Lou Pearlman
Encyclopedia
Louis Jay "Lou" Pearlman (born June 19, 1954) is a former impresario
of the successful 1990s
boy band
s such as The Backstreet Boys
, *NSYNC, Take 5
, O-Town and US5
. In 2006, it was discovered that Pearlman had perpetrated one of the largest and longest-running Ponzi scheme
s in American history, leaving more than $300 million in debts. After getting caught on the run, and pleading guilty to conspiracy
, money laundering
and making false statements during a bankruptcy
proceeding, in 2008 Pearlman was convicted and sentenced to (up to) 25 years.
, the only child of Jewish parents Hy Pearlman, who ran a dry cleaning business, and Reenie Pearlman, a school lunchroom aide. Pearlman is the first cousin of Art Garfunkel
. His home at Mitchell Gardens Apartments was located across from Flushing Airport
, where he and childhood friend Alan Gross would watch blimp
s take off and land. According to Pearlman's autobiography, Bands, Brands, & Billions, it was during this period he used his position on his school newspaper to earn credentials and get his first ride in a blimp. (This version of events is disputed by Gross, who claims he was the school reporter, and allowed Pearlman to tag along.)
His cousin Garfunkel's fame and wealth helped fire Pearlman's own interest in the music business. As a teenager he managed a band, but when success in music proved elusive, he turned his attention to aviation
. During his first year as a student at Queens College, Pearlman wrote a business plan
for a class project based on the idea of a helicopter
taxi service in New York City
. By the late 1970s, he had launched the business based on his business plan, starting with one helicopter. He convinced German businessman Theodor Wüllenkemper to train him on blimps and subsequently spent some time at Wüllenkemper's facilities in Germany learning about the airships.
, Pearlman formed Airship Enterprises Ltd, which leased a blimp to Jordache
before actually owning one. He used the funds from Jordache to construct a blimp, which promptly crashed. The two parties sued each other, and seven years later Pearlman was awarded $2.5 million in damages. On the advice of a friend, Pearlman started a new company, Airship International, taking it public
to raise the $3 million he needed to purchase a blimp, claiming (falsely) that he had a partnership with Wüllenkemper. He leased the blimp to McDonald's
, for advertising.
He then relocated Airship International to Orlando
in July 1991, where he signed MetLife and Sea World
as clients for his blimps. Airship International suffered when one of its clients left, and three of the aircraft crashed. The company's stock, which had once been pumped up to $6 a share, dropped to a price of 3 cents a share and the company was shut down:
, who had made hundreds of millions of dollars in record, tour and merchandise sales. He started Trans Continental Records with the intent of mimicking their boy-band business model. The label
's first band, the Backstreet Boys
, consisted of five unknown performers selected by Lou in a $3 million talent search. Management duties were assigned to a former New Kids on the Block manager, Johnny Wright, and his wife Donna. The Boys went on to sell 100 million albums
worldwide, hitting gold and platinum in 45 different countries. Pearlman and the Wrights then repeated this formula almost exactly with the band *NSync, which sold over 56 million records globally.
With these two major successes under his belt, Pearlman had become a music mogul
. Other boy bands managed by Pearlman were O-Town (created during the ABC
–MTV
reality TV series Making the Band
), LFO
, Take 5
, Natural
, and US5
, as well as the girl group Innosense
, together with Lynn Harless. Other artists on the Trans Continental label included Aaron Carter
, Adams Hambüger-Hatt, Jordan Knight
, Smilez & Southstar and C-Note. Pearlman also owned a large entertainment complex in Orlando, including a recording studio he called Trans Continental Studios, and a dance studio by Disney World named "O-Town".
Lou Pearlman also was an officer at TAG Entertainment
.The independent film
company TAG Entertainment produced some low budget yet profitable movies and DVDs. Pearlman presented himself as working to create an ethical and wholesome New Wave
of Hollywood film making, along with others who actually worked on the movie projects for much less than what they would normally charge.
, all of the musical acts who have worked with Pearlman have sued him in Federal Court
for misrepresentation and fraud
. All cases against Pearlman have either been won by those who have brought lawsuits against him, or have been settled out of court. All cases have also ended with a confidentiality agreement, meaning none of the parties are allowed to discuss Pearlman's practices in detail.
