Slatkin handed 14-year sentence
Claim that church to blame for massive scam rejected
Santa Barbara News-Press
9/3/03
By CHUCK SCHULTZ
http://news.newspress.com/topsports/090303slatkin.htm
(turn off javascript)

Imposing a harsher punishment than even prosecutors sought, a federal
judge Tuesday sentenced former Hope Ranch resident and Earthlink
co-founder Reed Slatkin to 14 years in prison for bilking hundreds of
investors out of about $240 million.

U.S. District Judge Margaret M. Morrow rejected defense claims that Mr.
Slatkin had kept his fraud going for 15 years because of his strong
beliefs in - and fear of - the Church of Scientology, saying that she
wasn't convinced he acted under such duress.

"There is no evidence the church urged the defendant to engage in this
conduct," she said from the bench, moments before handing down a sentence
more than double the 6 1/2-year term urged by Mr. Slatkin's attorneys. It
is three years longer than the sentence recommended by Assistant U.S.
Attorney Steven Olson, for what was one of the biggest Ponzi schemes in
U.S. history.

"The harm is immense," Judge Morrow noted. "Innumerable lives have been
damaged or destroyed. He even cajoled people with fake illnesses to get
them to invest," all the while living a "lavish lifestyle" filled with
Lear jets, luxury cars, a beautiful home and expensive country-club
memberships.

Before the sentencing, three of Mr. Slatkin's many victims were allowed to
voice their wrath, and each urged the maximum sentence possible.

"There's something inherently evil in the way he carried out this scheme,"
said investor Michael Azeez, whose family lost $42 million. "He befriended
us, he visited our homes, he met our families," but then ended up
swindling money from investors' retirement funds, college accounts and
even life-insurance proceeds.

"Each and every time, he stole everything he could," asserted another
investor, John Poitras of Santa Ynez, who lost $15 million. "He is
enormously cruel. Punish him harshly."

Mr. Slatkin, 54, has been behind bars since he pleaded guilty in April
2002 to a variety of charges, ranging from mail fraud and money laundering
to conspiracy to obstruct justice. Near the close of his four-hour
sentencing hearing in a downtown Los Angeles courtroom, he walked to the
podium in handcuffs and addressed the judge in a subdued voice.

"I have now spent 500 days in custody," he said. "Not one day has gone by
without my experiencing overwhelming feelings of my responsibility for the
harm I've caused to people who had given me their trust. I join these
individuals in detesting my conduct, and detesting myself for the damage
I've caused."

To those who predict he will one day walk out of prison and pick up where
he left off, he added: "The future for myself is only one of isolation and
decline. I'm not going to be able to recover -- in any way, shape or form
-- my former life, my family and my friends."

When he declared bankruptcy in May 2001, his assets totaled just over $30
million. Investigators said most of the rest of the money defrauded from
investors was "lost in a financial black hole."

He was ordered to pay full restitution, $240 million, as part of his
sentence.

Since entering his guilty pleas, Mr. Slatkin has extensively shared
information with criminal investigators on how the Ponzi scheme operated
and who assisted him. He has also cooperated with a bankruptcy trustee
seeking to identify any remaining assets that could be used to partially
repay his victims.

But his cooperation has been less than complete, a key factor cited by
Judge Morrow in imposing a 14-year sentence after prosecutors had
recommended 11 years. "His cooperation has been, shall we say, somewhat
checkered," she said.

Defense lawyers suggested that was mostly due to his reluctance to
implicate people who were members of the Church of Scientology.

"It took us awhile to deprogram Mr. Slatkin," attorney Brian Sun told the
judge. It took several months, he said, "for us to wean him off the
influences of this group. There is no question that the hold the church
had on Mr. Slatkin was significant, even up to the time of his surrender."

A church member who formerly was a friend and business associate of Mr.
Slatkin, Daniel W. Jacobs, testified Tuesday that the defendant told him
when they met at a Santa Barbara restaurant more than two years ago that
he was going to use the church as an excuse for reducing his likely
double-digit sentence.

"Mr. Slatkin said he had a plan . . . that he was going to say the church
was a significant negative influence on him, on his state of mind and his
ability to make sound judgments," he said.

