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Suit Names 2 Banks in Slatkin Ponzi Case

Fraud: Filing by estate trustee says Comerica and UnionBanCal earned millions in fees.

September 06, 2002|From Bloomberg News

UnionBanCal Corp. and Comerica Inc. aided Earthlink co-founder Reed Slatkin's Ponzi scheme that solicited more than $590 million from investors, according to a suit filed by his estate's bankruptcy trustee.

Slatkin this year agreed to plead guilty to 15 felony changes in connection with the investment scheme and acknowledged responsibility for at least $254 million in losses. He filed for bankruptcy in 2001. In a Ponzi scheme, early investors are paid off with money collected from later investors.

The suit filed by R. Todd Neilson, the Chapter 11 trustee of Slatkin's estate, claims that Slatkin could not have executed his scheme without the help of the banks, who allegedly earned millions in fees from the fraud. The trustee for a bankruptcy estate works with the creditors committee to regain what money they can for the estate.

The suit seeks at least $250 million in compensatory damages and unspecified punitive damages.

"The banks gave Mr. Slatkin the aura of legitimacy he needed to continue to fool his victims," according to the 41-page suit, filed in U.S. District Court in Los Angeles. "The banks didn't support Mr. Slatkin's scheme for free, however."

Joanne Curran, a spokeswoman for UnionBanCal, said the bank does not comment on litigation. The San Francisco-based company is California's second-largest bank. The suit said UnionBanCal in May 1999 purchased the trust business of Imperial Trust Co., which allegedly held the accounts of Slatkin's investment club and offered him a $2.5-million unsecured line of credit.

Slatkin resigned last year from the board of Earthlink. The U.S. Internet provider has said Slatkin's activities were separate from the Atlanta-based company.

Slatkin collected money from investors from 1985 until April 2001, telling them he would buy securities on their behalf, prosecutors said. Instead, they said, Slatkin provided false statements that showed fabricated returns and used the money to pay country club fees and purchase cars and artwork.

Calls to two spokespeople at Comerica Bank Thursday were not returned.

The suit also named Bank of Orange County, the successor to Pacific Inland Bank. A call to the Fountain Valley-based bank was not returned.

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