The members of Backstreet Boys were the first to file a lawsuit against Pearlman, feeling that their contract — under which Pearlman collected as both manager and producer — was unfair, since Pearlman was also paid as a sixth member of the Backstreet Boys (i.e., one-sixth of the band's own income). The band's dissatisfaction began when member Brian Littrell
hired a lawyer to determine why the group had received only $300,000 for all of their work, while Pearlman and his record company had made millions. Fellow boy band *NSYNC was having similar issues with Pearlman, and its members soon followed suit.
At the age of 14, pop star Aaron Carter filed a lawsuit in 2002 that accused Pearlman and Trans Continental Records of cheating him out of hundreds of thousands of dollars and of racketeering in a deliberate pattern of criminal activity. This suit was later settled out of court.
After Hotjobs and Monster.com
pulled over a thousand of the company's job ads from their boards, they were further advertised on the Difrawi-founded "Industry Magazine" website. The Better Business Bureau
's opinion about Options / TCT / WSN was negative (a "pattern of complaints concerning misrepresentation in selling practices"). The New York
State Consumer Protection
Board issued an alert, naming it the largest example they had found of a photo mill scam
(in which agencies force models to shoot portfolios with photographers on their own payrolls), and a State Senator called it trying "to make a quick, dishonest dollar".
The San Francisco labor Commissioner declared it in violation of California law, and several state agencies were reported to be investigating. In Florida, around 2,000 complaints were filed with the then-Attorney General
Charlie Crist
and the Better Business Bureau, and an investigation was started by Assistant AG Dowd. However, no charges were filed, as the newly appointed Assistant AG MacGregor was unable to find "any substantial violations" and the company had declared bankruptcy, "leaving no deep pockets to collect damages from."
By June 2004, Fashion Rock, LLC had filed a civil suit for defamation against some who had criticized Pearlman's talent businesses and outed suspicions of bankruptcy fraud. The case was dismissed and closed in 2006. One of the accused, Canadian consumer-fraud expert Les Henderson
, successfully pursued a libel lawsuit
against Pearlman, Tolner, El-Difrawi and several others.
Fashion Rock, LLC lived on until February 2, 2007, when its assets were sold in Pearlman's bankruptcy proceeding. Mr. Difrawi currently runs Softrock.org and OMG Talent, from the same address as former TCT.
wrote for the November 2007 issue of Vanity Fair
magazine reported claims of inappropriate sexual conduct made in interviews with several former and current boy band members, and male employees of Pearlman's. Many of the men had lived in Lou's Florida mansion, where the inappropriate conduct was alleged to have taken place, but none were willing to come forward publicly, and no charges were ever filed. Backstreet Boy Nick Carter
's mother, Jane Carter, told the magazine: “Certain things happened and it almost destroyed our family. I tried to warn everyone. I tried to warn all the mothers." She said, "I tried to expose him for what he was years ago."
In a January 2009 interview on Howard Stern
's radio show, LFO frontman Rich Cronin
described Pearlman's alleged inappropriate sexual conduct. However, fellow LFO band member Brad Fischetti expressed sympathy for "his friend" Lou Pearlman in a 2007 AOL.Music interview, in which he made no mention of sexual improprieties. As of late November of 2011, Nick Carter had not confirmed his mother's statements regarding Pearlman, and in a later interview, when asked if true, he chose his words carefully when he spoke, but he seemed to hint that bitterness might be a motivating factor for the sexual gossip. In an interview conducted by the Orlando Sentinel, openly gay former *NSYNC member Lance Bass
, when asked about the Vanity Fair article, stated that Pearlman had never behaved inappropriately with them.
that would prove to be Pearlman's downfall. In 2006 investigators discovered Pearlman had perpetrated a long running Ponzi scheme that defrauded investors out of more than $300 million. For more than 20 years Pearlman enticed individuals and banks to invest in Trans Continental Airlines Travel Services Inc. and Trans Continental Airlines Inc., both of which existed only on paper. Pearlman used falsified
Federal Deposit Insurance Corporation
, AIG
and Lloyd's of London
documents to win investors' confidence in his "Employee Investment Savings Account" (EISA) program and he used fake financial statements created by a fictitious accounting firm Cohen and Siegel to secure bank loans.
on June 14, 2007 after being spotted by a German
tourist couple. Pearlman was then indicted by a federal grand jury on June 27, 2007. Specifically Pearlman was charged with three counts of bank fraud
, one count of mail fraud and one count of wire fraud
.
gave Pearlman the chance to cut his prison time, by offering to reduce the sentence by one month for every million dollars he helped a bankruptcy trustee recover. He also ordered that individual investors were to be paid before institutions in distributing any eventual assets.
