LOS ANGELES – A group of investors bilked out of millions of dollars in a Ponzi scheme run by former Internet executive Reed Slatkin are now fighting to keep lawyers and accountants sorting through the investment manager’s bankrupt estate from soaking up millions in fees.
The investors are hoping to recoup some of their losses from Slatkin’s estate, but many are concerned the attorneys and accountants hired to handle the recovery of assets could end up running away with the bulk of the money in fees and expenses.
Eighty of the 800 or so investors who lost money in the scam signed a letter sent to the Office of the U.S. Trustee on Wednesday, asking that the federal agency review the attorneys’ and accountants’ charges.
The fees and costs racked up so far exceed $19 million, compared with the $12 million that has been recovered to date and split equally among the hundreds of investors, according to a copy of the letter obtained by The Associated Press.
“Many of us are middle income people, who lost substantial sums to Slatkin. We cannot afford to pay lawyers to protest the excessive legal fees, which were supposedly being spent on our behalf,” the letter states. “We are petitioning you to step in and take action to stop the runaway fees in this case.”
U.S. Bankruptcy Court Judge Robin Riblet has scheduled a hearing Monday to consider a motion by the firms for final approval of their fees and costs.
“If it goes along on the same kind of basis, where $19 million is paid to collect $12 million, we’re going to lose and the attorneys are going to win,” said Charles Ohl, an insurance executive in Valencia, Calif., who lost $104,000 from an IRA account in the scheme. “We’re being victimized a second time, which is part of the frustration.”
The 80 investors had $34 million in loses combined, said Ohl, who penned the letter on behalf of himself and the other investors.
The U.S. Trustee has jurisdiction over bankruptcy cases filed in the Central District of California.
“We’re looking to them to even come in and review these (bills) as well as the court,” he said.
No one answered a phone after hours at the Office of the U.S. Trustee Wednesday.
Slatkin, a co-founder of Earthlink, was sentenced Sept. 2 to 14 years in federal prison for running the nearly $600 million scam. He has been ordered to pay $240 million in restitution to the investors, the amount for which he admitted personal responsibility.
The investment scam did not involve EarthLink.
Slatkin portrayed himself as a successful financial adviser who provided investors with statements that showed hefty returns. But Slatkin would actually pay some investors returns that were largely made up of funds raised from other investors, prosecutors said.