Slatkin Trustee Report - December 2001

JOHN P. REITMAN (State Bar No. 80579)

ANDREW S. ROTTER (State Bar No. 86725)

GUMPORT, REITMAN & MONTGOMERY

550 South Hope Street, Suite 825

Los Angeles, California 90071

Telephone: (213) 452-4900

Facsimile: (213) 623-3302

Attorneys for R. Todd Neilson, Trustee of the

Chapter 11 Bankruptcy Estate of Reed E. Slatkin

RICHARD L. WYNNE (State Bar No. 120349)

JOLEE M. ADAMICH (State Bar No. 196351)

KIRKLAND & ELLIS

777 South Figueroa Street

Los Angeles, California 90017

Telephone: (213) 680-8400

Facsimile: (213) 680-8500

Attorneys for the Official Committee of

Unsecured Creditors

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF CALIFORNIA

NORTHERN DIVISION

In re

REED E. SLATKIN,

Debtor.

_____________________________________

)

Bk. No. ND 01-11549-RR

Chapter 11

FIRST INTERIM REPORT OF THE TRUSTEE AND THE CREDITORS COMMITTEE UNDER 11 U.S.C. §§ 1103, 1106(a)(3)-(4)

DATE: December 17, 2001

TIME: 2:00 P.M.

PLACE: Courtroom 201

[Judge Riblet]

[Volumes 1 Through 4 Of Charts And Exhibits Concurrently Filed Under Separate Cover]

/ / /

I. INTRODUCTION

R. Todd Neilson, the trustee (the “Trustee”) of the Chapter 11 Bankruptcy estate (the “Estate”) of debtor Reed Slatkin (“Slatkin”), submits this interim report under 11 U.S.C. § 1106 (a) (3)-(4) on the financial condition and business operations of Slatkin and his Estate. Because the Official Committee of Unsecured Creditors (the “Committee”) has been very active in the investigation of these matters pursuant to its authority under 11 U.S.C. § 1103, this report is a joint report of the Trustee and the Committee and is based on their joint investigations.

The purpose of this report is to provide information concerning Slatkin’s assets, liabilities, and financial affairs. In general, the Trustee does not have personal knowledge of the events described in this report, as he was appointed after many of the events transpired. Thus, this report reflects the personal views of the Trustee, his professionals, and the Committee’s professionals based on their investigation to date and it is not intended to bind any person or entity and does not result from a trial or factual determinations on the merits. There may be persons and entities that strongly disagree with the Trustee’s and the Committee’s assessment of the facts contained herein or of their respective rights and obligations. Absent a Bankruptcy Court approved settlement of disputes, if any, between the Trustee and various persons and entities mentioned in this report regarding their respective rights and obligations, the Court will ultimately determine the facts and law. The Trustee and the Committee reserve the right to amend and supplement this report in light of any additional information that they may receive. The Trustee and the Committee intend to file additional and supplemental reports as may be appropriate or directed by the Court.

Although the Trustee, the Committee, and their respective professionals (the Trustee’s counsel, the Trustee’s accountants and financial advisors, and the Committee’s counsel (collectively, the “Professionals”)) have reviewed voluminous documents and financial records, some documents in their possession have not yet been completely reviewed. Moreover, the Professionals have conducted very few examinations of witnesses under oath to date, although informal interviews with certain witnesses have been conducted. Because Slatkin has asserted his Fifth Amendment privilege against self-incrimination, counsel has not yet been able to examine Slatkin under oath, although he has been informally interviewed concerning selected subjects on several occasions by the Trustee, the Trustee's counsel, and the Committee’s counsel.

While numerous subpoenas to third-party witnesses have been authorized by the Bankruptcy Court for the production of documents and several for the examination of material witnesses pursuant to Bankruptcy Rule 2004, most of those examinations have not yet been conducted. Accordingly, in the future, the Professionals expect to obtain substantial additional documents from third parties and conduct a substantial number of oral examinations. Information obtained from that future investigation may support, amplify, modify, or even possibly contradict certain aspects of the conclusions outlined in this report. In addition, the investigation into the acts and conduct giving rise to Slatkin’s bankruptcy and the identification and tracing of assets is an ongoing process. As that investigation has not been concluded, this report intentionally omits any discussion of certain areas of ongoing investigation. This report also highlights and discusses certain assets of the Estate, but does not list or discuss all assets, such as each stock holding and partnership interest.

II. SUMMARY OF TRUSTEE'S CONCLUSIONS

Slatkin appears to have conceived and nurtured a perception or aura that he was a financial wunderkind who graciously bestowed his investment wisdom upon an exclusive and dutifully grateful constituency. In actuality, Slatkin conceived, executed, and perpetrated a massive multi-year fraud on his investors, using funds from new investors to pay inflated and false returns to other and older investors, while wasting tens of millions of dollars on ill-conceived and disastrous investments and paying staggering sums to certain associates and consultants. Slatkin sought investors’ funds with the full knowledge that he would be incapable of providing those returns and that the invested funds would quickly disappear into the ever expanding vortex of his fraudulent Ponzi scheme. “Generically, a Ponzi scheme is a phony investment plan in which monies paid by later investors are used to pay artificially high returns to the initial investors, with the goal of attracting more investors.” In re Bonham, 299 F.3d 750, 750 n. 1 (9th Cir. 2000).

Slatkin’s fraudulent scheme was not a recent development precipitated by the current financial slowdown or the collapse of the dot.com or high-tech bubble. Rather, it was a carefully orchestrated charade extending as far back as 1986. Predictably, and inevitably, the Ponzi scheme grew geometrically in the later years requiring an ever increasing flow of cash from investors to maintain the illusion of Slatkin's unattainable financial promises. Ultimately, Slatkin’s scheme collapsed amidst lawsuits from concerned investors, government inquiries, and criminal investigations.

While holding himself out to be a highly skilled investment counselor, Slatkin’s actual financial and investment skill ranged from unspectacular to dismal until he made a serendipitous investment as one of the founding investors in Earthlink. Ex. 1^[1] (Slatkin Depo., p. 146). That single successful investment in Earthlink propelled Slatkin to a new level of theretofore unattainable credibility. Slatkin used that credibility as a further inducement to investors and he was able to rapidly and aggressively expand the funds under his control, most of which were quickly dissipated.

The Trustee and the Committee believe that an objective review of most of the investments remaining in the Estate compels the conclusion that Slatkin’s opportune investment in Earthlink was an aberration. It is apparent that many millions of dollars that Slatkin told investors he had wisely invested in business ventures (for the most part allegedly in publically traded securities) capable of providing meaningful return have, in fact, been lost in a financial black hole. When viewing Slatkin’s entire remaining portfolio of publicly traded securities, an experienced financial investment counselor with a national investment advisory firm described the remaining portfolio as “the worst I have ever seen in all of my years of experience.”

Many of the approximately 800 Slatkin investors have experienced extreme personal and family economic hardship due to the loss of their investments, as well as the fact that many investors have informed the Trustee or the Committee that they dutifully reported and paid taxes on the profits which Slatkin listed on their respective investor statements, profits that were completely illusory.

The single most commonly asked question in this case has been what happened to the money? From 1986 to 2001, Slatkin received approximately $593 million from investors. He distributed approximately $535 million to investors. Of this $534 million, 75 investors received approximately $279 million, even though they had invested only $128 million, thereby realizing an excess return of approximately $151 million.

From his stock brokerage transfers, Slatkin realized a gain of approximately $65 million, the vast proportion of which resulted from sales of his Earthlink stock. Slatkin expended at least $88 million on various assets and investments, many of which are illiquid or valueless, and spent approximately $47 million in “operating” expenses, including taxes.

The “select few,” approximately 75 persons in number, substantially profited from their financial arrangement with Slatkin. The total amount paid to these investors from 1986 to 2001, above and beyond their original investments, is in excess of $151 million or $2 million per investor. Slatkin paid these funds from commingled accounts, essentially using other investors’ money, and not profits actually earned on investments. A small number of Slatkin associates were also able to experience a financial windfall by acting as his “consultants.” Some of those “consultants” were paid millions of dollars for ill-defined services. The Trustee is investigating the recovery of these funds, which represent the greatest single expectation for any meaningful financial dividend to the unfortunate bulk of investors who did not share in Slatkin’s largesse. The Trustee has not initiated any litigation of any kind while he completes his investigation.

Estimates of creditors’ claims in this Estate have ranged from approximately $250 million to approximately $800 million. The cause for this wide disparity finds its genesis in the very nature of the Slatkin Ponzi scheme. Apparently, to persuade investors to retain their investments and often to invest additional funds, Slatkin completely fabricated monthly or quarterly statements for investors that reflected fictitious investments in securities and other assets and cash reserves, as well as a substantial appreciation from those investments. That phantom appreciation or investment gains ranged from an average annual return of 24% to as high as 100%. From 1986 to 2001, Slatkin reported approximately $700 million in bogus profits to investors, of which in excess of $600 million was falsely reported in the last seven years.

The Trustee believes that creditor claims (investments net of payments) are approximately $255 million. Investors may have believed, however, based upon the statements they received from Slatkin, that their investor accounts had grown to approximately $778 million as of December 31, 2000.

On investor statements, the cumulative value of each year’s investment appreciation would be added to the principal and thus compounded. Thus, an unsuspecting investor who invested $500,000 with Slatkin and received an average return, at least according to the fraudulent investor statements, of 28% over four years would have believed that the original investment had ballooned from $500,000 to a $1,340,000 “nest egg.” In actuality, there was no such “nest egg,” because Slatkin had used the $500,000 investment to pay fictitious returns, to make unwise investments, and/or to pay his “consultants” and expenses.

By the end of 2000, the actual funds required to maintain Slatkin's hypothetical investment structure approximated $130 million annually. This was an unattainable sum because Slatkin had dissipated many millions of dollars that had been entrusted to him and he did not possess the funds required to generate this large return.

On May 1, 2001, under a barrage of civil lawsuits and threats by investors (some of whom now sit on the Committee) to file an involuntary bankruptcy petition, Slatkin filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Shortly thereafter, the FBI and the IRS conducted raids authorized by search warrants on the homes and businesses of Slatkin, and the Ponzi carousel finally ground to a halt.

III. SLATKIN’S BACKGROUND

A. Background

Reed Slatkin was born in a suburb of Detroit, Michigan on January 22, 1949. According to Slatkin's SEC deposition testimony, he graduated from the University of Michigan with a major in Asian languages in approximately 1971. He did graduate work at both Stanford University and the University of California at Berkeley in languages and literature. In 1975, he married Mary Jo Slatkin. They have two adult children. Ex. 1 (Slatkin Depo., p. 12).

During Slatkin’s formative years, he became involved in Scientology, which had been founded by L. Ron Hubbard in the 1950s. In 1975, Slatkin was ordained a minister in the Church of Scientology (the “Church” or “Scientology”). From 1974 through approximately 1984, Slatkin and his wife did volunteer work for the Church on a full time basis. Ex. 1 (Slatkin Depo., p. 39). Their income during this period was insignificant. Id.

While the underlying issues in the Slatkin bankruptcy case are primarily economic, not religious, it would be difficult to imagine a more dominant force in the life of Slatkin than Scientology. It would be fair to say that Scientology permeated almost every aspect of his life. It appears that most of Slatkin’s early, as well as present, business associations relate to his affiliation with Scientology, and a large number of the present investors came to Slatkin for advice because of their mutual involvement with Scientology.

B. Slatkin’s Early Investment Experiences

In about 1979-1980, Slatkin met Robert F. Duggan (“Duggan”), a fellow Scientologist, who Slatkin describes as “a successful professional investor, primarily in the stock market.” Ex. 1 (Slatkin Depo., p. 40). Slatkin had no prior formal training in investments and money management, and it was Duggan who provided Slatkin with rudimentary investment training. During this period, Duggan began to teach Slatkin about the stock market and the process of analyzing companies as potential investments. Ex. 1 (Slatkin Depo., pp. 40-42, 173-74).

In about 1984, Slatkin made the transition from full-time ordained minister to that of professional self-employed investor. At about the same time, Slatkin began making investments for “friends.” Ex. 1 (Slatkin Depo., p. 180). At first, Slatkin had a dozen or fewer “friends” who invested money with him. Id. Slatkin described these investor “friends” to the Securities and Exchange Commission (“SEC”) as “people who were spending their time working in the church, or working to help the church, or working to get themselves off this bridge . . . , or training themselves” in Scientology. Id. p. 124. According to Slatkin, he “wasn’t ever looking for anybody [to make investments for] except people that were associated with the church, who came to me.” Id., p. 235. Slatkin’s purported criterion was “someone who was associated with the church, who was working to help the church.” Id. His professed purpose in making investments for these “friends” was “to help the Scientologists who have their attention away from their money and they’re helping the church.” Id., p. 238.

In connection with an audit of his 1983 and 1984 tax returns, Slatkin wrote a note stating that he “never intended and in fact did not ever receive money for doing this.” Ex. 2. Slatkin further explained that the individuals on whose behalf he was investing were his relatives or associates and the association was primarily designed to reduce brokerage fees through the joint buying of stocks.

It was reportedly in about 1985 that an attorney named Dan Lang drafted a form letter for Slatkin’s “friends” to sign when they began to invest with Slatkin; the letter reads: “Dear _____, You have asked me to do you a favor and invest some of your money as a friend . . . .” Ex. 1 (Slatkin Depo., p. 196); see Ex. 3 (Sample Investor Letter). According to Slatkin, everyone who invested with him signed this letter (Ex. 1, Slatkin Depo., p. 197), and numerous persons who had no prior connection with Slatkin signed this letter so that Slatkin would make investments for them.

C. The Ponzi Years: 1986-2001

In 1985, Slatkin was in the process of becoming an established money manager. At that time, Slatkin met Ronald Rakow (“Rakow”) and Chris Mancuso (“Mancuso”), and they invested money with Slatkin. Ex. 3 (Rakow Depo., p. 190, 191, 315). Rakow and Mancuso were involved in a company called Culture Farms. In 1985, Culture Farms was the subject of a criminal investigation and was subsequently placed into receivership. Rakow and Mancuso were convicted of criminal conduct arising out of their involvement with this company. Ex. 3, p. 229.

By late 1986, Slatkin estimates that he was managing about $7-8 million for his “friends.” Ex. 1 (Slatkin Depo., p. 193).

