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JewishJournal.com

January 10, 2002

Fraudulent Friend

A quadriplegic is one of 800 victims in an alleged investment scheme.

http://www.jewishjournal.com/community_briefs/article/fraudulent_friend_20020111

Reed Slatkin is accused of running a Ponzi scheme that allegedly took in  $593 million.

Reed Slatkin is accused of running a Ponzi scheme that allegedly took in $593 million.

After being left a quadriplegic in a car accident in 1993, 53-year-old Alice Wintz received an insurance settlement that she thought would, with careful investing, leave her financially secure for life.

So she asked money manager Reed Slatkin to invest her settlement. Wintz and her ex-husband had met Slatkin in 1986 through a business associate, and considered him a friend. Impressed with his charm and financial acumen, and, having had what Wintz describes as a "good experience" investing a small amount of money with him in 1986, they thought they could trust him with the insurance settlement.

The Securities and Exchange Commission (SEC) had accused Slatkin of running a Ponzi scheme shortly after he filed for bankruptcy in May 2001. (A Ponzi scheme is a phony investment plan in which money provided by later investors is used to pay artificially high returns to the initial investors, with the goal of attracting as many investors as possible.) Slatkin's alleged scheme is said to be one of the biggest cases of investment fraud in American history.

Last week, Slatkin agreed to be barred from investment management as part of ongoing settlement negotiations with the SEC, the Los Angeles Times reported.

But, whatever the results of the SEC case, Wintz may not recover her funds.

Over the years, Wintz had received periodic statements from Slatkin's office saying that her money was making a certain percentage every year. Over time, she had made withdrawals of what she believed was the interest on her account, and used the money to pay for her medical expenses and her living expenses.

At the end of December 2000, Wintz said she received a statement from Slatkin telling her that she had more than $1 million in capital left in her account. However, when she requested a withdrawal of some $15,000 in April 2001 to pay her taxes, her mortgage and her nursing care, she was unable to withdraw the money or to reach Slatkin on the phone, she told The Journal.

Her security suddenly disappeared.

"I'm about to be thrown out here on the street and I don't have income to pay for my nursing care and my other expenses," Wintz, a divorced mother of two, said. "According to the creditors committee and the attorney for the trustee, it had been a fraudulent scheme from the beginning,"

Slatkin would not comment on the case, his lawyer said.

Slatkin, 52, lives in Santa Barbara. He was born Jewish but turned to the Church of Scientology when he was a teenager, eventually becoming a minister for the church, according to news reports. When Slatkin saw that he could not live off the salary he was getting as a minister, he started investing to help his family and other members of the church earn some extra money.

He experienced a financial windfall in 1994 when he was asked to put up some money to help a fledgling Internet company. That Internet company was Earthlink, and Slatkin's $75,000 investment grew to be worth more than $100 million.

Slatkin allegedly used his fortune to buy his way into Santa Barbara society, becoming a benefactor of the Santa Barbara Opera and a member of the yacht club. Along the way, he convinced many to invest with him, including celebrities such as lawyer-turned-news host Greta Van Susteren and actor Peter Coyote. Slatkin allegedly used the money he received from the 850 investors to make large payments to a select group of 75 investors, who collectively received $151 million more than what they put in. The rest of the investors found out on May 1, 2001, that Slatkin was filing for bankruptcy, and that they would not be able to retrieve their capital investment, let alone the inflated interest and dividends that Slatkin had promised them.

In subsequent meetings with the other creditors, Wintz discovered that she would probably not be able to make a claim on Slatkin's estate, because she had been withdrawing funds from her account for six years. Although she believed that was only taking out the interest, due to Slatkin's alleged fraud, she was actually living off her capital.

Now, with no nest egg and no income, Wintz's situation is dire indeed.

Richard Wynne, an attorney representing the creditors, noted that Wintz's situation was "complicated" and said in an interview with The Journal that he "believed she was a net debtor," (meaning she had possibly taken out more money than she had put in). This sentiment was echoed by Todd Neilson, the Chapter 11 trustee, who told The Journal that Wintz was in an "unfortunate situation, and we genuinely feel sorry for her and her condition, and we empathize with her, but that doesn't change the numbers."

Rabbis have already helped out Wintz, whose 16-year-old attends Shalhevet High School. "I want to thank the Jewish community for all the support they have given me," she said, adding that she hopes others in the community will assist her, either by finding her a low-rent apartment or by helping her find some bookkeeping work.

Wintz is also in the process of setting up a charitable foundation designed to help handicapped or otherwise impaired victims of fraud, she said. "We were in shock and disbelief when we found out what had happened," Wintz said.

"I sat in his house in Santa Barbara at the end of 1994 and he said, 'Don't worry, I'll take care of you,'" Wintz recalled.

"He was not the great friend we all thought he was, that's for sure."

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