EARLY on Monday morning, a 2,024-page report arrived at the Santa Barbara Bankruptcy Court in California, detailing the remarkable downfall of man once hero-worshipped by Wall Street investors. His name is Reed Slatkin. Until late last year he was a millionaire Internet guru, a friend of Hollywood celebrities and an ordained minister in the Church of Scientology. Now he is the subject of investigations by the FBI and the Securities and Exchange Commission. His creditors describe him, according to their mood, as either a “financial predator” or a “monster”.
It was all very different at Slatkin’s lavish fiftieth birthday party in 1999, to which the Hollywood stars Kevin Costner and Arnold Schwarzenegger sent videotaped greetings. The stunt was arranged by Armyan Bernstein, one of Slatkin’s friends and the producer of Spy Game, the movie hit starring Robert Redford and Brad Pitt.
Slatkin first moved to California in 1974. Initially he wanted to do little other than work for the Church of Scientology. But in the 1980s he began dabbling in the stock market with a fellow member of the church. By the end of the decade Slatkin was investing for a growing group of scientologists. They handed him everything from retirement funds to college money and he produced healthy but not suspiciously large returns.
Slatkin’s luckiest break came in 1994 when he was introduced to a 22-year-old called Sky Dayton, who wanted to start an Internet access business. Slatkin thought the business, EarthLink, would be a dud, but invested $75,000 (£50,000) anyway.
It was a good move. By early 1999 Earthlink was one of the three biggest Internet service providers in the US with a stock market value of nearly $8 billion. Slatkin’s stake in the company was worth about $200 million.
By last year, the court report says, Slatkin was “managing” more than $600 million on behalf of 800 clients. But it claims that although hundreds of millions of dollars in purported stock market profits were distributed to a handful of investors, Mr Slatkin made only $65 million in real gains.
Investors became suspicious early this year and by May Slatkin had filed for bankruptcy amid a storm of lawsuits. So far only $30 million of Slatkin’s assets have been recovered, with another $255 million still owed to investors.
Slatkin’s few remaining friends say he was simply the victim of the stock market crash. His creditors, however, accuse him of organising a classic “Ponzi scheme”, which used money collected from new investors to pay bogus profits to existing investors.
Slatkin’s lawyer declined to comment on the report’s allegations. Instead, he informed the court that Slatkin was co-operating with the authorities to “make sure that they recover as much as possible for the estate”. But no matter how much Slatkin co-operates, the missing quarter of a billion dollars is unlikely to return.
Reed Slatkin is not the only one who wishes the Internet boom was still in full swing. Patrizio Bertelli, chief executive of Prada, displayed a similar sentiment when opening the Italian fashion group’s new flagship shop in SoHo on Friday. The 24,000 sq ft outlet, only a short walk from Ground Zero, cost an estimated $40 million to construct. In fact, with its vast concave wooden floor, cylindrical lift shaft and wall-to-wall video screens, the place looks as though it ought to be part of an exhibit at London’s Tate Modern.
Those who attended the shop’s predictably slick opening party included Rudolph Giuliani, the New York Mayor, and Kevin Spacey, the Hollywood actor. Yet Bertelli and his wife, Miuccia Prada, looked anxious and rather unhappy. Perhaps they were thinking about Prada’s $1.2 billion of debt.
When I looked around the shop on Monday it seemed to be full of Japanese tourists and gay investment bankers (one of the products on offer was a fur-lined case of Prada spanners). No one seemed to be buying anything. I attempted to buy a shirt, but could find only the barcode, not the price. Then I realised that the barcode was the price. It was the kind of profoundly depressing realisation of relative wealth that I had not experienced since first moving to New York.
But I was not the only one to feel slightly bemused by Prada’s idea of recession pricing. The New York Times’s verdict was this: “Even if Prada were to tumble into Chapter 11 by New Year’s Eve, New Yorkers would still have had a blessed two weeks to walk through a model block of intelligent optimism about urban life.” How reassuring.
This is the time of year when New Yorkers are bombarded with curious unsealed Christmas cards from the anonymous people who deliver newspapers, remove rubbish, unblock lavatories and perform countless other vital tasks inside their buildings. The idea is that you tuck a $20 note inside the card and pop it in the postbox. New York’s consumer affairs department even produces a guide on how much to give, called Tips On Tipping.
In a large building such as my own, however, it can cost more than $500 to dole out “appropriate tips”, to ensure that all services continue to be provided without interruption (it is amazing how non-tipping households can find their newspapers delivered to the wrong door, etc). This year, however, building staff seem to be preparing for the worst.
A discreet notice went up outside lifts in my building yesterday, advising “those who have recently become unemployed” not to worry about tipping. “A simple Christmas card with the appropriate message can be a charming gesture,” it says. Who says the true spirit of Christmas has been lost?