In August 1987, Slatkin met Richard Levine (“Levine”), who was then a stockbroker at Prudential-Bache Securities. Slatkin showed Levine the performance of his “investment pool” which boasted a 40%-50% return and demonstrated to Levine a computer program that he claimed automatically flagged stocks to buy and sell based on certain market developments and other criteria. Levine, impressed by the software and the returns, decided to enter into a business arrangement with Slatkin.

In February 1988, Slatkin and Levine entered into a tentative transaction with John and Amy Jo Gottfurcht (“Gottfurcht”). Ex. 5. Gottfurcht had an existing money management company called Statistical Sciences Inc. (“SSI”), an investment advisory firm registered with the SEC, and he claimed to control over $100 million in client funds. The SSI transaction called for Slatkin and Levine to acquire a 25% interest in SSI and for Slatkin to contribute the license to use his software to SSI. Id. As part of the proposed transaction, an independent audit was made of certain aspects of the business, including Slatkin’s trading results of 40%-50% returns. The audit ultimately concluded that Slatkin’s statements and trading records were not correct and Slatkin admitted to falsifying those records.

Slatkin also had a business association with Patrick Gallagher (“Gallagher”) during 1986-1990. Gallagher was a commodities trader licensed with the Chicago Board of Trade. Slatkin and Gallagher came to an agreement whereby Slatkin would make funds available to Gallagher, who was properly licensed, to make the trades. Ultimately, a bitter dispute arose between them relating to capital accounts and tax allocations. In the final exchange Gallagher’s attorney intoned, “We are fearful that a comprehensive review of certain trading and account activity may reveal unsavory characteristics of a scabrous nature involving, among other things, irregularities with respect to the exchange rules and conduct, which, under closer scrutiny, may subject one to prosecution by various government agencies.” Ex. 6 (¶ 7).

Over the years, Slatkin’s reputation grew, based upon the falsified returns of his portfolio, and people sought out his expertise in ever growing numbers and he had an increasing amount of money under his control. In 1994, Kevin O’Donnell (“O’Donnell”) convinced Slatkin to invest in Earthlink. Within three years, Earthlink became a dot-com success story and Slatkin’s Earthlink stock in the company was worth over $100 million; however, that stock was restricted and was not freely transferable. Slatkin’s Earthlink investment enhanced his credibility with investors.

During the 1990s, Slatkin received hundreds of millions of dollars. He and his family lived in a large estate in Santa Barbara and employed an estate manager to tend to the property. They took vacations to Europe and Hawaii, belonged to an elite country club, and their social circle included some of Santa Barbara’s wealthiest and most influential people. Reed Slatkin had “arrived.”

During this period Slatkin was investing in a wide array of real estate developments throughout the United States, film and production companies, investment partnerships, and securities in a variety of companies. Most of these investments would prove to be financial disasters.

Unfortunately, for both Slatkin and his investors, with the exception of Earthlink, Slatkin’s financial castle was built upon the shifting sands of lies and misrepresentations. The fissures started to be exposed in 1999.

As discussed in greater detail in the following section of this report, in late 1999, the SEC began a formal investigation into Slatkin’s activities to determine if he was as acting as a paid investment advisor who was required to be registered as such under federal law. In an attempt to convince the SEC of his intention to remove himself from the area of money management, in January 2000 Slatkin told the SEC that $300 million of investor funds was in overseas accounts in Switzerland and that he was in the process of liquidating those accounts to pay off his investors, closing investors’ accounts, and referring investors to licensed money managers. Ex. 1 (Slatkin Depo., p. 212).

To date, the Trustee and the Committee have found no evidence to confirm the existence of those foreign accounts or the transfer of substantial funds abroad. Instead, it appears that Slatkin’s representations to the SEC were a further extension of the ruse in which he had been engaged since 1986. Moreover, between January 2000 and April 2001, Slatkin had not stopped his investment activities but had taken in over $135 million in order to maintain the financial charade.

Between 1986 and 2001, Slatkin had approximately 800 investor “friends” who had given him as much as $593 million to invest for them. Periodically, Slatkin provided his investors with statements that purported to show the securities that Slatkin held for their benefit. Ex. 1 (Slatkin Depo., pp. 187-88). Those statements showed glowing results - - that Slatkin regularly and uninterruptedly made money for the investors both in good and bad economic conditions. Although Slatkin purchased some of the securities reflected on those statements, the vast majority of those purported holdings did not exist and the gains reported on those statements were illusory. Slatkin regularly “doctored” real brokerage account statements in an apparent effort to support the existence of fictitious investments and profits. The unfortunate reality is that Slatkin operated a Ponzi scheme cloaked as legitimate and highly profitable investment advice.

IV. PROCEDURAL BACKGROUND

A. The Securities and Exchange Commission Investigation of SlatkinA.

In 1997, the SEC began an informal investigation of Slatkin’s investment activities. Ex. 1 (Slatkin Depo., pp. 122-23). The SEC launched its formal investigation of Slatkin in 1999.

In his examination by the SEC in 2000, Slatkin falsely testified under oath that he was discontinuing his investment operations: “This process of liquidating accounts is now in full swing.” Ex. 1 (Slatkin Depo., p. 125). “I am not accepting any new accounts or any money from existing accounts. And I plan to transition to close or liquidate all accounts over the next few months.” Id., p. 131. In fact, while Slatkin was paying certain of his investors their purported account balances, at the same time, he was continuing to take in millions of dollars from other “friends.” As noted above, during 2000 until he filed bankruptcy, Slatkin took in some $135 million from investors.

Slatkin also represented to the SEC and to certain of his investors that he had hundreds of millions of dollars of investor money in Switzerland. According to Slatkin’s testimony before the SEC, in 1987, he began moving his “friends” money to a company called NAA Financial (“NAA”) in Switzerland. Ex. 1 (Slatkin Depo., p. 195). All of this money purportedly was in Slatkin’s name in two accounts, one for Slatkin and one for his “friends.” Id., pp. 210-12.

In early 2000, Slatkin also testified that, in approximately 1990-91, he deposited $12-15 million into his own account at NAA. Ex. 1 (Slatkin Depo., p. 221). In addition, he testified that he had not made deposits into either of the NAA accounts in the last 12 years (i.e., since 1988). Id., pp. 231-32. Finally, Slatkin represented that, in 2000, there was $300 million in his personal account with NAA. Id., p. 212.

Based upon the Trustee’s investigation to date and investigations conducted by certain of Slatkin’s investors, Slatkin’s story was a complete fabrication. It also appears that NAA does not exist. At the very least, investigators have not been able to identify any such company. Investigators also determined that Slatkin’s purported NAA accounts with Union Bank of Switzerland do not exist. Although Slatkin hired Ernst & Young to audit NAA’s books in Switzerland, apparently there is no such audit report.

There also is currently no evidence that Slatkin directly transferred any large sums of money to Switzerland in 1987-1989. Moreover, it is clear that Slatkin was attempting to create the false image of Swiss accounts to mislead the SEC and to delay or derail its investigation. In the midst of his SEC investigation, Slatkin used International Telecommunications Consulting, LLC (“ITC”) to set up a telephone line that forwarded calls made to a Swiss telephone number to Santa Barbara, where they were answered. In February 2000, Chris Mancuso, who apparently owned ITC, wrote to Slatkin concerning the telephone line: “when you dial the number the line has been conditioned to provide a truly genuine European ring (nice touch, huh?).” Ex. 7.

On May 11, 2001, ten days after Slatkin filed bankruptcy, the SEC commenced a formal action entitled Securities and Exchange Commission v. Reed E. Slatkin, Case No. 01-4283 RSWL (MANx), in the United States District Court for the Central District of California, Western Division (the “SEC Enforcement Action”). In its complaint, the SEC alleged that Slatkin was unlawfully operating as an unregistered investment advisor and that he had and was engaged in transactions, acts, practices, and courses of business in violation of federal securities laws.

On May 18, 2001 the United States District Court entered a Preliminary Injunction against Slatkin and froze his assets. Ex. 8. In substance, ¶ 6 of the Preliminary Injunction enjoined Slatkin from transferring “any funds, assets, securities, claims, or other property, owned by Slatkin, including such funds, assets, claims or other property that he controls or has possession of or custody of.” In support of the Preliminary Injunction, the District Court entered Findings of Fact and Conclusions of Law (“SEC Findings”). Ex. 9.

On May 29, 2001, Slatkin signed a Consent of Defendant Reed E. Slatkin to Entry of Judgment of Permanent Injunction and Other Relief (the “Consent”). Ex. 10. In executing the Consent, Slatkin agreed that he would not deny any allegation in the SEC’s complaint or create the impression that the complaint was without factual basis. Id., ¶ 8. Based thereon, on June 7, 2001, the District Court entered its Judgment of Permanent Injunction and Other Relief Against Defendant Reed E. Slatkin (the “Judgment”). Ex. 10. The Judgment permanently enjoined Slatkin from further violating the federal securities laws as alleged in the SEC’s Complaint. It also permanently froze, among other assets, all monies and assets held in the name of or for the benefit of Slatkin or any of his affiliates. Id., ¶ VII. At the Trustee’s suggestion, the Judgment subsequently was modified to make clear that third parties holding assets subject to the Judgment were required to cooperate with the Trustee. Ex. 11.

Although the Judgment required that Slatkin give the SEC “a detailed and complete schedule of all of his assets, foreign or domestic, including the source of such assets” (Ex. 10, ¶ XI), to the best of the Trustee’s knowledge Slatkin still has not done so.

B0 Litigation Against Slatkin

In early 2001, before the SEC commenced litigation against Slatkin, certain of Slatkin’s investors became alarmed about their inability to obtain the return of money that Slatkin purportedly had invested for them.

1 1. The Poitras Litigation: In February 2001, an investor named John Poitras transferred $10 million to Slatkin for investment. Instead of making investments for Poitras, Slatkin, as he had typically done, used the bulk of those funds to pay off other investors and to pay personal expenses. Ex. 9 (SEC Findings ¶ 10-11). Later that month, Poitras requested the return of his money. After Slatkin stalled and was not able to repay Poitras, Poitras commenced litigation against Slatkin on April 11, 2001. Ex. 12 (Poitras Dec.). In that litigation, Mr. Poitras served writs of attachment to freeze Slatkin’s assets. Ex. 13.

2 Arthur and Lois Berke Litigation: Between 1996 and 1999, Arthur Berke invested about $700,000 with Slatkin; he later invested another $2 million. Ex. 14 (Berke Decl., ¶¶ 3-14). In April, 2001, Arthur and Lois Berke filed suit in the Los Angeles Superior Court alleging causes of action against Slatkin for fraud and breach of contract. Ex. 15.

3 The Wesley West Litigation: On April 19, 2001, Wesley West Flexible Partnership and others (all affiliates of the Stedman family) commenced litigation entitled Wesley West Flexible Partnership [et. al.] v. Slatkin, Case No. 01-03628 RSWl (MANx) in the United States District Court for the Central District of California. Ex. 16. The Wesley-West group also sought to obtain writs of attachment against Slatkin.

Counsel for Poitras and Stuart Stedman, among others, participated in meetings with Slatkin's representatives during the last week of April, 2001, and participated in an informal group of creditors that successfully negotiated for Slatkin to file this bankruptcy case, to turn over voluminous documentation to Deloitte & Touche (which was to safeguard the documents and have them imaged), and to turn over his passport to Slatkin's counsel. Poitras and Stedman are now members of the Committee. Wesley West's counsel has now become Committee counsel.

C0 Slatkin’s May 1, 2001 Voluntary Petition for Relief; Appointment of the Trustee

On May 1, 2001, Slatkin commenced this bankruptcy case by filing a voluntary petition for relief. Slatkin filed his petition only after (1) the SEC had been formally investigating him for a year and a half; (2) he had been sued by Poitras, the Berkes, and the Wesley West group who had invested tens of millions of dollars with him; and (3) certain of his creditors had threatened to file an involuntary bankruptcy petition if Slatkin did not voluntarily file bankruptcy.

In a chapter 11 bankruptcy case, generally the debtor remains in possession of his assets and may continue to operate his business with a view toward reorganizing the business. However, in certain circumstances defined in 11 U.S.C. 1104(a), the Bankruptcy Court may order the appointment of an independent chapter 11 trustee to administer the debtor’s assets and operate his business. The circumstances in which the appointment of a chapter 11 trustee is appropriate include fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor either before or after the commencement of the bankruptcy case.

On May 10, 2001, certain of Slatkin’s creditors filed a motion in the Bankruptcy Court for the appointment of an independent chapter 11 trustee; and on May 14, 2001, the United States Trustee filed her own motion for the same relief. The latter motion was set for hearing on an expedited basis on May 16, 2001.

Immediately prior to the May 16 hearing, Slatkin sought to convert his chapter 11 reorganization case to a chapter 7 liquidation case. Three significant consequences of conversion from chapter 11 to chapter 7 are that (1) an independent trustee is automatically, and randomly, appointed to administer the debtor’s assets and pay creditors; (2) if a chapter 7 creditors committee is appointed, it cannot retain counsel at the expense of the bankruptcy estate; and (3) distributions to creditors from a chapter 7 bankruptcy estate generally takes years. Accordingly, if the Bankruptcy Court had permitted Slatkin to convert his case to chapter 7, the Committee would have been without a viable means of employing counsel or continuing its investigation, and the creditors would not have the opportunity to file a chapter 11 liquidating plan, in order to begin earlier distributions.

At the May 16 hearing, the Bankruptcy Court determined not to permit Slatkin to convert his case to chapter 7. The Court then ordered the appointment of a chapter 11 trustee and the U.S. Trustee made the appointment of R. Todd Neilson as the chapter 11 trustee.

D0 The Official Committee of Unsecured Creditors

The Bankruptcy Code also provides for the appointment of a committee of creditors holding unsecured claims and for counsel for that committee in a chapter 11 case. 11 U.S.C. § 1102. The retention of such counsel is subject to Bankruptcy Court approval, and their fees and expenses are payable by the bankruptcy estate after notice and hearing and upon order of the Bankruptcy Court.

In this case, the Committee has been appointed and it has retained counsel pursuant to Bankruptcy Court order entered on or about May 10, 2001. The Committee has six members who, along with their affiliates and associates, collectively hold claims against the Estate in the approximate amount of $115 million for funds they invested with Slatkin, net of any payments received.