Asked his reaction at the time, Mr. Jacobs said he "didn't think it was a
good idea because it didn't make sense."

Mr. Jacobs, 60, was also charged with obstruction of justice for helping
hide the scheme from federal investigators. He pleaded guilty to the
charge last November, but has yet to be sentenced.

Defense attorneys suggested, in courtroom remarks and sealed briefs, that
Mr. Slatkin was afraid to stop his fraud because the church wanted to keep
getting big donations from members who had invested with him and been
falsely told they were reaping huge profits.

The judge noted, however, that Mr. Slatkin also benefitted hugely from
that ongoing fraud and said his lavish expenditures didn't indicate he was
living in fear.

"We're pleased the judge saw through his scam," David Schindler, an
attorney for the Church of Scientology, told the News-Press after the
hearing. "It was an outrage that they tried to blame the church for his
wrongdoing."

A standing room-only crowd of about 80 people filled the courtroom,
including numerous victims.

One of them, Charles Ohl of Los Angeles, said afterward that he had lost
about $100,000 when Mr. Slatkin convinced him to invest retirement funds
that had taken 10 years of "scraping and saving" to accumulate.

"I'm extremely pleased that the judge didn't buy any of the defense theory
for mitigation," Mr. Ohl said. "It's a partial healing."

Federal law requires even a model prisoner to serve at least 85 percent of
his sentence before being eligible for release.

"The financial and emotional devastation that the defendant has caused his
victims cannot be overstated," Mr. Olson, the prosecutor, wrote in his
sentencing memorandum to Judge Morrow. "Some victims lost tens of millions
of dollars. Other victims lost far less, but their losses amounted to
their entire life savings."

Unlike most investment frauds, Mr. Slatkin's was "very personal in
nature," he added. "He largely knew his investors, who in turn referred
their families and friends."

Mr. Olson said Mr. Slatkin's fraud would have been detected a year sooner,
and losses reduced by about $145 million, "but for the defendant's
elaborate conspiracy to obstruct the Securities and Exchange Commission's
investigation of his investment practices."

SLATKIN TIMELINE

Jan. 22, 1949: Reed Slatkin is born in Detroit, Mich.
1963: Father commits suicide; Mr. Slatkin turns to Scientology.
1966: Studies with L. Ron Hubbard in England.
1973: Moves to Los Angeles with wife Mary Jo and begins working and
studying with the church full time.
1975: Ordained as a minister in the church, begins training other
Scientologists.
1983: After second son is born, moves to Goleta.
1984: Starts investing money and says he has a couple of years with 100
percent returns.
1993: Buys two estates in Hope Ranch.
1994: Decides to invest $75,000 in Earthlink. Within three years, his
share is worth more than $100 million.
1997: The Securities and Exchange Commission begins an informal
investigation into Mr. Slatkin's business dealings.
1998: In one set of bank accounts, Mr. Slatkin reports to investors that
he has more than $50 million, but in reality has less than $3 million.
April 13, 2001: Frustrated that he hasn't had his money returned, John
Poitras files suit and Mr. Slatkin's assets are frozen.
April 30, 2001: In a meeting at the office of his attorney, Mr. Slatkin
first informs his investors that there's a problem with their money.
May 1, 2001: Files for bankruptcy at the U.S. Bankruptcy Court in Santa
Barbara.
May 11, 2001: FBI and IRS raid and search Mr. Slatkin's office and homes.
July 30, 2001: A U.S. bankruptcy trustee tells 800 investors that their
money is mostly gone.
Dec. 14, 2001: The trustee says Mr. Slatkin's investment club was a scam
from the start.
March 26, 2002: Mr. Slatkin agrees to sign a guilty plea.
Nov. 21, 2002: Daniel W. Jacobs pleads guilty to conspiring to obstruct
the SEC investigation.
April 24, 2003: Richard McMullin agrees to plead guilty to conspiring to
obstruct the investigation by the SEC.
Sept. 2, 2003: Mr. Slatkin is sentenced to 14 years in federal prison.

-- Mark van de Kamp