Settlement reached in investor-related Ponzi scheme

Former bankers for EarthLink co-founder Reed Slatkin have agreed to pay $26.5 million to settle a lawsuit alleging that they helped him appear to be an investment advisor while he operated a multi-million dollar Ponzi scheme.

Attorneys involved in the 2-year-old lawsuit said the last of the documents were being signed Monday but still must be approved by U.S. District Judge Margaret Morrow in Los Angeles. The recovery would be the largest yet for investors in what Slatkin has admitted was a fraud that began in the mid-1980s and was revealed in 2001.

The settling defendants included Union Bank of California and Bank of Orange County. Other defendants were Imperial Management Inc., the former trust division of Imperial Bancorp, an Inglewood bank acquired in 2000 by Comerica Inc., and Mary Catherine Leider, a former vice president in Imperial’s trust division who handled accounts for some Slatkin investors.

The settlement documents didn’t disclose how much each of the defendants and their insurers were to provide toward the $26.5 million. None of the defendants admitted wrongdoing.

A group of the largest Slatkin investors and their lawyers at the Kirkland & Ellis legal firm are to receive about $15.5 million of the proposed settlement, according to K&E attorney R. Alexander Pilmer.

An additional $11 million will be put aside to cover losses and legal costs for hundreds of additional investors who gave Slatkin more money than they received back in alleged earnings, according to the settlement.

The lawsuit accused the bankers of participating in fraud by providing Slatkin with credit and overdraft protection, allowing him to commingle personal and investor funds and lending their names and prestige to his operations. Leider was accused of accepting financial favors from Slatkin in return for steering business in his direction.

Slatkin last year was sentenced to 14 years in prison and ordered to pay $240 million in restitution after he pleaded guilty to fraud, conspiracy and money laundering.

Slatkin raised a total of $593 million from investors and recycled much of that back to them in what he claimed were investment returns. But when his fraud was revealed, his investors came up short by more than $200 million.

The investment scam did not involve EarthLink.

A Ponzi scheme pays early investors with proceeds collected from later participants.

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Associated Press, USA
Sep. 14, 2004

Religion News Blog posted this on Tuesday September 14, 2004.
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