Reed Slatkin engineered one of the greatest Ponzi schemes in history, in the name of Scientology and to line his own pocket.
Photo by Mackenzie Marco on Unsplash
Investment guru and former minister of the Church of Scientology, Reed Slatkin, used his connections to swindle 800 clients out of nearly $600 million, and he started with those closest to him; his church group.
Born in Detroit in 1949, Slatkin lost his father at a young age. His uncle took over guardianship and soon introduced him to Scientology, and in 1975, Slatkin became an ordained church minister.
The role didn’t last long, and by 1984, Slatkin was a full-time financial investor. He leaned heavily on his friends within the church to guide their investments under The Reed Slatkin Investment Club.
The group of church members were giving their friend hundreds of thousands of dollars, and some had even invested up to $10million in whatever stocks Slatkin told them about. Alongside his church friends, there was a growing number of Scientology members who were also actors, like Giovanni Ribisi, who sought Slatkin’s counsel.
Offering his financial advice to celebrities, he got many to invest, and this grew his friend circle and, most importantly, his status among the elite. Arnold Schwarzenegger and Kevin Costner even knew who Slatkin was, though it’s unknown whether they invested.
In 1994, a church member, Kevin O’Donnell, introduced Slatkin to a man named Sky Dayton, a young entrepreneur and fellow Scientologist. The 23-year-old wanted to build software that made it easier to connect to the internet, and he was looking for investment. The pair founded EarthLink Networks, an internet service provider, with Slatkin’s $75,000 investment and an additional sum from O’Donnell.
He grew so rich that he bought houses on a ranch in Santa Barbara. By this point, Slatkin had a wife, Mary Jo, and sons, Brett and Brad.
“Hope Ranch is quite beautiful, very exclusive. He even bought the house next door, where he kept the gardeners and other workers,” explained one of Slatkin’s former friends in the New York Post. “He wanted his house to be clean of all that stuff. To buy one of those houses takes serious money, but he bought two of them.”
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.
By the millennium, Slatkin’s shares in EarthLink were worth over $120 million, and the company would go on to become the default ISP for Apple’s iMac, which also invested $200 million into EarthLink. Slatkin’s notoriety as a legitimate financial adviser began to grow even further after this savvy investment began to show legitimate performance.
Reed Slatkin’s issue was that the money he was supposedly investing for his friends, community, and the circle of movie stars he surrounded himself with wasn’t going anywhere but into his pocket and into the church of Scientology.
In reality, the money from newer investors was paying off the older clients, and the others were being given fake account statements detailing their increasing profits of up to 24% return on investment.
Over the years, alongside his four-acre estate in Santa Barbara, Slatkin had also bought private jets, sports cars and an expensive wine collection while claiming the money was being invested into legitimate businesses and startups for his clients.
In the beginning, some of his investors did make money, but not many of them. Peter Coyote, known for his roles in E.T, Bitter Moon and A Walk to Remember, reportedly invested $393,000 and was returned $1,330,442. Some of his clients were happy, however, Slatkin’s luck was about to run out, and his world would come crashing down.
In 2001, the technology bubble had reached its peak, and investors were beginning to want to cash in their investments, but Slatkin didn’t have their money. The former church minister had also refused to register as an investment adviser, and in turn, the Securities and Exchange Commission started to investigate Slatkin.
In April 2001, he resigned from the board of EarthLink Networks and soon after, he filed for Chapter 11 personal bankruptcy protection.
The IRS and FBI soon became involved in unearthing Slatkin’s unscrupulous business, and the investor quickly pleaded guilty to the crimes against him. He did, however, claim that many of his peers threatened him to continue with the investments, as he was funnelling the money into their church and simultaneously making them each a profit.
Reed Slatkin was charged with six counts of money laundering, five charges of mail fraud, three counts of wire fraud and a conspiracy to obstruct justice. After spending over 500 days in federal prison before his sentencing, Slatkin was eventually given fourteen years behind bars and transferred to the Taft Community Correctional Institution in California.
“The havoc that the defendant has wreaked is immense, the loss is immeasurable,’’ Judge Margaret M. Morrow told the courtroom filled with Reed Slatkin’s victims.