As of late November of 2011, Pearlman was serving his sentence with a release date of March 24, 2029.
Impresario
An impresario is a person who organizes and often finances concerts, plays or operas; analogous to a film producer in filmmaking, television production and an angel investor in business...
of the successful 1990s
1990s in music
For music from a year in the 1990s, go to 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99This article includes trends in popular music in the 1990s....
boy band
Boy band
A boy band is loosely defined as a popular music act consisting of only male singers. The members are expected to dance as well as sing, usually giving highly choreographed performances. More often than not, boy band members do not play musical instruments, either in recording sessions or on...
s such as The Backstreet Boys
Backstreet Boys
The Backstreet Boys are an American vocal group, formed in Orlando, Florida in 1993. The band originally consisted of A. J. McLean, Howie Dorough, Brian Littrell, Nick Carter and Kevin Richardson. They rose to fame with their debut international album, Backstreet Boys...
, *NSYNC, Take 5
Take 5 (band)
Take 5 was an American boy band from Orlando, Florida. Take 5 was one of the many groups whose formulation and promotion were due to the machinations of promoter Lou Pearlman, and all of the members had had prior experience in the entertainment industries....
, O-Town and US5
US5
US5 are a multinational pop boy band. The band originated in 2005 on the German RTL II television reality show Big in America and debuted in June of the same year on Lou Pearlman’s Transcontinental label...
. In 2006, it was discovered that Pearlman had perpetrated one of the largest and longest-running Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
s in American history, leaving more than $300 million in debts. After getting caught on the run, and pleading guilty to conspiracy
Conspiracy (crime)
In the criminal law, a conspiracy is an agreement between two or more persons to break the law at some time in the future, and, in some cases, with at least one overt act in furtherance of that agreement...
, money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
and making false statements during a bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
proceeding, in 2008 Pearlman was convicted and sentenced to (up to) 25 years.
Early life and career
Lou Pearlman was born and raised in Flushing, QueensFlushing, Queens
Flushing, founded in 1645, is a neighborhood in the north central part of the City of New York borough of Queens, east of Manhattan.Flushing was one of the first Dutch settlements on Long Island. Today, it is one of the largest and most diverse neighborhoods in New York City...
, the only child of Jewish parents Hy Pearlman, who ran a dry cleaning business, and Reenie Pearlman, a school lunchroom aide. Pearlman is the first cousin of Art Garfunkel
Art Garfunkel
Arthur Ira "Art" Garfunkel is an American singer-songwriter, poet, and actor, best known as being a member of the folk duo Simon & Garfunkel...
. His home at Mitchell Gardens Apartments was located across from Flushing Airport
Flushing Airport
Flushing Airport is a decommissioned airfield in northern Queens in New York City. It is located in the neighborhood of College Point, near Flushing. The airfield was in operation from 1927 to 1984. It was originally called Speed's Airport and was one of the busiest airports in New York City before...
, where he and childhood friend Alan Gross would watch blimp
Blimp
A blimp, or non-rigid airship, is a floating airship without an internal supporting framework or keel. A non-rigid airship differs from a semi-rigid airship and a rigid airship in that it does not have any rigid structure, neither a complete framework nor a partial keel, to help the airbag...
s take off and land. According to Pearlman's autobiography, Bands, Brands, & Billions, it was during this period he used his position on his school newspaper to earn credentials and get his first ride in a blimp. (This version of events is disputed by Gross, who claims he was the school reporter, and allowed Pearlman to tag along.)
His cousin Garfunkel's fame and wealth helped fire Pearlman's own interest in the music business. As a teenager he managed a band, but when success in music proved elusive, he turned his attention to aviation
Aviation
Aviation is the design, development, production, operation, and use of aircraft, especially heavier-than-air aircraft. Aviation is derived from avis, the Latin word for bird.-History:...
