Former Boy-Band Mogul Lou Pearlman says He Will Cooperate in Fraud Case
By Jim Leusner
March 6, 2008
Orlando music mogul Lou Pearlman has agreed to help federal prosecutors, investigators and bankruptcy trustees track down assets, cooperate against unnamed co-conspirators and pay back $200 million to investors and banks, according to a plea agreement filed in the case Tuesday.
The 47-page document -- including 30 pages of Pearlman's alleged criminal activities over the past two decades -- outlines a string of fraudulent stock and retirement investment-account sales and bank fraud before, during and after his glitzy, high-profile days as the founder of the Backstreet Boys and 'N Sync bands in the 1990s and early 2000s.
The agreement, signed Feb. 26, follows amended charges filed against him Monday in Orlando's federal court. Pearlman is scheduled to change his plea to guilty on four conspiracy, money-laundering and bank-fraud charges today.
The 53-year-old is facing up to 25 years in prison -- which could amount to a life sentence. He also faces $1 million or more in fines.
One of Pearlman's lawyers, Fletcher Peacock, would not say Tuesday how the businessman, jailed since June, would attempt to repay his victims. Assistant U.S. Attorney Roger Handberg would not comment on the agreement.
The deal comes as attorneys and creditors sift the ashes of Pearlman's once flashy, Orlando-based empire. Several condos he owned, the contents of his home, offices and clothing were sold in the bankruptcy. On Saturday, his lakefront mansion in Windermere is scheduled to be auctioned.
Court-appointed bankruptcy trustee Soneet Kapila and his Orlando attorney, Denise Dell-Powell, have helped track down more than $2.5 million in Pearlman cash and assets. But they remain skeptical that Pearlman will pay back more than 1,200 bankruptcy creditors.
"We are pleased to see that he will plead guilty," Kapila said. "There is a lot of money unaccounted for. . . . Simply getting blood [a long prison sentence] does not compensate the victims."
More than $450 million in lawsuits and damage claims have been made against Pearlman.
According to the plea deal, Pearlman operated three major schemes: a Ponzi scheme involving the sale of "employee investment savings accounts" in Transcontinental Airlines Travel Services Inc. and shares in Transcontinental Airlines; a bank-fraud scam involving phony financial statements and bogus tax returns submitted to financial institutions to obtain loans; and a plot to try to siphon $5.2 million in frozen assets from his bankruptcy cases.
"For over 20 years, Louis J. Pearlman was successful in raising millions of dollars based on false representations about two [Transcontinental] companies affiliated with him," the plea agreement read. ". . . Pearlman represented to thousands of investors and several federally insured financial institutions that those two companies were successful companies in the airline business and that Pearlman's ownership interest in those companies was worth millions of dollars. That was not true."
The companies "existed only on paper . . . had minimal employees, business operations and revenue," it said.
Even after investors and regulators became suspicious during the past decade, Pearlman produced false financial statements to hold them at bay.
"To lull those investors into believing that their investments were going to yield high rates of return, Pearlman falsely represented on several occasions that Transcontinental Airlines Travel Services Inc. was going public and that the value of the stock of the company was going to increase when, as Pearlman knew, that was not true."
Prosecutors alleged that more than $300 million was raised from at least 1,300 investors and several banks from around the country.
For example, $118 million was collected in the airline investment program between 2003 and 2006. The plea agreement said Pearlman and his companies took $45 million.
Pearlman has agreed to forfeit assets seized last year by the government after he fled the country to avoid investors and creditors. They include a 2004 Cadillac Escalade, a 2005 Chrysler 300, a 2004 Rolls Royce Phantom, a 2006 Cadillac Professional Limousine and $97,000 in bank checks.
The plea agreement details phony financial statements and bogus tax returns prepared by phantom employees and accounting firms, a mythical $50 million financial backer and a German bank that Pearlman claimed was holding $39.5 million for his companies.
Evidence was gleaned from false documents and financial statements provided to investors, regulators and banks; documents from a search of his downtown Orlando offices and computers; Pearlman's e-mail accounts while he was on the run overseas in early 2007; and from a hotel in Bali, Indonesia, where FBI agents tracked him down last June, court records show.
The investigation also showed that Pearlman had not filed IRS income-tax returns since 2001, when he listed a negative income of $3 million. But false tax returns were created from 2002 to 2005 showing annual income of more than $10 million and provided to banks to obtain loans, the plea agreement read.
[ RGM Short Selling Home page ]