This is the story of Reed Slatkin, former minister of the Church of Scientology who swindled 800 clients out of nearly $600 million.
Reed Slatkin was among the most prestigious of Hollywood Scientologists. Using his position as a Scientology minister, he made all the right connections. He managed to raise close to $600 million from the wealthiest investors in Hollywood. The who’s who of the nineties threw a ton of money at him, including Joe Pantoliano, Anne Archer, Jay Sedrish, Greta van Susteren, and Giovanni Ribisi. They fell victim to one of the largest Ponzi schemes in U.S. history.
Reed Slatkin’s Background
Reed Eliot Slatkin was born in Detroit in 1949. He doesn’t seem to have had the best childhood. When he was 16 years old, his father committed suicide in their garage. Understandably, young Slatkin was lost and needed direction. Lucky for him, his uncles introduced him to scientology, and he got a chance to study directly under Lafayette Ronald Hubbard, the founder of the Church of Scientology.
Scientology must have provided Slatkin with what he needed because at the age of 24 years, he became a Scientology minister. He preached the message and he believed it. He also married his wife, and everything was great. However, his job wasn’t paying him as much as he needed to pay bills. A mentor in the Scientology community taught him about stocks and investing, which got him thinking that this was the best way to make it big in 1984. Slatkin headed out to the golden coast, California looking for the golden opportunity. In the garage of his new home, he set up an investment office and called it the “Investment Club”. He reached out to the people in his circle, asking them to invest through him. Basically, he was telling them to give him their money because he could make more money for them than the banks. He portrayed himself as an investor with tons of experience and technical analysis genius. And his gullible scientology friends thought that, indeed, there was no way they could lose their money. This was the line of thinking that Daniel SEDA, former associate of Slatkin fell prey to. Daniel worked in Los Angeles in the antique art industry. When he learned of Slatkin’s investment practice, he trusted him to invest almost $400,000 worth of his entire life savings. He thought he had found someone who could help him achieve his dreams of refinancing his home.
Netting the big fish
Slatkin wanted to play with more money than what his position in Scientology allowed him access to. He was wondering how he’d get celebrities and high ranking officials to invest with the “Investment Club” when Kevin O’Donnell showed up with a $20 million investment. Slatkin had his whale bait. Impressed with the entrepreneurial spirit of Slatkin garage setup, O’Donnell invited Slatkin to be a part of a new startup called EarthLink, which later became one of the nation’s largest ISPs. O’Donnell wanted Slatkin to invest and help the company’s finances. Slatkin not only agreed to take up the job but also invested his own $75,000. Three years later, the company went public and Slatkin realized a return of $100 million for EarthLink. Consequently, EarthLink gave Slatkin access and credibility to investors that he would have otherwise never met. Slatkin began attracting some of those influential people in Hollywood.
Slatkin gets a taste for extravagance
As Slatkin continued handling massive amounts of investors’ money, he developed a taste for the finer things in life. He had no problem taking the money he managed and spending it like it was his one. In 1993, he moved his family to Hope Ranch, an exclusive community in Santa Barbara, California. He also collected high price art as a hobby and he was knocking on the 1% store on a regular basis. He joined multiple prestigious country clubs over the years, paying the dues with his stolen money. Slatkin even held his 50th birthday party at the Biltmore Hotel in Santa Barbara. The luxurious resort, owned by the Beanie Baby creator, costs around $1,000 per night on average. Slatkin purchased luxury private jets and an expensive wine collection. He even dared to donate money that wasn’t his to charities and reap the social benefits for himself.
By this time, Slatkin’s reputation and status had grown exponentially. Everyone looked at him like a high-ranking philanthropist. When was the schemer that looked under his facade to reveal itself?
Slatkin was actually running a Ponzi scheme to maintain all the drastic changes to his life. He offered clients a guaranteed 24% annual profit on their investments, and he told them that he was able to do that by making smart stock trades and investing very early in promising startups. However, none of this was true. What he was actually doing was keeping a steady stream of new investors coming in and using their money to pay off old investors (pretty basic ponzi scheme model).
He lied about where he invested investor’s money. Investigations revealed that he sank most of his client’s money into underperforming real estate and tech startups that went nowhere. He gave some of his clients fake account statements detailing their increasing profits of up to 24% return on investment.
SEC becomes suspicious of popular unregistered investment advisor
Slatkin’s refusal to register as an investment advisor started the downward spiral that ended his scheme. In the United States, any person or company investing money on behalf of others must register with either the state or the SEC to ensure that everything is legal and safe. If you’re working with under a hundred million dollars, you registered with the state. Over that, you register with the SEC.
In November, 1999, the US Securities and Exchange Commission (SEC) opened up an investigation into his Investment Club.
When Slatkin knew that the regulator would find many irregularities in his business practices, he made it seem as though he was retiring. He sent out letters to his investors and even provided fake liquidation statements to the SEC. But this was just another misdirection, as he took in more money. Even under investigation, he was able to get over $100 million in new investments. One of these final investors was John Poitras, a former venture capitalist whom Slatkin had talked out of $15 million. However, this was the big catch that ultimately capsized Slatkin’s sinking ship. The retired venture capitalists wanted out just a few weeks later. Poitras called and called, but Slatkin always had an excuse for not returning his money. At this point, he was getting calls from many investors that wanted out, and had no idea what to do.
In a last ditch effort to hold everyone off, he invented a story about a Switzerland brokerage firm called NAA Financial. This imaginary brokerage was holding $500 million of his money. He went to great lengths with investors to prove his story. Slatkin once again, creating fake documents, fake business. His attention to detail was so precise. He even made sure to have a European ring tone for his fake company. However, the lie proved too big to sell. And the plan fell apart under scrutiny. There was no stopping the ball now that it was rolling downhill. John Poitras dealt with excuses and empty promises for six weeks before becoming fed up, contacting his lawyer.
Poitras’ lawyer filed a civil lawsuit and got a judge to agree to freeze all of Slatkin’s accounts. The ponzi scheme crumbled to nothing. After running out of options, Reed Slatkin filed for bankruptcy on May 1, 2001.
His troubles had just started. The SEC sued him for violating federal security laws. 10 days later, he stepped down from his position at EarthLink. The FBI and IRS raided his offices and collected enough evidence to bury him in.
In 2003, Reed Slatkin pled guilty to wire fraud, mail fraud, obstruction of justice, and money laundering. He told the court that he was afraid to shut the operation down because of the reaction he would have gotten from the church. The judge sentenced him to14 years in prison and ordered him to pay back up to $140 million in restitution. People who profited from his scheme also had to pay back what they gained. For example, Fox News anchor Greta Van Susteren and her husband agreed to pay back $700,000 worth of profits made from Slatkin’s con scheme. In total, they had netted $939,000. The church publicly condemned Slatkin for his actions. They stated that he violated their code of ethics and the church cut all ties with them. However, the Financial Times reported on November 9, 2006 that groups affiliated with the Church of Scientology had agreed to pay back $3.5 million they received from the former Santa Barbara money manager.
The con served 10 years before being released from prison. He spent the next two years with his family before dying of a heart attack in 2015.
Reed Slatkin; Scientologist Ponzi scheme; Church of Scientology ponzi; Lafayette Ronald Hubbard; Hollywood Scientology Ponzi Scheme