V HIGHLIGHTS OF THE FORENSIC INVESTIGATION

A0 Introduction

Ronald Rakow, a close business associate of Slatkin, advised Slatkin in a memo, “Remember you live and thrive in a world of adulation & respect. In a brutally frank critique and examination you will be found to be a Human . . . .” Ex. 17. The primary source of this “adulation and respect” was Slatkin’s supposedly “proven” prowess as a financial advisor who consistently provided double-digit annual returns on investments tendered to his care. Through their analysis of millions of documents and transactions, the Trustee and his professionals have made the “brutally frank critique and examination” of which Rakow warned. In essence, “the truth is in the numbers.”^[2]

In order to make the required analysis of Slatkin’s financial affairs, NE first had to secure the records of Slatkin and related entities. That task was accomplished through coordination with the FBI, the IRS Criminal Division, Justice Department lawyers, and legal counsel for both the Trustee and the Committee. The Trustee obtained more than 300 boxes of records which are maintained in a centralized document center. In addition, voluminous data was downloaded from Slatkin’s computers; and the Trustee and his counsel obtained substantial additional records from third parties such as banks, brokerage firms, and other businesses, both through the issuance of Rule 2004 subpoenas and informal document productions.

Once the records were available for review, NE commenced its analysis. To date, NE has examined the approximately $1.5 billion which flowed between 63 bank accounts and 318 brokerage accounts (see Exs. 18 and 19); and under the direct supervision of Mr. Judd, 9 people have spent over 6000 hours analyzing and dissecting Slatkin’s financial dealings over a 15-year period. In all, NE has reviewed literally millions of pages and related financial documents. The financial investigation is ongoing and will continue during the pendency of this bankruptcy case. However, a significant amount of the financial information that has been gleaned illuminates, both for the Court and other interested parties, Slatkin’s scheme.

B0 Investment Procedure and Income Reporting

After an investor opened an account with Slatkin, Slatkin typically provided quarterly “statements,” which he carefully crafted in order to create the impression that Slatkin had made highly profitable investments and stock trades, generally averaging annual returns of from 25% to 50%. See Ex. 20. Obviously pleased, investors often transferred additional funds to Slatkin or simply did not withdraw funds from their accounts as they watched their wealth grow geometrically year after year (at least according to Slatkin’s quarterly statements). Many of Slatkin’s investors had a sense of financial well-being that was finally jarred from its moorings by his bankruptcy.^[3]

NE’s analysis confirms that the statements sent to investors were, by and large, completely fraudulent. The returns reflected in those statements were inflated or non-existent. Virtually none of the reported trades had been made, and the securities which supposedly were held in the investors’ accounts had never been purchased or had been purchased in far smaller quantities than Slatkin reported. Similarly, Slatkin’s other oral and written representations concerning his investment returns were utterly false and fraudulent.

As an example, the following Schedule compares the profits reported to investors with those actually reported on Slatkin personal tax returns for the calendar year 1995.

REED E. SLATKIN

All Investors ‑ All Accounts

Summary of Activity for the Year Ended December 31, 1995

Amounts

Activity as Reported to Investors

Investor Account Balances ‑ December 31, 1994

$ 133,663,272

(383 Investor Accounts)

Add: Investor Cash Receipts

32,058,091

Deduct: Investor Cash Disbursements

(23,421,246)

Profits Reported to Investors

67,819,920

Investor Account Balances ‑ December 31, 1995

(484 Investor Accounts)

$ 210,120,038

Adjusted Income/Profit as Reported on Tax Returns (note 2)

Interest Income

$ 465,079

Dividend Income

152,265

Income (losses) from k‑1's

(793,139)

Consulting Business Expenses (note 3)

(1,298,459)

Short‑term/Long‑term Gains (losses)

1,943,162

Miscellaneous

(51,675)

Adjusted Income/Profit as Reported

$ 417,233

Note 1: The amounts as reported on Reed E. Slatkin's personal tax return for the year materially agree to activity from actual cash receipt and disbursement detail, brokerage accounts and partnership k‑1's. These amounts are representative of actual results.

Note 2: Includes both Reed E. Slatkin's personal return and Slatkin Investment Club.

Note 3: Reed Slatkin's personal tax return includes consulting income from investors. These payments which are classified as income for tax purposes are classified as ordinary investment receipts from investors and reported as such to the investor. Accordingly, they are not included as income for purposes of this analysis.

Source: Books and records of the Debtor

As the above Schedule reveals, Slatkin began 1995 with 383 investor accounts and ended the year with 484 accounts (a net increase of 101 accounts). During that period he reported to investors that they had made profits of approximately $68 million, i.e., a purported annual return of 49.15%. In fact, Slatkin overstated the profits by $67.5 million, having gained only approximately $400,000 on funds still in his care.

The Schedule below reflects the annual rate of return, as reported by Slatkin, from 1994 through 2000. Those returns ranged from 19.68% to 49.15%. The Trustee believes that those returns were, by and large, imaginary -- the result of Slatkin’s systematic fraudulent reporting of non-existent gains and income. In fact, Slatkin did not generate gains on his entire investment portfolio; he generated massive losses. Moreover, all of the funds which Slatkin received from investors were commingled and used for whatever purpose he determined at the time.

/ / /

REED E. SLATKIN

All Investors ‑ All Accounts

Summary of Activity for the Years 1994 through 2000

Amounts

Number of Accounts

Estimated Annual

Rate of Return

Activity as Reported to Investors

Investor Account Balances ‑ December 31, 1993

$ 91,848,540

297

Add: Investor Cash Receipts

26,236,410

Deduct: Investor Cash Disbursements

(18,147,333)

1994 Profits Reported to Investors

33,725,656

Investor Account Balances ‑ December 31, 1994

133,663,272

383

35.05%

Add: Investor Cash Receipts

32,058,091

Deduct: Investor Cash Disbursements

(23,421,246)

1995 Profits Reported to Investors

67,819,920

Investor Account Balances ‑ December 31, 1995

210,120,038

484

49.15%

Add: Investor Cash Receipts

42,290,351

Deduct: Investor Cash Disbursements

(38,476,105)

1996 Profits Reported to Investors

62,671,772

Investor Account Balances ‑ December 31, 1996

276,606,056

623

29.56%

Add: Investor Cash Receipts

66,588,599

Deduct: Investor Cash Disbursements

(42,295,853)

1997 Profits Reported to Investors

86,935,289

Investor Account Balances ‑ December 31, 1997

387,834,092

757

30.11%

Add: Investor Cash Receipts

100,113,775

Deduct: Investor Cash Disbursements

(76,279,109)

1998 Profits Reported to Investors

109,740,117

Investor Account Balances ‑ December 31, 1998

521,408,875

762

27.45%

Add: Investor Cash Receipts

97,614,364

Deduct: Investor Cash Disbursements

(101,817,431)

1999 Profits Reported to Investors

138,970,796

Investor Account Balances ‑ December 31, 1999

656,176,604

774

26.76%

Add: Investor Cash Receipts

102,620,503

Deduct: Investor Cash Disbursements

(109,074,273)

2000 Profits Reported to Investors

128,522,538

Investor Account Balances ‑ December 31, 2000

778,245,372

734

19.68%

C0 Reed Slatkin Investment Club: 1998

In 1990, Slatkin registered the Reed Slatkin Investment Club as a dba in Los Angeles County. On March 3rd of that year, he also formed a limited partnership called the Reed Slatkin Investment Club, LP (“RSIC”), of which Slatkin was the sole general partner. Ex. 21. Most of the RSIC accounts were in the name of various retirement plans; and it appears that Slatkin formed RSIC for retirement funds that were being invested for the long-term, so that he could expect that, in any given year, only a small percentage of the funds would be withdrawn.

As a further example of how Slatkin falsely reported gains to investors, NE analyzed RSIC’s investment structure, comparing its 1998 financial results, as reported by Slatkin, with its actual results. As detailed in Exhibit A, as of January 1, 1998, there were 64 investors with a reported $45,110,218 in their retirement accounts. Slatkin added seven new accounts during the year. None were closed. Therefore, at the end of the year, Slatkin controlled 71 accounts through RSIC.

During the year, RSIC reported profits to investors of $10,446,643, which he added to their individual account balances. The records further reflect that he returned $4,319,228 to investors during the year. Thus, according to the quarterly statements that investors received from either Union Bank of California or Santa Barbara Bank & Trust, the aggregate value of their accounts at the end of 1998 was $51,237,633.

A review of the purported $10,446,643 profit during the year reveals that it “consisted” almost entirely of fictitious interest from a Union Bank account, fabricated dividends, and bogus stock sales. Slatkin attributed to investors’ accounts their share of interest on a purported $21,992,980 on deposit in a Union Bank account as of December 31, 1998. However, the actual cash balance in that account on that date was only $9,950.

As reflected in the following Schedule, Slatkin overstated RSIC’s cash by $21,983,029, reporting that RSIC held $24,173,478 compared to the $2,190,449 it actually held. According to Slatkin’s statements, the aggregate value of securities in RSIC accounts, listed at cost, was $24,508,272, but securities actually held by RSIC were worth only $834,801 — a net overstatement of $23,673,471. Slatkin told his RSIC investors that unrealized gains on their holdings totaled $4,140,004, despite the fact that there was an actual unrealized loss on stocks of $431,525 – a net overstatement of $4,571,529. Finally, the total amount of investor retirement accounts was purportedly $51,237,633, when it was actually only $2,593,724 – a net overstatement of $48,643,909.

REED E. SLATKIN

Slatkin Investment Club

Comparison of Actual to Reported ‑ Balance Sheet

As of December 31, 1998

Balances

Actual

As Reported

Balances

12/31/98

Assets:

Cash ‑ Union Bank ‑ Highmark

$ 21,992,980

$ 9,950

Cash ‑ Santa Barbara Bank

515,846

Cash ‑ Imperial "Prin Cash"

Cash ‑ Imperial Bank

24,039

Cash ‑ Imperial ‑ Monarch Gov't Fund

1,640,600

Total Cash

24,173,478

2,190,449

Securities at Cost

24,508,272

834,800

Unrealized Gains ‑ Stocks

4,140,004

(431,525)

Due From (to) Reed Slatkin

(1,584,120)

Total Assets

$ 51,237,633

$ 2,593,724

Total Liabilities & Capital

Capital ‑ Partner Capital Accounts

$ 51,237,633

$ 2,593,724

Source: Books and records of the Debtor

RSIC also reported $160,685 in dividends on stocks supposedly held in the accounts. In actuality, RSIC received no dividends during the entire year. Finally, RSIC reported stock sales of approximately $11.8 million, when they were actually no stock sales whatsoever during 1998. In sum, instead of reported income of $10,446,645, RSIC actually had a net loss of $127,138.

REED E. SLATKIN

Slatkin Investment Club

Comparison of Actual to Reported Income Statement

For the Year Ended December 31, 1998

Income

as Reported

Actual Income

12/31/98

Dividends

$ 160,685

$ 0

Imperial bank ‑ Treasury Bill Interest

32,256

Imperial Bank ‑ Monarch Gov't Fund

24,171

Imperial Bank ‑ Interest

980

Santa Barbara Bank ‑ Interest

11,884

Union Bank ‑ Highmark Interest

1,066,344

532

Realized Gains:

Short‑term

7,650,676

Long‑term

4,181,358

Unrealized gain adjustment

(1,326,309)

(20,562)

Expenses:

Management Fees ‑ Reed Slatkin

(1,179,000)

Trust fees ‑ Imperial Bank

(117,968)

Trust fees ‑ Santa Barbara Bank

(46,853)

Custodial fees ‑ Imperial Bank

(1,725)

Custodial fees ‑ Bank of California

(2,500)

Tax preparation fees

(7,330)

Bank charges

(22)

Net Income

$ 10,446,645

$ (127,138)

Source: Books and records of the Debtor

Attached are Exhibits B, C, and D that reflect a similar pattern of misstatement for 1997. The Schedule below is a recap of the RSIC balances as reported by Slatkin to investors for the year ended December 31, 1997 as compared to the actual balances as gleaned from the financial records of Slatkin for the same period.

As shown, Slatkin reported Partner Capital accounts totaling $45,110,218 when the actual RSIC balance was $1,196,150 for an overstatement of $43,1914,068.

REED E. SLATKIN

Slatkin Investment Club

Comparison of Actual to Reported ‑ Balance Sheet

As of December 31, 1997

Balances As Reported

Actual Balances

12/31/97

Assets:

Cash ‑ Union Bank ‑ Highmark

$ 14,082,266

$ 11,918

Cash ‑ Santa Barbara Bank

375,449

Cash ‑ Imperial "Prin Cash"

Cash ‑ Imperial Bank

36,050

Cash ‑ Imperial ‑ Monarch Gov't Fund

348,800

Total Cash

14,842,661

772,313

Securities at Cost

25,206,362

Union Bank #27194107

554,134

Imperial Bank #04647

280,666

Unrealized Gains ‑ Stocks

5,466,312

Union Bank #27194107

(351,072)

Imperial Bank #04647

(59,891)

Due From (to) Reed Slatkin

(405,118)

Total Assets

$ 45,110,218

$ 1,196,150

Total Liabilities & Capital

Capital ‑ Partner Capital Accounts

$ 45,110,218

$ 1,196,150

Source: Books and records of the Debtor

Exhibit B is a copy of the actual 12/31/97 Union Bank Statement, Exhibit C is a copy of the actual 12/31/97 Imperial Trust Statement, and Exhibit D is a copy of the altered balance statements as prepared by Slatkin for the same period.

As previously detailed, RSIC reported large and comforting gains to those investors who entrusted Slatkin with their retirement funds. In actuality, Slatkin fabricated those gains. Moreover, the cash supposedly sequestered in RSIC investor accounts was routinely transferred to Slatkin’s general operating accounts. If Slatkin needed to fund withdrawal requests by RSIC investors, he simply transferred funds back to RSIC from his general operating accounts. There was no segregation of the various funds or accounts. Because RSIC held few assets and had minimal income, the only possible way for Slatkin to maintain its operations was to secure additional funds from new investors.

D. NE’s Conclusions

As a result of their detailed analysis, both NE and the Trustee have come to the conclusion that Slatkin intentionally engaged in a Ponzi scheme. The vast preponderance of funds received by Slatkin were never invested in the manner reported on the investor statements, but were either paid to investors as a continuation of the Ponzi scheme or used to make unwise and unprofitable investments.

Exhibit E provides an overall recap of Slatkin’s investment receipts and disbursements, and the results of his investment activities. As shown in that Exhibit, Slatkin needed a continual infusion of additional funds by investors to maintain this illusion of profitable trades. That need grew in intensity until, during 2001, it would have required an annual expenditure of $130 million to maintain promised returns commensurate with past performance - a clearly unattainable sum.

