More Boy-Bands Please

CATEGORY: Boy-Band Mogul, Ponzi Scheme, Law

DIVISION: Entertainment

EDITORIAL: As the genius behind the BackStreet Boys and other lucrative boy-bands, Lou Pearlman has been a vital purveyor of American Culture. To see him arrested and frog-walked like an Enron Executive is sad for everyone. Who will dare to take his place? And where will the next 'must-hear' boy-band come from? Today, the music industry is a little less fun.

Boy-Band Mogul Lou Pearlman to Appear before Federal Judge

by Pedro Ruz Gutierrez, Scott Powers and Sara K. Clarke

Sentinel Staff Writers

June 14, 2007

Lou Pearlman, the Orlando boy-band mogul, was taken into custody by the FBI early this morning in Indonesia.

Authorities expelled Pearlman and then turned him over to U.S. authorities.

"We are aware that he is in the custody of the FBI," said Steve Cole, a spokesman for the US Attorney's Office in Tampa. "I can't comment beyond that." Pearlman is the subject of several federal and state criminal investigations in Florida involving alleged securities and bank fraud. He was being flown to Guam, the nearest U.S. territory, where he will have an initial appearance before a federal judge.

Indonesian authorities located Pearlman living in a resort hotel in the tourist district of Nusa Dua in Bali. Immigration officials in that country told him he was no longer welcome in their country and then expelled him. In the process, they turned him over to U.S. officials.
On Feb. 15, FBI and IRS agents, using search warrants, raided Pearlman's former corporate headquarters on Church Street and his Isleworth home near Windermere and seized truckloads of documents.

While the federal charges remain publicly unknown, Pearlman has been charged in both state and federal court with civil complaints alleging widespread fraud in an "employee investment savings account " program he ran for more than two decades through his Trans Continental Airlines company.

The civil suits, including one from the Florida Office of Financial Regulation, have alleged he received more than $317 million from more than 1,800 investors who were told their money was going into safe, secured, high-interest accounts. They money instead fueled a huge, long-running Ponzi scheme, in which later investments were used to keep earlier investors happy, the suits allege. In addition, a dozen banks have sued him after foreclosing on more than $130 million in loans.

Attorneys and investigators trying to find the money for the civil cases have found very little; only a few hundred thousand dollars so far.

Reaction among investors and attorneys in Florida was swift and hopeful.

"Number one, he deserves to be arrested and number two, they may find out where the money is," said Clearwater attorney Robert Persante, who sued Pearlman on behalf of investors who claimed to have lost money in Pearlman's savings program.

Joe Madigan of Ocala is among investors wondering what will come of the arrest. He and his wife Jean lost $300,000 in the program, which he said was their life savings. Madigan does not have much hope of getting much, if any, money back. But he does want to see justice.

"I hope that he (Pearlman) does time. He stole money from innocent people who trusted him and put all their life savings into an investment we thought was secure," Madigan said. "Also, I don't think the guys who assisted him in selling these investments should get away scot-free either."

There are dozens of lawsuits pending, including involuntary bankruptcy cases against Pearlman personally and many of his companies. Attorney Denise D. Dell-Powell, who represents court-appointed trustee Soneet Kapila in those bankruptcy cases, said the biggest hope might hinge on whether Pearlman reveals what happened to the money as part of some sort of plea bargain.
"Part of it depends on whether Pearlman will plea out and will provide information that will help us provide restitution for the creditors," Dell-Powell said.

There also is the question of whether any of Pearlman's top executives might also be indicted. If not, with Pearlman's arrest, they might be freer to talk as well, she said.

"You have various people who may be concerned about their own criminal liability, and when the indictments are unsealed and they are not targeted, they may feel they can speak to us more freely, which is helpful," she said. "It could mean nothing to us. I would imagine at this point, he pleads the 5th" Amendment, exercising his right to not speak.

Pearlman was last publicly seen in Orlando in late January. By early February he was in Germany, where he still has a boy band, US5, touring. But within days of his Feb. 1 appearance on German television, he dropped out of sight again. Subsequent sightings have been reported in Russia, Belarus, Germany, Israel, Spain, Panama, Brazil and Indonesia. The first such Indonesia report came in early February when an Orlando attorney received a letter from Pearlman with a Bali, Indonesia, postmark. Since then, the Orlando Sentinel has received at least two more unconnected reports of Pearlman sightings in Bali.