Bankers for Slatkin Agree to Settle Suit

Reed Slatkin’s former bankers have agreed to pay $26.5 million to settle a lawsuit contending that they helped him appear to be a legitimate investment advisor while he ran a $593-million Ponzi scheme, attorneys in the case said Monday.

The recovery would be by far the largest yet for investors in what Slatkin, a co-founder of EarthLink Inc., has admitted was a fraud that began in the mid-1980s and was unmasked in 2001. In the scheme, Slatkin paid off some of his investors with money raised from newer clients.

The last of the documents settling the 2-year-old suit against the bankers were being signed Monday, lawyers said. The deal also must be approved by U.S. District Judge Margaret Morrow in Los Angeles.

The settling defendants included Union Bank of California and Bank of Orange County. Other defendants were Imperial Management Inc., the former trust division of Imperial Bancorp, an Inglewood bank acquired in 2000 by Comerica Inc., and Mary Catherine Leider, a former vice president in Imperial’s trust division who handled accounts for some Slatkin investors.

The settlement documents didn’t disclose how much each of the defendants and their insurers were to provide toward the $26.5 million.

None of the defendants admitted wrongdoing.

The lawsuit accused Union, Bank of Orange County, Imperial and Comerica Inc. of participating in fraud by providing Slatkin with credit and overdraft protection, allowing him to commingle personal and investor funds and lending their names and prestige to his operations. Leider was accused of accepting financial favors from Slatkin in return for steering business his way.

Comerica, which was dismissed as a defendant this year, declined to comment, as did attorneys for Imperial Management, Leider and Bank of Orange County, a division of Sacramento-based Placer Sierra Bancshares.

Union Bank spokeswoman Joanne Curran said her San Francisco-based company inherited Slatkin investor accounts when it bought Imperial’s trust business in 1999.

“Our goal throughout this process has been to compensate our customers for their loss,” Curran said.

Slatkin, whose clientele included a number of prominent actors, models and other celebrities, pleaded guilty to fraud, conspiracy and money laundering and is serving a 14-year federal prison term in Taft, Calif.

A group of the largest Slatkin investors and their lawyers at the Kirkland & Ellis legal firm are to receive about $15.5 million of the proposed settlement, according to K&E; attorney R. Alexander Pilmer.

An additional $11 million will be set aside to cover losses and legal costs for hundreds of additional investors who gave Slatkin more money than they received back in alleged earnings, according to the settlement agreement being circulated for approval.

In a separate settlement Feb. 27, Comerica, Union, Imperial and Bank of Orange County previously agreed to return about $1 million in fees that Slatkin had paid them to handle his personal and business accounts.

Slatkin raised a total of $593 million from investors and recycled much of that back to them in what he claimed were investment returns. But when his fraud was revealed, his investors came up short by more than $200 million.

Efforts to reclaim losses have included “fraudulent transfer” lawsuits against investors who came out ahead, including actors Peter Coyote and Joe Pantoliano, as well as liquidation of Slatkin’s assets.

The proposed settlement of $26.5 million with the banks, reached after several days of mediation by a retired judge, “would be by far the single largest recovery for the creditors,” Wynne said.