E. Total Claims and Net Overpayments

The following represents a recap of the total amount of money invested with Slatkin from January 1, 1986 through April 30, 2001 and the remaining claims.

REED E. SLATKIN

All Investor Activity ‑ All Bank & Brokerage Accounts

For the Period January 1, 1986 through April 30, 2001

Amounts

Total Investor Receipts (note 1)

$ 593,189,536

Total Investor Disbursements (note 1)

$ (534,073,577)

Total Net Overpayments (net debtors)

$ (195,481,276)

Remaining Net Investor Claims

$ 254,597,235

Note 1: Receipts and disbursements include all investor activity including but not limited to investments, investment withdrawals, loans, loan repayments, wages, consulting fees, interest, expense reimbursements, stocks, gold etc.

Source: Books and records of the Debtor

As the Schedule shows, the total amount invested with Slatkin during that 15-year period was $593 million. During that time, he disbursed $534 million to investors. The remaining net claims, representing actual cash invested but not returned, is approximately $255 million.

A number of the investors received varying amounts in excess of their original investment. Between 1986 and 2001, that group collectively received in excess of $195 million more than they had deposited. The following represents (in descending order), a list of 75 investors who profited handsomely from their long term association with Slatkin. They received $151 million of the $195 million. (The remaining $44 million was paid to investors who received total overpayments of less than $630,000 each.) The preponderance of these overpayments occurred within the past seven years.

REED E. SLATKIN

Schedule of 75 Largest Net‑Debtors

For the Period January 1, 1986 through April 30, 2001

Total

Receipt

Disbursement

Net

Investor Name

Amount

Overpayment

Joel Kreiner & Stina Hans

$ 3,143,315

$ 9,009,898

$ (5,866,583)

William W. & Anne Hutchins

1,611,206

7,100,839

(5,489,632)

R.E. (Burt) Laing

423,465

5,779,597

(5,356,132)

Robert & Karen Rakow & Highlands Group

3,056,077

8,273,876

(5,217,798)

Jeffrey B. & Debra Schwartz

2,643,071

7,731,232

(5,088,161)

Glenn & Barbara Johnson

772,000

5,262,657

(4,490,657)

Linda Rosen

10,742,865

15,069,844

(4,326,979)

Joseph C. & Molly Walton

2,203,000

6,487,765

(4,284,765)

Richard & Barbara Levine

2,566,969

6,639,764

(4,072,794)

Richard & Joanne McMullin

426,174

4,213,197

(3,787,023)

Anthony & Margaret Hitchman

751,500

4,499,969

(3,748,469)

Arlo Gordin

5,070,559

8,794,782

(3,724,222)

Richard & Judith Freedman

2,193,291

5,719,047

(3,525,756)

Donald Rackemann

700,000

4,125,600

(3,425,600)

Brian & Joan Reso

1,120,174

4,137,779

(3,017,605)

James William Firman

551,825

3,494,131

(2,942,306)

Jean Batesman Summers

572,081

3,487,081

(2,915,000)

Armyan B. Bernstein et al

3,447,988

6,326,963

(2,878,975)

Daniel W. & Myrna Jacobs

760,500

3,486,201

(2,725,701)

Chris Mancuso & Mancuso LLC

1,827,800

4,306,214

(2,478,414)

Ron Rakow

1,201,053

3,608,666

(2,407,613)

Ansel Slome

600,000

2,880,900

(2,280,900)

Peter Henman Laufer & Milova

2,121,699

4,393,143

(2,271,445)

David Singer & Diana Venegas

1,614,800

3,824,556

(2,209,756)

Stuart & Deborah Steinberg

518,734

2,648,653

(2,129,919)

Roy & Lynette MacNeill

4,332,748

6,397,250

(2,064,502)

Paul & Ann Minshull

2,056,000

(2,056,000)

Donald & Karen Simons

2,342,000

4,345,919

(2,003,919)

Michael & Anne Kananack

1,902,021

3,903,943

(2,001,922)

Denise Del Bianco

501,085

2,475,000

(1,973,915)

Peter Summers

1,152,521

3,070,000

(1,917,479)

Peter & Hilary Jackson

653,708

2,556,321

(1,902,613)

John & Alexandra Rome Mudd

600,000

2,434,617

(1,834,617)

Robert & Susie Coelho Rounds

1,790,230

3,563,214

(1,772,984)

Sally Jo Levy Soverinsky

2,332,135

3,939,018

(1,606,883)

Bernard & Carol Levine

175,000

1,761,400

(1,586,400)

Tony & Joan Lonstein

5,929,800

7,475,651

(1,545,851)

Ronald & Ellen Schmier

1,489,575

2,962,000

(1,472,425)

Ralph Cooper & Karen Rounds

3,211,076

4,657,121

(1,446,045)

Sandra Codding

700,000

2,137,000

(1,437,000)

Joel Stevens

825,000

2,167,500

(1,342,500)

Bentley Richards

1,925,000

3,192,000

(1,267,000)

Lawrence & Sheila Gluck

1,211,479

2,431,720

(1,220,241)

Charles Lyons

2,527,243

3,732,786

(1,205,543)

Mary T. Walton

244,000

1,415,000

(1,171,000)

Dick & Patricia Zimmerman

371,865

1,531,792

(1,159,926)

Lee S. Minshull

1,897,365

3,052,359

(1,154,994)

Jean Janu

330,006

1,468,611

(1,138,605)

Armand Berstein

1,122,000

(1,122,000)

John & Sara Isham

360,000

1,472,263

(1,112,263)

Michael & Sara Doughty (Champ Frame)

823,000

1,913,651

(1,090,651)

William Reilly

859,010

1,948,000

(1,088,990)

Nathan & Lucille Bercovitz

270,000

1,357,831

(1,087,831)

Linwood (Chip) Lacy

1,000,000

2,080,972

(1,080,972)

Adrienne Rappoport

468,458

1,545,950

(1,077,492)

Rachel Walton

174,000

1,246,410

(1,072,410)

Michael Humphrey (aka Mark Parker)

1,000,000

1,998,794

(998,794)

Kevin & Maryann O'Donnell

20,831,975

21,818,364

(986,389)

George W. Murgatroid III

2,204,951

3,189,340

(984,389)

Omega Trust ‑ Linda Heineman

753,259

1,708,000

(954,741)

Peter Coyote

393,000

1,336,442

(943,442)

Bernardo & Jeanne Lan

729,515

1,665,000

(935,485)

Timothy & Betsy White

652,626

1,543,008

(890,383)

Walter & Majorie Butcher

279,151

1,140,500

(861,349)

Mary Thompson

450,000

1,272,190

(822,190)

Robert Engel (Green Key)

500,000

1,311,644

(811,644)

Dinu & Francine Goldenberg

875,000

1,660,000

(785,000)

Jill Tate Higgins (OS II Inc)

1,500,000

2,238,703

(738,703)

Irving & Lillian Rakow

137,500

839,000

(701,500)

Don & Elizabeth Curier

2,600,000

3,268,000

(668,000)

Jeffrey & Shelley Katke

532,500

1,198,000

(665,500)

John Coale & Greta Van Susteren

2,076,130

2,735,000

(658,870)

Thomas M. Skrenes

275,000

932,113

(657,113)

Jeff & Jill B. Choder

326,300

961,000

(634,700)

Anna R. Hawken

1,365,322

1,995,000

(629,678)

TOTALS

$ 128,520,701

$ 279,525,749

$ (151,005,048)

Balance of Net Debtors (371 Accounts)

$ 85,521,034

$ 129,997,262

$ (44,476,228)

Note: Receipts and disbursements include all receipts from and disbursements to each Investor regardless of the description or type.

Source: Books and records of the Debtor.

F. Examples of Account Analyses

Exhibits F through I reflect an analysis of four individual investor accounts or groups of accounts and detail all investor activity in those accounts. The Exhibits range from relatively simple to highly complex. They are provided to highlight the difficulties encountered by NE and other professionals in deciphering Slatkin’s investor accounts.

Exhibit F - Investor A - represents an investor who invested a total of $925,000 and received no distributions. Slatkin reported bogus profits of $1,381,945.

Exhibit G - Investor B - reflects a relatively simple analysis of an investor with two accounts.

Investor B had two accounts and made a total cash investment of $115,787. Over the period of his/her investment activity (1987 through 2001), Investor B received $586,570 more than the amount he/she invested ($559,920 profit plus a transfer of $26,650). Page 2 and 3 of Exhibit G-1 reflects Investor B’s yearly additions and withdrawals of funds.

Exhibit H - for Investors C, D, E & F - is a complex analysis of four investors with various permutations of investments and accounts due to marriages and other familial relationships. The large amount of total investment, $47,649,382, further complicates the analysis of these individual accounts.

Exhibit I - for Investors G, H, I, J & K - is a complex variation of a number of related investor accounts with numerous joint accounts allocated between and among the various parties.

G. Slatkin’s Investment “Acumen”

Slatkin may have been viewed by many as a financial “whiz kid” generating stupendous returns for those investors fortunate enough to entrust their money to him. This reputation seems to have been primarily based on three factors: (1) substantial returns (albeit completely fabricated) as reported on the investor monthly statements provided by Slatkin; (2) the investors’ ability, at least until the latter stages, to withdraw money without difficulty from their accounts; (3) Slatkin’s appearance of expertise based on his opportune Earthlink investment.

With the notable exception of his Earthlink investment, for the most part Slatkin’s investments achieved far from stellar results. The Trustee has come to the sad, but inescapable conclusion that tens of millions of dollars, supposedly wisely invested in seasoned and liquid assets capable of providing a meaningful return, were in fact invested in highly speculative and illiquid ventures and that much of the invested funds have been lost as a result of those imprudent investments. The creditors of the Estate would have been vastly better off had Slatkin simply invested those funds into low interest T-bills. The following Schedule is an example reflecting the performance of 37 investments made by Slatkin. As indicated, Slatkin invested $69.5 million and received a return of $22.5 million for a net loss of $47 million.

REED E. SLATKIN

Schedule of Selected Investments

Initial

Total

Remaining

Investment

Estimated

Investment Name

Date

Amount

Return

Value

Loss

Advanced Resin Technology

11/5/91

$ 1,997,973

$ 50,000

$ 0

$ 1,947,973

Alliance Manufacturing Software

4/22/97

1,524,991

Apollo Medical Partners

1/6/99

850,000

Unknown

850,000

Bios Partners, LLC

1/7/00

475,670

Chantal Pharmaceutical

8/3/95

490,000

Compass Advisors Inc.

4/5/91

500,000

650,488

(150,488)

Concentric Network

9/6/95

1,175,000

2,002,581

(827,581)

Connections One Inc.

2/20/90

742,000

1,281,616

Unknown

(539,616)

Crystallize Inc.

1/7/00

1,700,000

Unknown

1,700,000

DSN Technology Inc.

7/28/95

588,262

E. Companies

8/26/99

600,000

Unknown

600,000

Enhancive

11/16/00

1,500,000

Unknown

1,500,000

Fatpipe, Inc.

11/12/99

300,000

Unknown

300,000

Fortress Technology

6/11/98

810,000

Unknown

810,000

Instant Video Technologies

4/3/96

1,570,000

70,868

1,499,132

Insys

10/30/98

500,000

Jordon Pharmaceuticals

9/10/98

1,300,000

Mall Properties

6/12/97

20,385,268

6,587,358

Unknown

13,797,910

Mindful Partners LP

1/13/94

250,000

1,136,000

(886,000)

Mountain Park Development

5/2/94

11,537,264

350,000

5,250,000

5,937,264

PCS One

11/29/95

350,000

986,818

(636,818)

Physicians Data Corp.

6/25/96

5,982,000

119,486

5,862,514

Popmail.com, Inc.

1/26/00

1,000,001

Unknown

1,000,001

Premier Horse Network

11/7/95

425,000

Receive TV/Vital Stream

6/22/00

375,000

Riverbenders/RB Minimart

12/16/86

1,152,310

2,800

1,149,510

RJ Groux Corporation

6/27/97

500,000

RJS Concessions

10/20/93

805,000

713,889

91,111

Safeguard Anti‑flame

7/16/99

400,000

Santa Barbara Connected System

11/4/96

789,000

30,000

Unknown

759,000

Seize the Day

5/3/93

529,086

79,062

450,024

Skin Market

8/3/99

1,715,696

Unknown

1,715,696

SST Productions

1/16/90

489,363

Stryker/Telsoft

10/17/89

4,146,036

2,572,792

50,000

1,523,244

Taryag Partners

11/4/91

600,000

150,000

450,000

Tradesafe Online

7/12/99

700,000

University Village

11/3/95

957,000

456,371

Unknown

500,629

$ 69,711,920

$ 17,240,129

$ 5,300,000

$ 47,171,791

Source: Books and records of the Debtor.

While many of these assets may still yield a small return, it is the opinion of the Trustee that any such return will be negligible when compared to the total investments.

Many of the investments made by Slatkin were ill-founded for the following reasons:

1. When Slatkin would seek investments from investors, he often agreed to invest in their companies with little or no due diligence as to the wisdom of that particular investment.

2. Slatkin did not perform substantial due diligence prior to making many of his largest investments or to monitor their post-investment operations. If he had done so, many of these investments would never have been made or, once made, based on an analysis of the facts (which Slatkin did not make) corrective measures could have been taken to minimize or eliminates losses.

3. Due to his newfound “paper” wealth generated by the Earthlink investment, Slatkin was seemingly propelled into a euphoric sense of financial invincibility. Investments were made in highly speculative projects with the assumption that “financial lightning” would again strike for Slatkin. During the discussions the Trustee has had with Slatkin relative to various investments, Slatkin continued to cling to the illusion that the “dot.com wand” would somehow touch investments in companies that had never generated profits and had no foreseeable hope of doing so, and magically transform them into financial behemoths. In fairness to Slatkin, he is not the only person in the United States so afflicted.

VI. POST-BANKRUPTCY INVESTIGATIONS

A. Overview of the Process

This is the first report of the work performed by the Trustee, Committee and their Professionals on behalf of the Estate. This is a joint report because much of the investigative work, be it forensic, legal, or accounting, has been shared among the Trustee and the Committee, and their Professionals. This case presents unique challenges because Slatkin is the subject of an ongoing criminal investigation.

