Scientology's Reed Slatkin

EarthLink Co-Founder Fraud May Top $600 Million
Friday May 11 06:38 PM EDT
By Jay Lyman

A downward slide for EarthLink (Nasdaq: ELNK - news) co-founder and former executive Reed Slatkin turned into a headlong plunge this week as allegations multiplied that he ran a pyramid scheme. The amount out of which investors may have been defrauded has now been pegged at over US$600 million.

Slatkin, who resigned from Atlanta-based EarthLink's board of directors last month and filed for bankruptcy in California last week, allegedly bilked fellow venture capitalists and Hollywood bigwigs through a pyramid-like "Ponzi" scheme in which early investors are paid by new investors.

The Los Angeles Times reported this week that the U.S. Securities and Exchange Commission (news - web sites) (SEC) is investigating Slatkin. While SEC officials would not confirm the investigation, at least three investor lawsuits alleging fraud or theft have been filed and Slatkin reportedly owes the IRS $6 million.

Blown-Up Returns

An estimated 100 investors, including EarthLink co-founders Sky Dayton and Charles Betty as well as members of the Church of Scientology, of which Slatkin was a member, met with lawyers this week.

The claims against Slatkin, which include allegations that he collected more than $300 million and pocketed over $35 million, could total as much as $600 million or more, according to attorneys.

Published reports indicate that the SEC investigation involves investment fraud and an alleged computerized day-trading operation that would produce annual returns of 60 percent for investors.

Bankruptcy and Stock

While Slatkin filed for Chapter 11 bankruptcy protection last Tuesday, lawyers were working this week to freeze the former EarthLink executive's estimated $20 million in assets, which consist primarily of EarthLink stock.

An attorney for Slatkin told news sources that more than $140 million had been returned to investors over the last two years, and that some investors got more than they invested. Others, however, invested more than they got back, based on Slatkin documents and information gleaned from computer hard drives.

Another attorney reportedly said that Slatkin intended to cooperate with investors and authorities investigating the matter.

White-Collar Crime

Slatkin, who allegedly told investors that his funds are tied up in legal wrangling, is just the latest prominent technology executive accused of fraud or other crimes.

An executive with Cisco was recently fired for alleged embezzlement, and allegations of insider trading and fraud involving executives at European Infomatec have also surfaced.

The co-founders of Belgium's Lernout and Hauspie Speech Products are currently in jail on allegations of fraud. The high-tech firm, suffering from a scandal involving accounting errors and allegations of fraud, filed for bankruptcy protection in Belgium, South Korea and the U.S. earlier this year.


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