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Federal agents raid Goleta office |
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Written by Administrator
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Sunday, 13 May 2001 |
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Santa Barbara News-Press
May 12, 2001
Federal agents raid Goleta office
SEC claims Hope Ranch homeowner defrauded investors
By MARK VAN DE KAMP
NEWS-PRESS STAFF WRITER
The investigation of Hope Ranch investor Reed E. Slatkin deepened Friday as federal agents raided his Goleta office and froze his assets, alleging that he defrauded as many as 500 clients through his unregistered investment advisory business.
Slatkin's crumbling 15-year-old financial empire faces claims ranging from $100 million to perhaps $600 million in what is potentially one of the largest investment frauds ever investigated, said Richard Conn, an attorney for one of Slatkin's creditors.
Investigators are alleging that Slatkin, 52, took in huge sums from a nationwide network of investors, many of whom considered him a friend ‹ including perhaps a dozen or more people in Santa Barbara County. Investors were promised big returns ‹ as much as 60 percent per year, according to one lawsuit against him.
From 1985 to April 2001, Slatkin managed at least $230 million for about 500 clients through purported securities trading accounts in Switzerland, according to the U.S. Securities and Exchange Commission.
Now a rapidly expanding number of attorneys, investigators and creditors are scrambling to find out where the money went.
Slatkin, one of the founders of Internet service provider EarthLink, resigned from its board of directors in late April and filed for Chapter 11 bankruptcy May 1 in Santa Barbara.
He has not been arrested and still owns a multimillion-dollar estate in Hope Ranch.
The SEC on Friday obtained a temporary restraining order against him and froze his assets. The complaint alleges that he operated a fraudulent securities scheme and also lied to SEC investigators.
"Slatkin knew or was reckless in not knowing that his representations were false and misleading, and that he omitted to disclose material information to investors," the SEC complaint said.
He "repeatedly lied to the commission during the course of its investigation and obstructed the commission's investigation by providing incomplete or false information, in an effort to deceive the commission."
Investigators have ordered Slatkin to produce an accounting and to refrain from destroying documents. The SEC is also seeking civil penalties.
Slatkin commingled investor funds with his personal funds, according to the complaint by the SEC, which is charged with protecting the investing public against malpractice in the securities markets. The agency also says Slatkin was never registered with the SEC as an investment adviser.
Also Friday, criminal investigators from the Internal Revenue Service, armed with a search warrant, forced their way into Slatkin's locked office, which is in a house at 890 Kellogg Ave. in Goleta.
About a dozen agents, some with guns, went through the two-story house searching for evidence. No one was there. Inside the opened garage were a series of computers that Slatkin reportedly had used to operate his investment program.
The SEC complaint said Slatkin misappropriated $10 million in client funds that he had received with the stated purpose of investing in a money market fund, then misused the client's funds by using $6.975 million to pay other clients and using more than $24,000 to pay personal expenses. Those personal expenses included credit card bills, telephone and other utility bills, fees at two country clubs and pool maintenance fees.
SEC investigators further allege that the Swiss trading accounts do not exist.
ŒŒSome people have suggested that this was a Ponzi scheme,¹¹ where new investors¹ money is illegally passed as payment to prior investors, Richard Pachulski, Slatkin's bankruptcy attorney, told The Associated Press. ŒŒWe don¹t know one way or another what it was.¹¹
Pachulski did not return News-Press phone calls Friday seeking further comment.
Another group of investors filed a motion Thursday asking that a trustee be appointed to get control of Slatkin's EarthLink assets, according to the Associated Press.
More than a million documents and three computer hard drives that Slatkin had turned over to his attorneys and to an independent auditor, before Friday's raid, show that about $100 million of investor funds have been put into limited partnerships and real estate transactions, Pachulski added.
According to the SEC complaint, Slatkin paid clients $110 million between October 1999 and September 2000 but received $63.9 million from clients in the same period.
"This net $46.1 million payout to clients, however, represents only 20 percent of the $230 million that Slatkin admitted he had under management," the complaint states.
About 90 angry creditors and attorneys crowded the U.S. Trustee's office in Santa Barbara on Thursday to challenge Slatkin's attorneys.
"According to the debtor (Slatkin), the number of investors is approximately 500," said Brian Fittipaldi, attorney-adviser at the U.S. Trustee's office. "How many of those are local, we have no idea, because we don't have a creditors' list yet.
"I've talked with dozens of people. Word is traveling fast," Fittipaldi said Friday. "Many local residents invested with Mr. Slatkin, whether in partnerships or brokerage accounts. Because Mr. Slatkin has not yet filed a list of assets and liabilities, we don't know whom he considers creditors."
Wednesday is the deadline for Slatkin to submit a complete list of creditors and how much each is owed, though the Bankruptcy Court can grant an extension.
Slatkin is being sued by retired businessman John K. Poitras of Santa Ynez, who claims Slatkin cheated him out of $15 million.
"It appears to be one of the largest cases of investor loss involving a private money manager in recent years," said attorney Richard Conn, who with lawyer Jim Bertero of Santa Barbara is representing Poitras.
Source: http://www.slatkinfraud.com/articles/newspress_may_12.htm
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