The Trustee and the Committee have developed a close working relationship and have attempted to avoid duplication of effort by having their respective counsel work as much as possible on separate tasks. Only one set of accountants and real estate advisors were retained by the Trustee for the extensive forensic accounting and valuation work required, and the Committee determined not to separately engage accountants, investment bankers, or investigators.

This section of the report discusses the division of responsibility and the process of the investigation to date. The Trustee and Committee broadly focused their work on two main areas or goals: the identification (and ultimate liquidation) of the known assets, and the investigation of Slatkin's conduct in order to determine the disposition of hundreds of millions of dollars entrusted to him by investors and how much of those funds could be located, accounted for, and perhaps recovered.

The Trustee’s counsel, Gumport, Reitman & Montgomery (“GRM”), is comprised of attorneys who specialize in representing trustees and have substantial fraud investigatory experience. The Committee’s counsel, Kirkland & Ellis (“K&E”), has a large bankruptcy group but is also a full service firm with expertise in real estate, real estate insolvency matters, tax, regulatory and securities issues, and white collar criminal law. Because this case is not an ordinary commercial dispute, and due to the complex interplay of criminal justice and the bankruptcy systems, there have been substantial modifications to the normal procedures implemented in most bankruptcy cases. First, it was imperative that the Trustee and the Committee obtain and retain access to the voluminous documents that had been turned over by Slatkin to Deloitte & Touche at the request of an informal group of his creditors (before the Trustee or the Committee was appointed), as well as those documents seized by the government.

The Trustee has possession of approximately 300 boxes of documents, now subject to Grand Jury Subpoenas, and another approximately 30 boxes of documents seized during FBI raids on the homes of Slatkin and various associates. A major concern of the Trustee and Committee was that the relevant documents not be impounded by the Grand Jury and thereby rendered unavailable for review. The Trustee was able to negotiate an agreement with the U.S. Attorney and FBI whereby the Trustee created a document center as the ultimate repository for all documents. Additional documents have been added to the document center as they have been received from third parties. It is estimated that there are now approximately two million documents in the document center, not counting numerous gigabytes of computer data that has also been seized or turned over from the computers used by Slatkin or his associates.

Although the Trustee and the Committee had hoped that they would not need to perform an intensive review of the two million documents, by mid-July it became apparent that a more complete review was necessary. At the inception of this case, because the Trustee was receiving requests for the sale and disposition of properties, capital calls on many of Slatkin’s investment interests, and information that certain contracts and agreements were in default, and he recognized that immediate action needed to be taken with respect to assets. However, since Slatkin has asserted his Fifth Amendment right against self-incrimination, as is his right, even the identification of the Estate’s assets was difficult. Slatkin did not file a Schedule of Assets and Liabilities as required by the Bankruptcy Code, so the Trustee and his professionals had to attempt to identify the assets of the Estate for the Schedules of Assets and Liabilities and for working purposes.^[4]

At the beginning of this case, the Trustee and the Committee had very little reliable or verified information available to them, which greatly hampered their ability to understand, much less address, the complexity of Slatkin’s financial universe. The Professionals first compiled a file-level index of the Slatkin documents.

The Trustee and the Committee requested that the Committee’s counsel organize a major asset and issue “strike force team” to review key Slatkin documents based on the file level index. The initial requirement was to locate and identify documents relating to readily identifiable major assets of the Estate, as Slatkin owned interests in numerous partnerships, joint ventures, real estate investments, and securities investments. Because of the nature of the documentation, including partnership and other venture agreements, correspondence, letter agreements, and various securities-related agreements, Committee counsel organized a team of largely corporate attorneys, paralegals, and case assistants to analyze and summarize that information on an expedited basis.

The initial asset-oriented review assisted the Trustee in organizing and locating the basic documents concerning hundreds of investments. The information obtained has allowed the Trustee to determine what course of action to take concerning many of Slatkin’s major investments, including interests in three mall properties, an operating hotel, other developed commercial and residential properties, undeveloped real property, investment partnerships, and a variety of closely held operating companies in which Slatkin owned a substantial interest.

At the same time, the Trustee and the Committee requested that the creditor body provide information concerning their payments to and withdrawals from Slatkin's accounts, in order to ensure that all bank accounts that Slatkin used were identified and the relevant bank records obtained. As reflected in Exs. 18 and 19, Slatkin had numerous bank and brokerage accounts over the years. Since a major focus of the investigation is to locate any hidden funds or assets, identifying all possible bank and brokerage accounts was a necessary step in the forensic examination. The Trustee's accountants then organized a review of all of Slatkin’s investor, bank, and brokerage account records in order to begin tracing the flow of funds. Due to the size and complexity of the forensic accounting, the Trustee’s accountants had nine people working on this matter.

After the initial asset-oriented document review was completed, the Trustee and the Committee decided that a more complete document review was required to determine what had occurred, whether assets had been secreted, and what potential causes of action might exist to recover funds, properties, and other assets belonging to the Estate. Committee counsel therefore expanded the document review team to include an analysis and creation of a database of all Slatkin documents. That project is ongoing.

At the same time, the Trustee’s forensic accountants continued reviewing and analyzing all of the cash inflows to and outflows from Slatkin’s accounts. The accountants also analyzed all of Slatkin’s internal financial records, various computer records, and available financial institution records and account statements.

Since all of this work was performed in the document center, there were regular coordination and meetings between the two teams in order to share information. Whenever information from letters, pleadings, and correspondence with respect to particular financial tracing issues was relevant to the investigation, that information would also be shared. To facilitate this, the Trustee and the Committee have entered into an Information Sharing Agreement, which has since been approved by the Court, ensuring the privileged nature of this joint work product.

Substantive areas of work requiring counsel were divided as much as possible. For example, Committee counsel (K&E) assisted the Trustee’s investigation of Slatkin’s real estate investments (except his investments in Oregon) and various substantial issues relating to three shopping center malls partially owned by Slatkin. They also accompanied the Trustee to meetings and assisted him in real estate workout negotiations.

GRM has primary responsibility for assisting the Trustee with respect to, among other things, the following matters:

(a) It is responsible for obtaining financial records missing from Slatkin’s files and assisting the Trustee in investigating Slatkin’s investments in numerous businesses. To obtain that information, GRM has prepared and served dozens of formal discovery requests and has made numerous informal requests for information and documents. GRM regularly reports on its investigations and conclusions to the Trustee and to counsel for the Committee.

(b) GRM is responsible for negotiating and documenting agreements for the disposition of Estate assets and obtaining Court authorization to sell assets. To date, GRM has prepared motions to sell the Estate’s securities in publicly traded companies, La Cumbre Country Club membership, automobiles and wine collection, and to sell or otherwise dispose of interests in closely held organizations and accounts receivable.

(c) GRM also is responsible for obtaining Court authorization to employ professionals, such as real estate, wine and automobile brokers, a real estate consultant, and special counsel for litigation and for matters relating to real estate interests in Oregon.

Jan Handzlik, a white collar criminal specialist at K&E, worked on coordination of efforts with the U.S. Attorney’s Office and the FBI, and the overlap of criminal and bankruptcy issues. Robert Jason, a tax specialist at K&E, and Vernon Calder, CPA and a tax specialist at NE, were responsible for providing tax advice to the Estate and to the Committee and prepared memoranda that were distributed to the Committee and creditors. The Trustee determined that he did not need to hire his own tax, criminal, or securities counsel, relying instead upon the Committee's counsel, a working arrangement that had been proposed in the application to employ the Committee's counsel and approved by the Bankruptcy Court.

Because most of the creditors of the estate are investors and many of them claim to have lost their life savings, creditor activity and requests for information have been substantial. For this reason, the Trustee and Committee determined early on that it was important to keep creditors informed. Most of the communication with investors was delegated to the Committee and its counsel. The Committee and its counsel have responded to numerous inquiries by creditors and have prepared two large mass mailings of information to creditors. The Trustee has also created a website to further post information concerning the case, and that information is regularly updated.

B. Slatkin’s Conduct Since Bankruptcy

This section discusses Slatkin’s conduct in connection with this case and his cooperation with the Trustee. It does not address each and every request directed to Slatkin or all of his activities; rather, it is intended to summarize significant matters. In considering the degree to which Slatkin has cooperated with the Trustee, readers should bear in mind that Slatkin is the subject of an ongoing federal criminal investigation and “may be constrained in his ability to fully cooperate with the Trustee at this time based on advice of counsel.” Ex. 22.

By filing chapter 11, Slatkin seemingly hoped to keep possession of his assets, and, in fact, Slatkin did attempt initially to retain control, asserting repeatedly that, by maintaining control and through the efforts of his chosen counsel, he could significantly reduce the cost of administering the Estate. While it may have been less expensive in terms of legal and accounting fees simply to leave Slatkin in control, certain of the Estate’s creditors determined not to trust him to look out for their financial interests and to have an independent trustee appointed to take charge of Slatkin’s assets and liabilities and conduct a thorough investigation into his pre-petition conduct.

Shortly after Slatkin filed his chapter 11 case, certain of Slatkin’s creditors and the U.S. Trustee sought the appointment of an independent trustee. On May 14, 2001, Slatkin suggested the appointment of an examiner instead of an independent trustee. Ex. 23. The appointment of an examiner would have increased the costs of administering the Estate and would have left Slatkin in possession of his assets. The Committee and the U.S. Trustee objected to this suggestion, and Slatkin abandoned it.

At a hearing held on May 16, 2001, Slatkin attempted to convert his case to chapter 7, which was vigorously opposed by the Committee. The Bankruptcy Court ordered that the case would remain in chapter 11 and that an independent trustee be appointed. The United States Trustee promptly selected Mr. Neilson as the chapter 11 trustee.

At the same time that certain creditors and the U.S. Trustee were seeking the appointment of an independent trustee, Slatkin threatened that he would seek to have a receiver appointed over his assets by the United States District Court in the SEC Enforcement Action. Ex. 24. The prospect of such an appointment posed several substantial risks tox the proper administration of this Estate. First, the powers of a receiver are different from and more limited than those a bankruptcy trustee. For example, a receiver does not have the Rule 2004 investigative powers of a trustee; a receiver’s conduct and that of his professionals are not subject to the same oversight; and a receiver does not have the asset avoidance and recovery powers afforded a trustee under the Bankruptcy Code. Second, if a receiver other than Mr. Neilson had been appointed, there would have been a conflict over who was entitled to administer Estate assets. Third, even if Mr. Neilson had been appointed as the receiver, it likely would have increased administrative costs because Mr. Neilson might have been required to deal with different courts (i.e., the Bankruptcy Court in which Slatkin’s bankruptcy case is pending and the United States District Court in which the SEC Enforcement Action was pending). Ultimately, after the Trustee and Committee had prepared pleadings objecting to this proposed relief, and based upon intense negotiations with his counsel, Slatkin abandoned that proposal.

After the Trustee was appointed, Slatkin continued to seek to interject himself in the administration of his Estate. Specifically, on May 25, 2001, Slatkin’s counsel wrote to the SEC and offered Slatkin’s assistance in attempting to recover assets. Ex. 25. As stated in that letter, “absent Mr. Slatkin’s cooperation, it would frankly be impossible to recover millions of dollars of assets. . . .” Id. Examples of such assets discussed in that letter are the three malls, University Village, the Oregon assets, and Boomtown/Beacon. The quid pro quo that Slatkin wanted was two fold: Slatkin’s counsel still urged the appointment of an equity receiver, and Slatkin wanted the Estate to pay for his attorney. Id. Neither the Committee nor the Trustee was willing to accede to those requests.

On June 4, the Trustee’s counsel wrote Slatkin’s counsel and called to their attention the obligations imposed on a debtor under 11 U.S.C. § 521 -- including the duty to cooperate with a trustee -- and made a detailed request for information and cooperation. Ex. 26. The Trustee sent similar requests for assistance on June 11 and 12. Exs. 27, 28. Slatkin did not respond in writing to these letters and, for the most part, he has not provided the requested cooperation. A general explanation given by Slatkin for his failure to provide requested information is that such information is contained in records in the Trustee’s possession. Exs. 29, 30. Slatkin has repeatedly offered to be debriefed or informally interviewed concerning his assets and maximizing their value, and the Trustee and the Professionals have had several interviews with Slatkin concerning specific assets, liabilities, and investments.

In June 2001, while Slatkin continued to reside at his Via Esperanza residence, he advised the Trustee about maintenance required for the residence and other real properties in Santa Barbara and provided the Trustee with a list of service providers. In about August 2001, Slatkin vacated Via Esperanza and moved into the residence that Mrs. Slatkin had rented. Slatkin gave the Trustee advance notice of this move and of his intended removal of certain personal property.

On June 13th, the Trustee wrote to Slatkin’s counsel identifying and demanding the turnover of valuable paintings estimated to be worth approximately $1 million. Ex. 31. The Trustee never received a written response to that letter. On June 20, 2001, the Trustee inspected the Via Esperanza residence. There was no indication during that inspection that any paintings had been removed from the premises, i.e., there were no out-of-place empty walls, and no holes in walls or other evidence that any paintings had been removed. On July 18, 2001, the Trustee’s representatives went to Slatkin’s Via Esperanza residence to remove the paintings to a more secure location. Again there was no evidence that any art had been removed. After the existing paintings were removed by his representatives, the Trustee determined that the valuable paintings were not among the removed items and appeared to be missing. Ex. 32. The Trustee immediately demanded an explanation from Slatkin. On July 19, Slatkin informed the Trustee that the missing paintings had been sold the prior summer to Rakow and Del Bianco for $1 million.

The Trustee has reliable information that the valuable paintings were, in fact, removed from Slatkin’s residence after Slatkin filed bankruptcy and that Slatkin immediately replaced them with art of insignificant value. The Trustee and the Committee believe that the purported sale of paintings to Rakow and Del Bianco was a sham transaction and that, at a minimum, the automatic stay of 11 U.S.C. § 362 was violated by the post-petition removal of the paintings. The Trustee has informed the FBI and U.S. Attorney’s Office of the facts concerning this transaction.

The Trustee subsequently requested that Slatkin sign a declaration regarding his purported agreement to sell the paintings to Rakow and Del Bianco and the removal of the paintings from his residence. Slatkin has provided information for that declaration, but a finalized declaration has not been submitted to Slatkin for his signature.

