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EarthLink Co-Founder Pleads Guilty

According to a plea agreement arranged by attorneys and the U.S. District Court of California Tuesday evening, EarthLink, Inc. co-founder Reed Slatkin could be in jail for more than a century. Oh, and he'll have to pay fines -- and give back the money he bilked from investors in a Ponzi scheme -- that total approximately $257 million.

In the court order obtained by internetnews.com, Slatkin, 53, entered a plea bargain on 15 counts of mail and wire fraud, money laundering and conspiracy to obstruct justice during an investigation by the Securities and Exchange Commission (SEC).

Press reports say the plea could reduce his jail time to a more manageable 10-15 years.

Slatkin and co-founder Sky Dayton started EarthLink, a dial up Internet service provider (ISP) in the late 80s and built up the company to what is now the fourth-largest Internet provider in the U.S. Slatkin resigned from EarthLink's board of directors in April, soon after the SEC probes began, and filed for Chapter 11 bankruptcy protection a month later.

It all started back in 1990, when the EarthLink co-founder established the Reed Slatkin Investment Club, convincing three investment firms to join as limited partners, and set up shop as an investment adviser and money manager.

Over the course of the next two years, as well as with investors prior to the establishment of his investment club, Slatkin managed to garner $593 million from 800 investors. Claiming he was using the money to invest in the stock market, he was actually using the money from new members to pay off previous investors and pass it off as returns on their investment.

"Ponzi" schemes go by many names with various methods: pyramid scheme, multi-level marketing, whatever. In essence, the person involved in the beginning of the scheme is promised returns on their investment, and they usually see some profits (from the new members below them), though the investors at the bottom of the "pyramid" can only hope for new members.

Overseeing it all was Slatkin, who skimmed a relatively small amount of money off the top of all these investments and put them in off-shore accounts, where financial regulations are extremely lax. The ventures he did enter were all speculative and unprofitable.