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, 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.

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