In June, after several prior requests and a demand for turnover, Slatkin turned over to the Trustee a computer (containing business information), stock certificates, and title and other asset ownership documents in the possession of Slatkin’s criminal counsel. Also in June, July, and August 2001, Slatkin provided the Trustee with various bank statements and other information regarding certain Estate assets. However, during the Summer of 2001, the Trustee learned that Slatkin had previously filed a mail-forwarding request with the Post Office. As a result, mail, which should have gone directly to the Trustee, was diverted to Slatkin. Slatkin did not tell the Trustee that he had made this mail forwarding request, and the Trustee only learned of it upon inquiry to the Post Office. Exs. 33, 34.

In addition to receiving information by letter through Slatkin’s attorneys, in June, Slatkin and his attorney participated in three telephone conferences with the Trustee’s attorney. A fourth such telephone conference was held in July. During those telephone conversations, Slatkin responded to questions about the Estate’s assets. Among other things, the Trustee’s counsel requested that Slatkin assist in preparing the required schedules and assets and liabilities and a statement of financial affairs. The Trustee’s counsel also requested that Slatkin agree to file bankruptcy petitions for entities that he controlled. As discussed below, Slatkin did not provide substantial cooperation with respect to these matters.

On June 26, 2001, Slatkin’s counsel notified the Trustee that Mrs. Slatkin had vacated the Via Esperanza residence and had removed Estate personal property from the Estate’s Riley Road property to her new residence (and provided photographs of the moved personal property). Ex. 35. On July 3 and 13, the Trustee received further letters about property that had been removed to Mrs. Slatkin’s new residence. Exs. 36, 37. Neither Slatkin nor Mrs. Slatkin gave the Trustee advance notice of the movement of this personal property. Thereafter, Mrs. Slatkin permitted the Trustee to inspect the personal property that she had moved to her new residence.

In July, the Trustee, with the assistance of his professionals, prepared and filed Slatkin’s schedules of assets and liabilities and statement of financial affairs. Slatkin did not render substantial assistance in preparing those documents. He did, however, have one meeting with the Trustee during which he reviewed a draft of the schedules and statements and, in general, discussed the Estate’s assets and liabilities. Slatkin stated that he could possibly provide greater assistance following a review of documents in the document center. Faced with the impending deadline for the filing of bankruptcy schedules and statements, the Trustee prepared them with little input from Slatkin. After the Trustee filed Slatkin’s schedules, Slatkin and then Mrs. Slatkin each filed a Schedule C of claimed exemptions.

In July 2001, Slatkin turned over to the Trustee a valuable Patek Philippe wrist watch. However, Slatkin did not volunteer to the Trustee that he owned this jewelry and turned it over only after the Trustee had demanded that he do so.

Prior to filing bankruptcy, Slatkin commenced litigation for the involuntary dissolution of Infinity Acceptance Corporation. Upon the commencement of Slatkin’s bankruptcy case, the Trustee was substituted in that litigation in the place of Slatkin. In July, the Trustee requested that Slatkin waive conflicts of interest and the attorney-client privilege to enable the Trustee to employ in that litigation the same counsel that previously had represented Slatkin. Slatkin agreed to that request. The Trustee believes that Slatkin’s cooperation in this regard has and will save the Estate money because the Trustee is now able to use counsel who already is familiar with the facts of the case. In the Infinity Acceptance case, the Trustee requested that Slatkin voluntarily appear for his deposition by the defendants. Although Slatkin agreed to that request, he thereafter failed to appear for that examination (for the stated reason that his personal attorney was not available).

In July 2001, the Trustee requested that Slatkin execute deeds to transfer title to real properties held in the name of the RMJ 1995 Trust into the Trustee’s name. Slatkin promptly complied with that request.

Also in July, the Trustee requested that Slatkin stipulate to extend the time for the Trustee and creditors to object to claimed exemptions and for creditors to object to the discharge of debts pursuant to 11 U.S.C. § 523(c). The Trustee also requested that Mrs. Slatkin stipulate to extend the time for the Trustee and creditors to object to her claimed exemptions. Slatkin and Mrs. Slatkin promptly agreed to those requests. That agreement has facilitated the administration of the Estate by avoiding the need for the Trustee and creditors to immediately file and prosecute exemption objections and for creditors to immediately file and prosecute complaints under 11 U.S.C. § 523. (The Trustee recently requested that Slatkin and Mrs. Slatkin agree to further extend these deadlines from December 31, 2001 to July 1, 2002, which they also agreed to do.)

During July, the Trustee requested that Slatkin, Mrs. Slatkin, and their children turn over certain automobiles, jewelry, and music memorabilia. Slatkin and his family turned over certain of the automobiles (which are now being sold pursuant to Bankruptcy Court order), but Mrs. Slatkin and the Slatkin children refused to turn over other automobiles, jewelry, and music memorabilia, claiming that those items are their separate property. Exs. 38, 39. The Trustee and the Committee have obtained an order pursuant to Fed.R.Bankr.P. 2004 for the production of documents by, and examination of, Mrs. Slatkin with respect to her separate property claims; and the Trustee and the Committee intend to file a similar motion with respect to the separate property claims of the Slatkin adult children. If these issues cannot be resolved by agreement, the Trustee will file a complaint to seek to recover this property.

At the same time, the Trustee also sought the turnover of Earthlink stock held in the names of the Slatkin children. The Slatkin children refused to turn over the stock certificates, claiming that the stock is their separate property, but did enter into a stipulation which provides that the stock certificates will remain in the possession of Slatkin’s counsel until entitlement to the stock is determined. Again, if an agreement on these issues cannot be reached, the Trustee will file a complaint to recover those securities.

On July 30, 2001, Slatkin attended his first meeting of creditors held pursuant to 11 U.S.C. § 341(a). Slatkin asserted his Fifth Amendment right against self-incrimination and declined to answer questions. The Trustee appreciated Slatkin’s attendance and so informed him.

In August, at the Trustee’s request, Slatkin turned over season tickets for the Lobero Theatre and Santa Barbara County Bowl. So that their value would not be lost, Mrs. Slatkin offered to purchase certain of the tickets for events that were imminent. However, the Trustee has not yet received that payment.

The Trustee requested a list of property claimed to be separate property of Mrs. Slatkin and the children. In September, Slatkin provided the Trustee with a detailed list of assets claimed by Mrs. Slatkin or the Slatkin children as exempt or as their separate property.

In October, Slatkin offered to prepare his 2000 tax returns and requested access to his documents that are in the Trustee’s possession. Ex. 30.

Also during October, Slatkin and the Trustee reached an agreement which facilitated the Trustee’s recovery of approximately $400,000 in cash values held in life insurance policies owned by Slatkin. As part of that agreement, the Trustee will hold $16,000 of those proceeds pending Bankruptcy Court determination of Slatkin’s claimed exemptions in life insurance cash values. Exs. 40, 41.

Also in October, the Trustee requested that Slatkin sign attorney-client waivers relating to his pre-bankruptcy counsel and a Doe consent for the disclosure of records in the possession of financial institutions. Slatkin has not responded to those requests. However, Slatkin did cooperate with the Trustee in connection with a Rule 2004 subpoena that GRM caused to be served on Credit Suisse. Credit Suisse raised Swiss banking secrecy laws as an impediment to its production of documents. GRM negotiated with the bank’s counsel regarding this issue and prepared a waiver of Swiss privacy laws which Slatkin signed. After receiving the waiver, Credit Suisse produced documents to the Trustee.

Throughout this case, Slatkin has appeared whenever requested for interviews by the Trustee, the Trustee's accountants, and Committee counsel, and several such interviews have been conducted. During those meetings and interviews, Slatkin has expressed his willingness to provide information about the Estate’s assets. His stated reason for doing so is to maximize the amount of assets available for distribution and to minimize the loss incurred by the investors. Slatkin has offered generalized information concerning various assets and has repeatedly requested access to the document center in order to provide more complete assistance. Slatkin has visited the document center on a number of occasions and has met with the Trustee’s accountants four times to provide further information concerning his business operations. Unfortunately, Slatkin’s assistance has been somewhat limited for a number of reasons:

(1) Slatkin is “under the cloud” of a criminal indictment and, consequently, he is walking the fine line between full and complete disclosure and the protection against self-incrimination afforded under the Fifth Amendment. The Trustee, his counsel, and the Committee’s counsel have been sensitive to that issue, but it has naturally impeded a full and frank discussion.

(2) Slatkin’s initial assurances that his assistance would be not only valuable but absolutely essential in maximizing the return on the major assets of the Estate turned out to be untrue. Not only was his assistance not invaluable, but due to the publicity surrounding the bankruptcy and the investigation by the FBI, many of Slatkin’s former business partners and lenders view Slatkin as a financial pariah. Rightly or wrongly, they do not want Slatkin’s name continuing to taint their individual investments.

(3) Most of Slatkin’s investments, including real estates ventures and closely held companies in which he owns a significant interest are not capable of producing the financial deliverance hoped for by Slatkin. In fact, most were financial disasters, with or without Slatkin’s assistance and without regard to any adverse impact that might have been caused by his legal troubles. The Trustee has had to engage in “damage control” on almost all of Slatkin’s major investments.

(4) Slatkin’s cooperation was generally broad and somewhat uninhibited when dealing with the general assets of the Estate and most investors. However, when the Trustee probed the edges of suspicious financial transactions that involved certain people, Slatkin’s “cooperation” became selective, vague, non-committal, and, in most cases, useless.

As noted above, Slatkin has generally been accessible to the Trustee and has offered to assist in any way he can to maximize the return on Estate assets. Hopefully, his cooperation will move into a more frank and helpful stage sometime in the near future.

The Committee and the Trustee have also requested that Slatkin appear for several days of formal questioning under oath, and Slatkin is considering that request.

The Committee and the Trustee have made other requests for assistance by Slatkin, several of which are pending. In addition, the Trustee and the Committee have requested that Slatkin waive his right to a bankruptcy discharge so that creditors will not have to file non-dischargeability complaints and the Trustee will not have to file a complaint objecting to Slatkin's discharge.

C. Rule 2004 Examinations

1. Document Requests

As discussed more fully in this and the following sections, on behalf of the Trustee, GRM contacted third parties and requested that they voluntarily provide information to the Trustee. Where voluntary cooperation was not forthcoming or the Trustee decided not to seek voluntary cooperation, GRM prepared and filed Rule 2004 motions for the production of documents.

In response to the Trustee’s requests to confirm the extent of Slatkin’s relationships with financial institutions and to obtain copies of financial records missing from the records that Slatkin turned over to the Trustee, GRM informally requested documents from and/or prepared Rule 2004 motions for the production of documents by at least the following financial institutions: Abner, Herman & Brock, Advest Group, A.G. Edwards, American National Bank & Trust Company, Banc of America Securities, Bank of America, Bank One Texas, Bear Sterns, Branch Banking & Trust (as successor to First Federal Savings), Brookstreet Securities, California Bank & Trust, Capital Federal, Charles Schwab & Co., Credit Suisse First Boston, Donaldson, Lufkin & Jenrette, Deutsche Bank, Goldman Sachs, First Southwest Company, Gloverville Federal Savings, Hambrecht & Quist, H.C. Wainwright & Co., Highland Federal Savings, Hudson River Bank & Trust, Imperial Bank (now Comerica Bank), Jersey Shore Trading, Kayne Anderson Securities, Kemper Securities, Kennebec Savings, Kennebunk Bank, Lehman Brothers, Lincoln Federal Savings, Merrill Lynch Pierce Fenner & Smith, Middlesex Savings, Morgan Stanley Dean Witter, North Penn Savings & Loan, North American Title Company, OBA Federal Savings, Oswego City Savings, Ozarks Federal Bank, Pacific Century Bank, Payne Webber Securities, Phillip Lewis Trading, Pioneer Savings Bank, Prudential Securities, Raymond James & Associates, Robertson Stephens, Inc., Roth Capital Partners, Inc., Santa Barbara Bank & Trust, Schroders Investments, Scudder Investment Services (for Kemper Funds), Seidler Companies, Solomon Smith Barney, South Adams Savings, Troy Savings (formerly Catskill Savings), UBS Paine Webber, Umpqua Bank, Union Bank of California, and Wells Fargo Bank (California and Oregon).

In its investigations, GRM determined that First Southwest Company and Jersey Shore (“Jersey Shore”) had been used by Slatkin (or entities in which Slatkin had an ownership interest) to move large amounts of money in the last year before his bankruptcy and that more than $700,000 was still held in a Slatkin-affiliated account with Jersey Shore. Because Wedbush Morgan Securities, Inc. (“Webush”) served as the clearing broker for Jersey Shore, GRM obtained Wedbush’s representation that it would not permit any assets to be transferred out of Slatkin-affiliated accounts and that, should Wedbush receive a request for such a transfer, it would give the Trustee an opportunity to seek a court order preventing the transfer. Exs. 42, 43.

Slatkin’s business records reflect that he invested millions of dollars in Beacon Communications, LLC, Boomtown Investments, LLC, RBG Capital Group, LLC, and California Media Group, LLC. Slatkin also transferred hundreds of thousands of dollars to certain of the other owners of those entities. Counsel for the Trustee and the Committee obtained Rule 2004 orders directed to those entities, as well as to Richard D. Rosman and Charles Lyons, two of their principals. Those examinees recently produced documents in response to the Court’s Rule 2004 order. As discussed in the following section, after those documents have been reviewed, lawyers for the Trustee and the Committee will examine Rosman and Lyons (and probably others associated with those entities).

In addition to the above-described Rule 2004 subpoenas, on behalf of the Trustee, GRM has requested documents (informally or by means of Rule 2004 motions and subpoenas) from the following (with most of which Slatkin had an ownership interest or other business dealings): Aves Associates, Aviarian Partners, California Brokerage Services, Century Direct Marketing, George Elvin, Hertz Hershon & Co., National Pension Service, Orno Partners, Raptor Partners, Skinmarket, Mary Jo Slatkin (Slatkin’s wife), counsel for Topsight Entertainment, TradeSafe, Mark Zaplin, and Zaplin-Lambert Gallery.

2. Oral Examinations

Early in the case, the Trustee and the Committee decided that they would attempt to obtain extensive records in the possession of third parties relating to Slatkin’s business and financial affairs before conducting numerous oral examinations pursuant to Fed.R.Bankr.P. 2004. For that reason, to date, the Trustee and Committee have conducted few oral examinations pursuant to Rule 2004. In June 2001, GRM prepared a Rule 2004 motion for the examination of and production of documents by Slatkin’s accountant, Marshall L. Yagan. After the Court approved that motion, GRM coordinated the document production, reviewed approximately 15,000 pages of documents produced by Yagan, and examined Yagan under oath on July 10. Yagan’s documents consisted primarily of federal and California income tax returns and his working papers for 1979 through 1999 for the preparation of tax returns for Slatkin, members of Slatkin’s immediate family, the Reed Slatkin Investment Club, and several other entities owned and/or controlled by Slatkin. The information gathered as a result of this investigation has substantially broadened the Trustee’s information base concerning Slatkin’s business and financial affairs.