In 2004, Slatkin’s bookkeeper, Jean Janu, also pleaded guilty to obstructing the Securities and Exchange Commission’s enquiry into the investment club and falsifying investor statements. He received 21 months in prison.
Slatkin was ordered to pay back $240 million in reimbursement, but it wasn’t that simple. Many of Slatkin’s investors were involved with Scientology, and because the money had been plumbed into the church, they wouldn’t sue. Instead, the church’s trust settled a lawsuit in 2016, and it paid out $3.5 million. The church’s attorney, David Schindler, stated, “The church and its hundreds of parishioners were as much victims of Slatkin as anyone else.”
Reed Slatkin pissed off a lot of people. Joe Pantoliano, Anne Archer, Greta Van Susteren and countless more were victims of his money scams over nearly two decades. Many didn’t have their money reimbursed after the trial, including some of Slatkin’s closest friends.
“It’s not the money that bothers me. That happens,” Patrick Siefe explained to the New York Post. “What surprised me and the way I feel cheated is that a friend has betrayed me.”
Siefe, a computer consultant from Santa Barbara, lost $100,000 in the scheme, but others lost their entire life savings.
Around 50% of the money taken from his clients was paid back, around $300 million in total, but not everyone was so lucky. Many of those outside of the Scientology circle never saw their investments again.
One friend had asked Slatkin to be the custodian of her mortgage when her husband was dying from cancer. The experimental treatments he was trying were expensive and had all but ruined her savings, but Slatkin didn’t care; he took her money anyway.
Many, including John Poitras, who lost $15million to the crook, don’t believe the 14 years given was long enough for their former friend, stating the sentence was a “slap on both wrists” and an “insult to the victims” in the case.
The investor served just ten years in prison for his crimes and was released in 2013, where he lived in a halfway house temporarily.
Reed Slatkin’s Ponzi scheme was the first to infiltrate the church, but it wasn’t the last. Earlier this year, Scientologist David Gentile and his business partners took the money they’d received from 17,000 investors through their legitimate business. They told them they’d invest in startups and other companies, which would give them each a profit of an eight percent annual return.
What they did was take the $1.8 billion in investments and spend it on sports cars, homes and extravagant parties. It’s unclear whether any of the money was siphoned into the church of Scientology in this case.
Gentile, Jeffrey Lash and Jeffry Schneider pleaded not guilty to conspiracy charges to commit securities fraud and wire fraud, alongside other indictments. The trial has been on hold since March due to connections in another case currently being investigated.
It’s not known whether Slatkin kept a buffer for when he got out of prison, but he didn’t hang around long enough to enjoy it if he did. It’s also unclear whether the church of Scientology knew what he was doing.
In June 2015, it was reported that Reed Slatkin had died of a heart attack at 66 years of age.
“He was alone and he made it to the hospital. He seemed to know he was having a heart attack and he collapsed and fell dead,” his ex-wife explained.
If Slatkin had invested the money — which he knew how to do — he wouldn’t have spent a decade behind bars, and could have enjoyed his last few years with his family, rather than a broke, tarnished man, living in a halfway house.
Resources and further reading
Reed Slatkin Given 14-Year Prison Term Reed E. Slatkin, who took $593 million from investors in one of the biggest Ponzi schemes in history, was sentenced to…www.latimes.com Great frauds in history: Reed Slatkin's Investment Club | MoneyWeek Reed Slatkin studied with Scientology's founder L. Ron Hubbard and became an ordained minister in the cult 1975. He…moneyweek.com EarthLink Founder Sentenced in Fraud (Published 2003) EarthLink Inc founder Reed Slatkin is sentenced to 14 years in prison after pleading guilty to cheating investors out…www.nytimes.com HEAT'S ON CELEB $$ GURU: SUIT: HE RAN $230M RIP-OFF SCHEME EARTHLINK co-founder and investment guru Reed Slatkin glided easily among Hollywood hotshots and the gilded rich of…nypost.com
While I was working for Reed in the 90's to integrate my investment modeling software which I now realize he desperately needed , I watched his daily trading activities but he could never tell me exactly his methodology. He always mentioned after complementing my realtime demonstrations, that he had no idea how my predictive system worked, but then as I suggested he manage mom's assets while we integrated my software and I managed the trading, he evidently could never make that night-to-day switchover to going clean.