. During his first year as a student at Queens College, Pearlman wrote a business plan
Business plan
A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals....
for a class project based on the idea of a helicopter
Helicopter
A helicopter is a type of rotorcraft in which lift and thrust are supplied by one or more engine-driven rotors. This allows the helicopter to take off and land vertically, to hover, and to fly forwards, backwards, and laterally...
taxi service in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
. By the late 1970s, he had launched the business based on his business plan, starting with one helicopter. He convinced German businessman Theodor Wüllenkemper to train him on blimps and subsequently spent some time at Wüllenkemper's facilities in Germany learning about the airships.
Suspicions of insurance fraud and pump & dump
Returning to the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, Pearlman formed Airship Enterprises Ltd, which leased a blimp to Jordache
Jordache
Jordache Enterprises, Inc. is a clothing company that manufactures apparel including shirts, jeans, and outerwear...
before actually owning one. He used the funds from Jordache to construct a blimp, which promptly crashed. The two parties sued each other, and seven years later Pearlman was awarded $2.5 million in damages. On the advice of a friend, Pearlman started a new company, Airship International, taking it public
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
to raise the $3 million he needed to purchase a blimp, claiming (falsely) that he had a partnership with Wüllenkemper. He leased the blimp to McDonald's
McDonald's
McDonald's Corporation is the world's largest chain of hamburger fast food restaurants, serving around 64 million customers daily in 119 countries. Headquartered in the United States, the company began in 1940 as a barbecue restaurant operated by the eponymous Richard and Maurice McDonald; in 1948...
, for advertising.
He then relocated Airship International to Orlando
Orlando, Florida
Orlando is a city in the central region of the U.S. state of Florida. It is the county seat of Orange County, and the center of the Greater Orlando metropolitan area. According to the 2010 US Census, the city had a population of 238,300, making Orlando the 79th largest city in the United States...
in July 1991, where he signed MetLife and Sea World
Sea World
Sea World is a marine mammal park, oceanarium, and theme park located on the Gold Coast, Queensland, Australia. It includes rides, animal exhibits and other attractions, and promotes conservation through education and through the rescue and rehabilitation of sick, injured or orphaned wildlife. The...
as clients for his blimps. Airship International suffered when one of its clients left, and three of the aircraft crashed. The company's stock, which had once been pumped up to $6 a share, dropped to a price of 3 cents a share and the company was shut down:
Entertainment industry career
Pearlman became fascinated with the success of the New Kids on the BlockNew Kids on the Block
New Kids on the Block are an American boy band from Boston, Massachusetts, assembled in 1984 by producer Maurice Starr. The band currently consists of brothers Jordan and Jonathan Knight, Joey McIntyre, Donnie Wahlberg, and Danny Wood.New Kids on the Block enjoyed success in the late 1980s and...
, who had made hundreds of millions of dollars in record, tour and merchandise sales. He started Trans Continental Records with the intent of mimicking their boy-band business model. The label
Record label
In the music industry, a record label is a brand and a trademark associated with the marketing of music recordings and music videos. Most commonly, a record label is the company that manages such brands and trademarks, coordinates the production, manufacture, distribution, marketing and promotion,...
's first band, the Backstreet Boys
Backstreet Boys
The Backstreet Boys are an American vocal group, formed in Orlando, Florida in 1993. The band originally consisted of A. J. McLean, Howie Dorough, Brian Littrell, Nick Carter and Kevin Richardson. They rose to fame with their debut international album, Backstreet Boys...
, consisted of five unknown performers selected by Lou in a $3 million talent search. Management duties were assigned to a former New Kids on the Block manager, Johnny Wright, and his wife Donna. The Boys went on to sell 100 million albums
worldwide, hitting gold and platinum in 45 different countries. Pearlman and the Wrights then repeated this formula almost exactly with the band *NSync, which sold over 56 million records globally.
With these two major successes under his belt, Pearlman had become a music mogul
Business magnate
A business magnate, sometimes referred to as a capitalist, czar, mogul, tycoon, baron, oligarch, or industrialist, is an informal term used to refer to an entrepreneur who has reached prominence and derived a notable amount of wealth from a particular industry .-Etymology:The word magnate itself...