The Trustee and the Committee have also obtained orders for, but have not yet taken, the oral examinations of Mary Jo Slatkin (Slatkin’s wife), Rosman and Lyons (both of whom are associated with RBG Capital Group, LLC, California Media Group, LLC, Boomtown Investments, LLC, and Beacon Communications, LLC), and George Elvin (both in his individual capacity and with respect to Aves Associates, LLC, Aviarian Partners, L.P., Orno Partners, LLC, and Raptor Partners, LLC). Finally, in the near future, the Trustee and the Committee expect to file motions for the examinations of Slatkin’s adult children.

3. Informal Investigations

In addition to formal discovery pursuant to Fed.R.Bankr.P. 2004, the Trustee and the Committee have conducted extensive informal investigations of Slatkin and his investments. For example, beginning in late June, in connection with the investigation of Slatkin’s direct and indirect investments in Oregon real property, GRM and the Trustee’s accountants conducted a day-long interview with Douglass Neuman and his counsel in Ashland, Oregon concerning Slatkin’s investments in those assets which Neuman manages. Since then, the Trustee, his accountants, and GRM have had further meetings with Neuman and his counsel both in person and by telephone. Neuman has cooperated with the Trustee in his investigations and has permitted the Trustee and his accountants to inspect the assets and book and records of the Oregon entities in which the Estate has interests.

Since becoming involved in this case, the Trustee, GRM, and K&E have communicated with representatives of the SEC regarding that agency’s investigations of Slatkin and to obtain documents produced to the SEC by investors. GRM assisted the Trustee in making a formal request for such information and in negotiating an agreement for the production of those documents. Upon receipt of those documents, GRM reviewed several boxes of such materials and reported the results of its review to the Trustee.

Beginning in June, GRM began its investigation into Slatkin’s representation by the Bryan Cave LLP law firm in connection with the SEC’s formal investigation of Slatkin that began in late 1999. Bryan Cave produced approximately ten boxes of documents, including what it represented were all of the documents that Slatkin had produced to the SEC in the course of its investigation. GRM also has had telephone conferences and exchanges of correspondence with Bryan Cave representatives regarding Bryan Cave’s representation of Slatkin, its production of documents, the turnover of billing records, and privilege and work-product issues (including Bryan Cave’s assertion of the work-product doctrine with respect to its communications and documents received from Ernst & Young, which Bryan Cave retained to audit Slatkin’s purported Swiss accounts at NAA). This investigation is continuing.^[5]

GRM also interviewed and conducted an examination under oath (but not pursuant to a Rule 2004 motion and order) of Mark Laudon, Slatkin’s property manager. This investigation resulted in the identification of additional assets and added to the Trustee’s knowledge about Slatkin’s real properties in the Santa Barbara area and Slatkin’s business affairs.

On behalf of the Trustee, GRM has also investigated real estate owned by Slatkin, members of his family, and Slatkin affiliates; reviewed appraisals and background information about those properties; and consulted with the Trustee and his real estate broker, Coldwell Banker about those properties, their value, and issues relating to the Estate’s ability to sell them. Similarly, GRM investigated automobiles owned by Slatkin, members of his family, and his affiliates and consulted with an automobile broker regarding the value and best means of disposing of those vehicles.

In the course of their investigations, GRM and the Trustee discovered that paintings worth approximately $1 million had been removed from Slatkin’s residence by Slatkin’s business associate, Denise Del Bianco, after the time he filed bankruptcy. GRM consulted with the Trustee concerning that removal and action to be taken. GRM also communicated with Slatkin’s counsel, the Committee’s counsel, and witnesses about the removal of the paintings. After making that investigation, GRM prepared a declaration for Slatkin regarding the removal of the paintings, discussed the declaration with Slatkin and his counsel, and reviewed GRM’s requested changes to that declaration. GRM has demanded that Del Bianco and her husband, Rakow return these paintings but so far that demand has been refused.

In its investigations, GRM also discovered that another valuable painting, worth approximately $150,000, had been delivered by Slatkin’s business associate, Rakow, to the Hollis Taggert Gallery in New York. GRM communicated with the gallery to ascertain the relevant facts. When those facts were ascertained, GRM obtained the gallery’s agreement to hold the painting until it was released from that agreement by the Trustee or a Court order.

GRM investigated life insurance policies owned by Slatkin and members of his family. GRM communicated with the life insurance companies which had issued the policies and with Slatkin’s counsel about the turn over of cash values.

At the Trustee’s request, GRM also investigated the existence of various storage lockers used by Slatkin, and communicated with the storage companies about storage space that Slatkin had rented. The purpose of that investigation was to determine if stored property existed that should be turned over to the Trustee and if, when, and by whom property had been removed from those storage facilities.

In addition to the interviews, meetings, and document productions described above, on behalf of the Trustee, GRM has informally requested documents from, among others, the following entities and persons, with most of which Slatkin had a direct or indirect ownership interest or other business relationship: Capsfair LLC, Conceptus, Inc., Co-Right Investments, Crystallize, Inc., Double Click, Fortress Technologies, Norman Harrower and entities supervised by him (i.e., the Bon Carre, Eastgate and Ft. Pierce malls and related properties), Krispy Kreme, Kristy Stubbs Gallery, International Dispensing Corporation, iVillage, William Kilpartrick (who was a co-owner with Slatkin of Topview LLC), Mission Hills Plaza, PFC Technologies, Questcor, Rio Blanco Homeowners Association, Streamingrock.com, Telsoft Solutions, Thomas Weisel Partners (TWP CEO Founders Circle (AI) L.P.), counsel for Topsight Entertainment, and University Village.

Finally, since their respective appointments, the Trustee, the Committee, and the Professionals have regularly received communications from Slatkin’s creditors and business associates (and/or their counsel) regarding information which those persons have about Slatkin’s business and financial affairs. Actions taken on information provided by Slatkin’s creditors and business associates has resulted in the identification of a number of assets.

VII. SLATKIN’S BUSINESS ASSOCIATES

The Trustee’s and Committee’s investigations to date have identified a number of persons with whom Slatkin had close business relationships over an extended period. Generally, they were either business partners, consultants, or persons who performed Slatkin’s bookkeeping and related services. What follows is a brief discussion of some but not all of Slatkin’s key associates, in alphabetical order. This discussion is intended to facilitate the reader’s understanding of Slatkin’s methods of operation and business activities. Due to the complexity of Slatkin’s business and financial arrangements, Committee Counsel has created a series of charts, attached hereto as Exhibits AA to QQ.

The fact that a person is discussed below should not be construed as an allegation by the Trustee that such person has engaged in any improper or illegal conduct or any conduct that might give rise to liability to the Estate or to any other person.

A. Army Bernstein

Armyan “Army” Bernstein (“Bernstein”) and his wife Christine began investing with Slatkin before 1987. Ex. 44. Bernstein also referred his parents, Armand and Lynne Bernstein, to invest with Slatkin. The Bernstein family had accounts with Slatkin in their own names and in the names of a family trust and a profit sharing plan. Until the late 1990s, Bernstein’s relationship with Slatkin appears to have been primarily as an investor. In the meantime, Bernstein had developed a reputation as a respected movie producer.

In 1998, Bernstein and Kevin O’Donnell (“O’Donnell”) approached Slatkin with the idea to acquire the majority interest in Beacon Communications LLC (“Beacon”) from Ascent Entertainment. That investment was accomplished through a company called Boomtown Investments LLC (“Boomtown”). Exs. 45, 46. Slatkin became a significant participant in the buyout and provided significant funds to Boomtown and Beacon for working capital and film financing. Richard D. Rosman, Esq., a long-time Slatkin investor who also represented Bernstein and O’Donnell, was also involved in the transaction and became an owner of Boomtown.

In an April 2001 letter to Slatkin, Bernstein proposed that Slatkin engage Bernstein to negotiate with O’Donnell for the purchase of O’Donnell’s interest in Boomtown/Beacon using Slatkin’s funds. Ex. 47. Bernstein also gave Slatkin documents (which Slatkin did not sign) that would have given Bernstein a lien on Slatkin’s interest in Boomtown. Ex. 48.

B. Denise Del Bianco

Denise Del Bianco (“Del Bianco”) is reputed to be Ronald Rakow’s wife and appears to have been an active participant in numerous business deals orchestrated by Rakow. Del Bianco was a “consultant” to Slatkin and received $1,375,000 for her purported services. In addition, Slatkin loaned her money to purchase stock in certain companies, including Physicians Data Corporation, which is now defunct. Ex. 49. Del Bianco was also involved in other Rakow-Slatkin transactions. Exhibit GG to this report is a chart of Del Bianco’s relationship with Slatkin.

As discussed above, after Slatkin filed bankruptcy, Del Bianco removed paintings valued at $1 million from Slatkin’s residence.

C. George Elvin

George Elvin (“Elvin”) resides in New York City and is a long-time business partner of Slatkin. Their relationship goes back more than 12 years. Ex. 50. According to records in Slatkin’s files, Slatkin and Elvin (or other members of their families) each own (or owned) interests in AAR Partners, Aves, LLC (“Aves”), Aviarian Partners (which may now be known as Wahoo Partners) (“Aviarian”), Orno Partners, LP/Orno Partners, LLC (“Orno”), BKE Group, LLC (which may have been merged into Orno), and Raptor Partners LLC (“Raptor”). There may be other business ventures that are or were jointly owned by Slatkin and Elvin, alone or with others. It appears that each of these businesses is a trading partnership, i.e., a vehicle through which Slatkin and Elvin invested in other business entities and/or traded stock and debt in publicly held companies.

Slatkin’s interest in these Elvin-related entities is significant, and at least some of these entities have substantial assets. For example, in April 2001, Elvin stated that Orno had adjusted capital of approximately $11.9 million. Ex. 51. In addition, in March 2001 Slatkin and Elvin opened an account for Aves at Jersey Shore Trading. Ex. 52. On April 9, 2001, approximately $767,090 was transferred into an Aves account. Immediately thereafter, there was a failed attempt to transfer $750,000 out of that account. Ex. 53. Pursuant to the Judgment entered in the SEC Enforcement Action and at the request of the Trustee, this account has been frozen, and it now contains approximately $774,567. Ex. 54. Moreover, it appears from Slatkin’s records that he and Mary Jo Slatkin received hundreds of thousands of dollars in the form of “salary” from certain of these entities, including Raptor.

In July, one of Slatkin’s investors, who had sued Slatkin, sought to obtain discovery from Elvin regarding the transfer of millions of dollars to Aviarian in late 2000. Elvin declined to provide information. Ex. 55. Recently, the Trustee obtained a Rule 2004 discovery order to require the production of documents by Aves, Aviarian, Orno, Raptor, and Elvin and the oral examination of Elvin. This discovery is set for January 2002.

Exhibit MM to this report is a chart that outlines Elvin’s relationship with Slatkin.

D. James Fisher

James Q. Fisher (“Fisher”) is an attorney. He has been associated with Slatkin since the late 1970s. Ex. 56. During the 1970's, Fisher had a law partnership with Joel Kreiner. Fisher, Kreiner, and Slatkin have been involved in a number of real estate investment partnerships since the late 1970s, including 105^th Street West Partners, Laurel Canyon Properties, Leeward Properties, Fountain Properties, and 4686 Woodside Properties. Exs. 57 and 58. Additionally, Fisher represented Slatkin with respect to estate planning. Ex. 56.

Fisher also sent letters to various Slatkin investors telling them that he was keeping duplicates of their investment statements from Slatkin in safe deposit boxes. Ex. 59. Fisher billed Slatkin for those safe deposit boxes. Ex. 60.

Exhibit KK to this report is a chart concerning Fisher’s relationship with Slatkin.

E. Daniel Jacobs

Dan Jacobs (“Jacobs”) claims that he has been affiliated with Slatkin since 1974, and that he has provided consulting and advisory services to Reed Slatkin & Associates since that time. See Ex. 61. In 1978, Jacobs founded Corporate Development International (“CDI”), a management consulting firm. He has served as CDI’s President and CEO since that time. Id.

In a letter, Jacobs wrote that he served as a consultant to Slatkin with respect to his investments in, among other entities, Stryker Technology, Advanced Resin Technology, and Earthlink, for which he claims he earned more than $3 million in consulting fees as well as up to 5% of Slatkin's Earthlink stock. Ex. 62. By 2001, Jacobs was charging Slatkin a $40,000 per month retainer. Ex. 63. Between 1991 and 2001, Slatkin paid Jacobs and CDI $3,068,423 in consulting fees. In addition, it appears that Slatkin paid Jacobs at least $100,000 for services rendered to the Slatkin children. Ex. 64. Slatkin also issued a 1099 for consulting services to Jacob’s wife, Myrna Jacobs in at least 1997. Ex. 65.

F. Jean Janu

According to Jean Janu (“Janu”)^[6], she met Slatkin through her client Mark Zaplin, who was involved in a restaurant business named Riverbenders in Laughlin, Nevada. Janu’s relationship with Slatkin is illustrated in Exhibit F. Slatkin was an investor in that business along with David Purcell. Ex. 66 (Janu Depo., pp. 18-19).

Janu began performing bookkeeping services for Slatkin in about 1990. Ex. 66 (Janu Depo., p. 18). She performed those services in New Mexico where she lived and traveled to Santa Barbara on a regular basis to meet with Slatkin. Id., pp. 9, 128. Early projects on which Janu worked include Riverbenders, Lizardhead Partners, and Aviarian Partners. Id., p. 24. In 1995, Janu began working full-time for Slatkin (as an “independent contractor”) and within a year thereafter Slatkin was her only client. Id., p. 20. Janu maintained Slatkin’s investor list. Id., p. 207. She also posted the investments for Slatkin’s client accounts. Id., pp. 51, 54, 73. Slatkin paid her approximately $1,131,000 for her services.

Janu claims to have invested approximately $255,000 with Slatkin some time after she began working for him full-time. According to Janu, she sold real property and used the proceeds of that sale to make the investment. Ex. 66 (Janu Depo. pp. 143‑48). By the time Slatkin filed bankruptcy, Janu had withdrawn $302,311 from that account.

