and Exchange Commission investigation of his operation for more than a year.
Jacobs testified briefly Wednesday about a conversation in which Slatkin allegedly suggested he would try to blame the organization for his crimes. He told how Slatkin, saying he was facing more than 10 years in prison, "was going to say that the church was a significant negative influence on him in his state of mind."
Asked if Slatkin mentioned worrying about Scientologists harming him, Jacobs replied, "No."
Federal prisoners are eligible for release after serving 85% of their sentences. With that allowance and deducting time already served, Slatkin could be released in 10 1/2 years, when he is 64. He will remain for an undetermined time at Metropolitan Detention Center in downtown L.A., to more easily assist the bankruptcy trustee, and later will be transferred to a federal prison somewhere in Southern California, Morrow ruled.
She also entered an order requiring him to repay the $240 million in losses suffered by his victims.
"It's a huge sentence," said Olson, the prosecutor, characterizing it as far more severe than any handed down before the recent series of corporate scandals made financial fraud a top issue for the nation.