. Other boy bands managed by Pearlman were O-Town (created during the ABC
American Broadcasting Company
The American Broadcasting Company is an American commercial broadcasting television network. Created in 1943 from the former NBC Blue radio network, ABC is owned by The Walt Disney Company and is part of Disney-ABC Television Group. Its first broadcast on television was in 1948...
–MTV
MTV
MTV, formerly an initialism of Music Television, is an American network based in New York City that launched on August 1, 1981. The original purpose of the channel was to play music videos guided by on-air hosts known as VJs....
reality TV series Making the Band
Making the Band
Making the Band is an ABC/MTV reality television series that exists in separate iterations, each iteration focusing on a specific music act. It spawned musical acts O-Town, Da Band, Danity Kane, Day26, and Donnie Klang...
), LFO
Lyte Funky Ones
Lyte Funky Ones was an American three-man pop/rap group consisting of Rich Cronin , Devin Lima , and Brad Fischetti . Before Lima joined the group in 1999, the third member was Brian Gillis , who was with the group from its start in 1995...
, Take 5
Take 5 (band)
Take 5 was an American boy band from Orlando, Florida. Take 5 was one of the many groups whose formulation and promotion were due to the machinations of promoter Lou Pearlman, and all of the members had had prior experience in the entertainment industries....
, Natural
Natural (band)
Natural was an American boy band who were best known for their debut single and signature song "Put Your Arms Around Me". They were very successful in Germany and the Philippines, releasing two albums and nine singles.-Formation:...
, and US5
US5
US5 are a multinational pop boy band. The band originated in 2005 on the German RTL II television reality show Big in America and debuted in June of the same year on Lou Pearlman’s Transcontinental label...
, as well as the girl group Innosense
Innosense
Innosense was an all-female American group. The band were together from 1997 to 2003.-History:The band was managed by Lou Pearlman and Lynn Harless. The original members were Danay Ferrer, Mandy Ashford, Nikki DeLoach, Amanda Latona, and Britney Spears and formed in 1997...
, together with Lynn Harless. Other artists on the Trans Continental label included Aaron Carter
Aaron Carter
Aaron Charles Carter is an American singer. He came to fame as a pop and hip hop singer in the late 1990s, establishing himself as a star among pre-teen and teenage audiences during the early-first decade of the 21st century....
, Adams Hambüger-Hatt, Jordan Knight
Jordan Knight
Jordan Nathaniel Marcel Knight is an American singer-songwriter best known as the lead singer in the boy band, New Kids on the Block , and actor, who rose to fame in the 1980s and 1990s. He is best known for his distinctive falsetto style of singing, influenced by The Stylistics. After New Kids On...
, Smilez & Southstar and C-Note. Pearlman also owned a large entertainment complex in Orlando, including a recording studio he called Trans Continental Studios, and a dance studio by Disney World named "O-Town".
Lou Pearlman also was an officer at TAG Entertainment
Tag Entertainment
Tag Entertainment was largely founded by Steve Austin and John T. Botti, Director and became a publicly held film production company formerly headquartered in Santa Monica, California...
.The independent film
Independent film
An independent film, or indie film, is a professional film production resulting in a feature film that is produced mostly or completely outside of the major film studio system. In addition to being produced and distributed by independent entertainment companies, independent films are also produced...
company TAG Entertainment produced some low budget yet profitable movies and DVDs. Pearlman presented himself as working to create an ethical and wholesome New Wave
New Hollywood
New Hollywood or post-classical Hollywood, sometimes referred to as the "American New Wave", refers to the time from roughly the late-1960s to the early 1980s when a new generation of young filmmakers came to prominence in America, influencing the types of films produced, their production and...
of Hollywood film making, along with others who actually worked on the movie projects for much less than what they would normally charge.
Band lawsuits
With the exception of US5US5
US5 are a multinational pop boy band. The band originated in 2005 on the German RTL II television reality show Big in America and debuted in June of the same year on Lou Pearlman’s Transcontinental label...
, all of the musical acts who have worked with Pearlman have sued him in Federal Court
United States federal courts
The United States federal courts make up the judiciary branch of federal government of the United States organized under the United States Constitution and laws of the federal government.-Categories:...
for misrepresentation and fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
. All cases against Pearlman have either been won by those who have brought lawsuits against him, or have been settled out of court. All cases have also ended with a confidentiality agreement, meaning none of the parties are allowed to discuss Pearlman's practices in detail.