Janu’s parents, Nelson and Virginia Spencer, also invested with Slatkin. They received approximately $604,000 more than they paid to Slatkin.

In April 1995, Janu transferred to Slatkin for an unknown consideration title to real property in New Mexico that was held in the name of her child’s trust. Ex. 67. On April 23, 2001, one week before his bankruptcy, Slatkin transferred that property back to Janu also for an unknown consideration. Ex. 68. Although the Trustee has sought an explanation of this transaction, Janu has refused to provide that information, invoking her Fifth Amendment right against self-incrimination. Ex. 69. However, Janu’s counsel has represented to the Trustee that Janu will not transfer that property without Court authorization. Id.

G. Glenn Johnson

According to a letter apparently written by Glenn Johnson (“Johnson”) in August 2000, he was an “early pioneer of the Personal Computer Industry” and a co-founder of Ashton-Tate Software and Government Technology Services, Inc. Ex. 70. (Kevin O’Donnell is a co-founder of the latter company.)

Johnson was a “consultant” to Slatkin and also invested money with him. Johnson stated that he “heads up technology research” for Slatkin. Ex. 70. According to Slatkin’s bookkeeper Phyllis Rogers, Johnson’s purported duties included helping Slatkin identify investments. Ex. 71. (Rogers Depo., pp. 59-60).

Johnson also was an investor with Slatkin. He received approximately $4.5 million in payments over and above what he paid to Slatkin.

H. Mark Leibovit

Slatkin had a long-term business relationship with Mark Leibovit. Leibovit was married to (and is now divorced from) Alice Leibovit and is the brother of Arnold Leibovit. Mark Leibovit and various members of the Leibovit family invested with Slatkin.

Slatkin and his wife initially entered into business dealings with the Leibovits around 1989, when Slatkin invested in the Sedona Spirit Theater (“SST”). Through various business developments and dealings relating to SST, Slatkin acquired property in Sedona, Arizona and shares in International Well Control.

The Leibovits also involved Slatkin in Talking Rings Entertainment, a company that was formed to provide financing for science fiction films. Slatkin invested in Talking Rings through a combination of debt and equity holdings. The successor to Talking Rings is now defunct.

In 1993 Leibovit and Slatkin formed a partnership called Lizardhead Partners (“Lizardhead”), to buy and sell stock. Ex. 72. According to Slatkin’s 1999 K-1, he owned 100% of Lizardhead by 1999. Ex. 73. The net amount of Slatkin’s investment in Lizardhead was $895,587. Ex. 1 (Slatkin Depo. pp. 271-274).

Mark and Alice Leibovit divorced in 1997 and divided their investment accounts with Slatkin at that time. Exhibit NN to this report is a chart of their relationship with Slatkin.

I. Joel Kreiner

Joel Kreiner (“Kreiner”) is an attorney who has been associated with Slatkin since the late 1970s. Ex. 74. During the 1970s, Kreiner had a law partnership with James Fisher. Since the late 1970s, Kreiner and his wife, Stina Hans, have been involved with Slatkin and Fisher in real estate investment partnerships including 105^th Street West Partners, Laurel Canyon Properties, Leeward Properties, and 4686 Woodside Properties. Ex. 58. Kreiner and Hans hold their interests through various entities controlled by them. See Exhibit K.

Kreiner and Hans also invested money with Slatkin. They received approximately $5.8 million in payments over and above what they paid Slatkin. Exhibit KK to this report is a chart of their relationship with Slatkin.

J. Richard Levine

Richard Levine (“Levine”) has known Slatkin since at least the mid-1980s. Exhibit HH to this report is a chart of their relationship. When they first met, Levine was working as a stock broker for Prudential-Bache Securities.

It appears that Slatkin and Levine first worked with each other in about 1987 connection with a company called Statistical Science, Inc., which was in the investment advisory business. It also appears that Slatkin and Levine began making investments for customers or “friends” during this time period. The Trustee and Committee have reliable evidence that by not later than 1989, Levine knew that Slatkin had been making fraudulent representations about his investment results.

Slatkin and Levine were partners in Tarzana Partners (“Tarzana”) (a trading partnership) and made numerous other investments together. Ex. 1. (Slatkin Depo., p. 90). By way of example of their longstanding relationship, in June 1991, Slatkin and Levine entered into an agreement, which recites that Slatkin is a general partner in Montecito Partners (“Montecito”) and Levine is a general partner in Tarzana Partners (“Tarzana”). Pursuant to that agreement, Levine was to receive 50% of Montecito’s profits, and Slatkin was to receive 50% of Tarzana’s profits. It appears that Montecito ultimately merged with Tarzana, effective at the beginning of 1997. See Ex. 75. Slatkin and Levine also were co-owners of other businesses including Coldwater Associates (Ex. 76), MJR Investments, Sterling Asset Management Partner (aka Sterling Asset Managers, Redstone Financial (along with Ronald Rakow) (Exs. 77 and 97), Triangle Partners (Ex. 78), and Infinity Acceptance Corporation (which is now in receivership). In addition, Levine was a co-signatory on various bank accounts with Slatkin and had trading authority over various brokerage accounts held by Slatkin. Ex. 1 (Slatkin Depo., pp. 88-90).

On or about April 17, 2001, Slatkin signed an agreement pursuant to which Slatkin purportedly transferred to Levine Slatkin’s interests in Tarzana, MJR Investments, and Sterling Asset Management Partners and the outstanding loans owed to Slatkin by those entities. In exchange, Levine purported to transfer to Slatkin the investment accounts that the Levine family had with Slatkin. Ex. 79.

Levine also was an investor with Slatkin. He received approximately $4 million in payments over and above what he paid Slatkin. After the SEC commenced its investigation of Slatkin, Levine and members of his family withdrew at least $1.47 million more from their accounts than they paid into those accounts during that period.

K. Charles Lyons

Slatkin probably met Charles Lyons (“Lyons”) through his investment in Beacon/Boomtown. Lyons was the president of the Beacon’s parent, Ascent Entertainment, a publicly traded company which also owned professional sports franchises (the Colorado Avalanche and the Denver Nuggets). Lyons then was involved with spearheading other entities in which Slatkin invested including California Media Group, LLC and RBG Capital Group. Lyons had a consulting agreement with Slatkin for an annual retainer of $750,000 a year. See Ex. 80. He also borrowed money from and invested money with Slatkin. In total, Lyons received approximately $1.2 million from Slatkin over and above what he paid Slatkin.

L. Christopher Mancuso

In about 1985, Slatkin became associated with Christopher Mancuso (“Mancuso”) and Rakow. The Trustee is informed that Mancuso and Rakow were each convicted of federal crimes arising out their involvement with a company called Culture Farms. See Ex. 81.

In the 1980s, Mancuso established investment accounts with Slatkin. Mancuso also was involved with accounts managed by Slatkin in the names of Givsen and Trojan Financial. Hundreds of thousands of dollars were transferred among and from those

accounts. Exs.82 and 83.

More recently, in 1998, Mancuso, the “founder” of Communications Consulting, Inc., attempted to borrow $2.5 million from Slatkin. Ex. 84. Additionally, from 1989 to 1995, Slatkin invested a net amount of $139,600 in NTC and in 1995, invested $850,000 in Incommnet, two companies with which Mancuso was involved. Ex. 85.

As discussed below, Slatkin owned undeveloped real property at 6 Sea Greens, Newport Coast, California. Slatkin proposed to sell the property to a company called IBAR Development LLC or to Mancuso LLC. Ex. 86.

On May 22, 1999, Rakow wrote to Slatkin:

“I was miraculously and accidentally, [sic] privy to a comm. between Mancuso and his Atty. yesterday, and all I can say is that if in your madness you don’t fund the escrow on Monday you will look back on that instant and this advisory, for a long time, with extreme regret and embarrassment. . . . Remember you live and thrive in a world of adulation & respect. In a brutally frank critique and examination you will be found to be a Human . . .

Ex. 17. Although Slatkin was to be the seller of the property, on or about May 24, 1999, he transferred $3,750,000 to an escrow account at North American Title Company.

On May 27, 1999, even though the sale had not closed, the escrow company transferred $2,646,856.40 of Slatkin’s money to Mancuso’s company, Mancuso LLC. Ex. 87. The remainder of the funds were returned to Slatkin.

On June 4, 1999, Mancuso wrote to Slatkin “Please give me a call on Monday and I will explain to you what I have done.” Ex. 88.

In addition, as discussed above, in the SEC’s investigation, Slatkin testified that he had hundreds of millions of dollars in accounts in Switzerland. In an apparent attempt to create the false image that those accounts were real, in about February 2000, Slatkin used International Telecommunications Consulting, LLC (“ITC”) to set up a Swiss telephone line that actually forwarded calls to Santa Barbara, California, where they were answered. Mancuso, on ITC letterhead, wrote to Slatkin about this phone line, noting that “when you dial the number the line has been conditioned to provide a truly genuine European ring (nice touch, huh?).” See Ex. 7.

As noted, Mancuso was an investor with Slatkin. He received approximately $2.4 million in payments over and above what he paid to Slatkin. Exhibit EE to this report is a chart of Mancuso’s relationship with Slatkin.

M. Richard McMullin and Joanne Rubinstein (His Mother)

Richard McMullin was an “investment consultant” to Slatkin from at least 1986 until 1999, when he ceased working for Slatkin. Ex. 89. By the early 1990s, Slatkin also hired McMullin’s mother, Joanne McMullin (who later married and change her name to Rubinstein) to assist with office tasks such as “typing, bookkeeping and records management as needed.” Ex. 90. Rubinstein worked for Slatkin through 2001.

N. Douglass Neuman

Douglass Neuman (“Neuman”) has known Slatkin since about 1975. Neuman was involved with Slatkin’s business operations as early as the late 1970s and had an “apprenticeship” with Robert Duggan around the same time as Slatkin, learning how to analyze stocks and companies for investment purposes. Ex. 91. He and members of his family have also invested money with Slatkin. Since the mid-1990s, Neuman was Slatkin’s partner in extensive real estate operations in Oregon.

Slatkin and his family appear to have been close friends with Neuman and his wife, Becky, choosing to designate the Neumans as the guardians of the Slatkin children in their wills.

Exhibit JJ to this report is a chart concerning Neuman’s relationship with Slatkin.

O. Kevin O’Donnell/MaryAnn O’Donnell

Slatkin and Kevin O’Donnell (“O’Donnell”) began doing business deals together by the early 1990s. Ex. 92. Prior to meeting Slatkin, O’Donnell had co-founded a successful company called Government Technology Services, Inc. Between 1990-1992, O’Donnell and Slatkin were involved in a few stock trading partnerships which sometimes involved other individuals, such as O’Donnell & Gale, Slatkin & O’Donnell and Gale & Connard. Id.

Slatkin’s association with O’Donnell ultimately led Slatkin to make his initial investment in Earthlink. O’Donnell’s son had gone to school with Earthlink’s founder, Sky Dayton, and O’Donnell introduced them and persuaded Slatkin to invest. Ex. 1 (Slatkin Depo., pp. 146-47) Following the Earthlink investment, Slatkin entered into other business deals with O’Donnell. For example, O’Donnell was involved in Army Bernstein’s plan to acquire Beacon Entertainment from Ascent before Slatkin became involved. O’Donnell was also an investor in the Bon Carre, Eastgate, and Fort Pierce mall properties with Slatkin.

The relationships among Slatkin, O’Donnell, Army Bernstein, and Richard Rosman became strained during 2000 and 2001. In an April 2001 letter to Slatkin, Bernstein wrote: “Mr. O’Donnell is in breach of his obligations under the Boomtown and Beacon operating agreements, has been uncooperative in furthering the objectives of Boomtown and Beacon, and has threatened to divulge confidential information of Boomtown and Beacon.” Ex. 47.

O’Donnell was married to MaryAnn O’Donnell throughout the time he was associated with Slatkin. The O’Donnells legally separated in 1999, and their divorce became final in December 2000.

Slatkin and O’Donnell also invested together (along with others) in numerous other companies. Exhibit LL to this report is a chart concerning Slatkin’s relationship with the O’Donnells.

P. Ronald Rakow

As discussed above, in May or June 1985, Slatkin became associated with Rakow when he purportedly invested with Slatkin $200,000 that he had received from Culture Farms. Ex. 4 (Rakow Depo. p. 315). Shortly thereafter, Rakow withdrew those funds. Id., p. 315. The Trustee is informed that Rakow was convicted of federal crimes arising out of his involvement with Culture Farms. Ex. 4 (Rakow Depo. p. 229). Notwithstanding Rakow’s legal problems, Slatkin maintained a very close association with Rakow.

According to Slatkin, Rakow advised Slatkin about the purchase of art.

Among numerous other transactions, Slatkin claims to have sold valuable paintings to Rakow and his wife; and during the summer of 2000, Slatkin purportedly sold Rakow and Del Bianco paintings worth approximately $1 million. The Trustee has reliable information that, notwithstanding this “sale,” the paintings remained in Slatkin’s possession until Del Bianco removed them from Slatkin’s residence after Slatkin filed his bankruptcy case. After learning that the paintings had been removed from Slatkin’s residence, the Trustee’s counsel communicated with Zaplin about the art. According to Zaplin, after June 2001, Rakow told him that he did not know where the paintings were located. Ex. 93.

In addition, in late January 2001, the Hollis Taggert Gallery in New York sold the Thomas Moran painting, “View of East Hampton,” to Slatkin for $150,000. On June 14, 2001, Rakow personally delivered that painting to the gallery. According to the gallery’s owner, Rakow claimed that he had purchased the painting from Slatkin, but did not provide any details or documentation evidencing that purchase. Rakow asked the gallery to sell the painting on a consignment basis and asked that the consignment be listed in Del Bianco’s name. Exs. 94. The gallery has possession of the painting and has agreed not to sell or transfer possession of the painting without the Trustee’s permission or a Court order.

Slatkin’s records show that Rakow was a “consultant” from the late 1980’s through at least 1997. Ex. 95. Slatkin described Rakow as an “entrepreneur and private business analyst” and claimed that Rakow provided him with preliminary and follow-up business and financial analysis for companies “under accumulation,” as well as investment ideas. Ex. _. It also is apparent that Rakow solicited investors for Slatkin and assisted Slatkin in making investments and other payments. Indee