Boy Band Impresario Guilty Plea In Massive Ponzi Scheme
Lou Pearlman, the gregarious mastermind behind boy bands such as 'N Sync and the Backstreet Boys, is now admitting his role in a different kind of choreography: a Ponzi scheme.
Prosecutors released a 47-page plea agreement Tuesday signed by Pearlman in which he admits to running scams that defrauded investors and major banks out of more than $300 million. He is scheduled to plead guilty in Orlando on Thursday to federal charges of conspiracy, money laundering and making false statements during a bankruptcy proceeding.
He has also pledged to help investigators prosecute his accomplices and try to recoup millions of dollars for his victims.
His attorneys did not return a call seeking comment Tuesday.
A federal judge will decide Pearlman's punishment, which could be up to 25 years in prison and $1 million in fines. As part of his agreement, Pearlman must make full restitution to his victims and forfeit money and several vehicles, including a 2004 Rolls Royce Phantom.
Pearlman, 53, earned widespread fame in the 1990s for creating successful pop sensations such as the Backstreet Boys and 'N Sync. The groups eventually sued him, claiming he was siphoning large amounts of money from them. The cases were later settled. The terms were not disclosed.
Pearlman's memorabilia from the boy band era was auctioned off last year in a bankruptcy sale.
Even as the groups played to sold-out crowds, Pearlman was soliciting investors for his schemes. To make them seem legitimate, Pearlman acknowledges he and others created a fictitious airline company, a fake German bank and South Florida accounting firm.
But the root of his scam, a company known as Transcontinental Airlines Travel Services, was born in 1981 -- the same year that 'N Sync heart throb Justin Timberlake was born.
For more than 20 years, Pearlman and others sold Transcontinental shares, duping investors into believing that the company was worth millions.
Rather, the plea agreement states Transcontinental "existed only on paper." And after 1999, it ceased to exist at all -- Delaware officials voided its incorporation in 1999, according to the plea agreement.
That didn't stop Pearlman from wooing investors, which included major banks such as Bank of America, Washington Mutual, Mercantile Bank and others. Pearlman also touted an Employee Investment Savings Account, which he promised would yield higher returns than traditional investments.
None of it was true, according to the plea agreement. "Neither of those investments were legitimate," the document states. "Instead, they were 'Ponzi' schemes by which money raised from later investors would be used to pay off earlier investors."
Prosecutors say Pearlman accepted $118 million in investments into the employee savings account between January 2003 and December 2006. He returned roughly $43 million to investors, but distributed more than $38 million to himself and an entity called Pearlman Enterprises.
Pearlman created an elaborate network of fake finances. Those included hiring an answering service to pose as a South Florida accounting firm, Cohen & Siegel, which endorsed Transcontinental's finances. Pearlman also admits in the agreement to providing fake tax returns to banks, and creating a fake branch of a bank in Germany to try to lend credibility.
Pearlman fled the United States in early 2007 and was later captured after he was deported from Indonesia. At the time, he was apparently trying to create a seal and other documents to make the German bank appear legitimate, the plea agreement states.
He was also keeping close tabs on bankruptcy proceedings that were under way in Florida. According to the plea agreement, Pearlman entered false claims and manufactured documents to try to divert or unlock money that had been frozen.
Pearlman has been in an Orlando jail since being returned to Florida in July 2007.