The members of Backstreet Boys were the first to file a lawsuit against Pearlman, feeling that their contract — under which Pearlman collected as both manager and producer — was unfair, since Pearlman was also paid as a sixth member of the Backstreet Boys (i.e., one-sixth of the band's own income). The band's dissatisfaction began when member Brian Littrell
Brian Littrell
Brian Thomas Littrell is an American singer-songwriter, best known as a member of the Backstreet Boys. He is also a contemporary Christian recording artist and released a solo album, Welcome Home, in 2006...
hired a lawyer to determine why the group had received only $300,000 for all of their work, while Pearlman and his record company had made millions. Fellow boy band *NSYNC was having similar issues with Pearlman, and its members soon followed suit.
At the age of 14, pop star Aaron Carter filed a lawsuit in 2002 that accused Pearlman and Trans Continental Records of cheating him out of hundreds of thousands of dollars and of racketeering in a deliberate pattern of criminal activity. This suit was later settled out of court.
Talent scouting scandal
In September 2002, Pearlman purchased Mark Tolner's internet-based talent company, Options Talent Group f/k/a Sector Communications (previously named Emodel and Studio 58), which would then go through several names including Trans Continental Talent, TCT, Wilhelmina Scouting Network (WSN), Web Style Network, Fashion Rock and Talent Rock. Regardless of the name, all incarnations were based on the business model used by Emodel founder Ayman el Difrawi (aka Alec Defrawy), himself a convicted conman, who played a principal role in running Options / TCT / WSN and setting up Fashion Rock. The companies received unfavorable press attention, ranging from questions about their business practices to outright declarations that they were scams.After Hotjobs and Monster.com
Monster.com
Monster.com is one of the largest employment websites in the world, owned and operated by Monster Worldwide, Inc. Monster is one of the 20 most visited websites out of 100 million worldwide, according to comScore Media Metrics...
pulled over a thousand of the company's job ads from their boards, they were further advertised on the Difrawi-founded "Industry Magazine" website. The Better Business Bureau
Better Business Bureau
The Better Business Bureau , founded in 1912, is a corporation consisting of several private business franchises of local BBB organizations based in the United States and Canada, which work through their parent corporation, the Council of Better Business Bureaus .The Better Business Bureau, through...
's opinion about Options / TCT / WSN was negative (a "pattern of complaints concerning misrepresentation in selling practices"). The New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
State Consumer Protection
Consumer protection
Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional...
Board issued an alert, naming it the largest example they had found of a photo mill scam
Photo Mill
A photo mill is a modeling agency scam. The scamming agency, rather than allowing models to submit photos from their own photographers, requires models to pay for photos taken by a photographer employed by the agency. Models are often charged outrageous prices for these photos and encouraged to buy...
(in which agencies force models to shoot portfolios with photographers on their own payrolls), and a State Senator called it trying "to make a quick, dishonest dollar".
The San Francisco labor Commissioner declared it in violation of California law, and several state agencies were reported to be investigating. In Florida, around 2,000 complaints were filed with the then-Attorney General
Attorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...
Charlie Crist
Charlie Crist
Charles Joseph "Charlie" Crist, Jr. is an American politician who was the 44th Governor of Florida. Prior to his election as governor, Crist previously served as Florida State Senator, Education Commissioner, and Attorney General...
and the Better Business Bureau, and an investigation was started by Assistant AG Dowd. However, no charges were filed, as the newly appointed Assistant AG MacGregor was unable to find "any substantial violations" and the company had declared bankruptcy, "leaving no deep pockets to collect damages from."
By June 2004, Fashion Rock, LLC had filed a civil suit for defamation against some who had criticized Pearlman's talent businesses and outed suspicions of bankruptcy fraud. The case was dismissed and closed in 2006. One of the accused, Canadian consumer-fraud expert Les Henderson
Les Henderson
Les Henderson is a Canadian consumer fraud author and webmaster of Crimes of Persuasion, a consumer-fraud awareness site.Henderson published two books, "Crimes Of Persuasion" and "Under Investigation". His first book "Crimes Of Persuasion" describes a large variety of 'schemes, scams and frauds'...
, successfully pursued a libel lawsuit
Lawsuit
A lawsuit or "suit in law" is a civil action brought in a court of law in which a plaintiff, a party who claims to have incurred loss as a result of a defendant's actions, demands a legal or equitable remedy. The defendant is required to respond to the plaintiff's complaint...
against Pearlman, Tolner, El-Difrawi and several others.
Fashion Rock, LLC lived on until February 2, 2007, when its assets were sold in Pearlman's bankruptcy proceeding. Mr. Difrawi currently runs Softrock.org and OMG Talent, from the same address as former TCT.
Allegations of inappropriate sexual conduct
An article that Bryan BurroughBryan Burrough
Bryan Burrough is an American author and correspondent for Vanity Fair. He has written five books: Barbarians at the Gate , Vendetta: American Express and the Smearing of Edmond Safra , Dragonfly , Public Enemies and The Big Rich...
wrote for the November 2007 issue of Vanity Fair
Vanity Fair (magazine)
Vanity Fair is a magazine of pop culture, fashion, and current affairs published by Condé Nast. The present Vanity Fair has been published since 1983 and there have been editions for four European countries as well as the U.S. edition. This revived the title which had ceased publication in 1935...
magazine reported claims of inappropriate sexual conduct made in interviews with several former and current boy band members, and male employees of Pearlman's. Many of the men had lived in Lou's Florida mansion, where the inappropriate conduct was alleged to have taken place, but none were willing to come forward publicly, and no charges were ever filed. Backstreet Boy Nick Carter
Nick Carter (musician)
Nickolas Gene "Nick" Carter is an American singer-songwriter, dancer, musician, entertainer and actor. He is best known as a member of the pop group, Backstreet Boys. He went on to release a solo album called Now Or Never during their hiatus. He has made occasional television appearances and...
's mother, Jane Carter, told the magazine: “Certain things happened and it almost destroyed our family. I tried to warn everyone. I tried to warn all the mothers." She said, "I tried to expose him for what he was years ago."
In a January 2009 interview on Howard Stern
Howard Stern
Howard Allan Stern is an American radio personality, television host, author, and actor best known for his radio show, which was nationally syndicated from 1986 to 2005. He gained wide recognition in the 1990s where he was labeled a "shock jock" for his outspoken and sometimes controversial style...
's radio show, LFO frontman Rich Cronin
Rich Cronin
Richard Burton "Rich" Cronin was an American singer and songwriter. He was the lead singer and primary songwriter for the pop group Lyte Funkie Ones or LFO.-Early life:...
described Pearlman's alleged inappropriate sexual conduct. However, fellow LFO band member Brad Fischetti expressed sympathy for "his friend" Lou Pearlman in a 2007 AOL.Music interview, in which he made no mention of sexual improprieties. As of late November of 2011, Nick Carter had not confirmed his mother's statements regarding Pearlman, and in a later interview, when asked if true, he chose his words carefully when he spoke, but he seemed to hint that bitterness might be a motivating factor for the sexual gossip. In an interview conducted by the Orlando Sentinel, openly gay former *NSYNC member Lance Bass
Lance Bass
James Lance Bass , best known as Lance Bass, is an American pop singer, dancer, actor, film and television producer, and author. He grew up in Mississippi and rose to fame as the bass singer for the American pop boy band 'N Sync. 'N Sync's success led Bass to work in film and television...
, when asked about the Vanity Fair article, stated that Pearlman had never behaved inappropriately with them.
The Ponzi scheme
However, it was not the allegations of sexual conduct, but rather allegations of a Ponzi schemePonzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
that would prove to be Pearlman's downfall. In 2006 investigators discovered Pearlman had perpetrated a long running Ponzi scheme that defrauded investors out of more than $300 million. For more than 20 years Pearlman enticed individuals and banks to invest in Trans Continental Airlines Travel Services Inc. and Trans Continental Airlines Inc., both of which existed only on paper. Pearlman used falsified
Forgery
Forgery is the process of making, adapting, or imitating objects, statistics, or documents with the intent to deceive. Copies, studio replicas, and reproductions are not considered forgeries, though they may later become forgeries through knowing and willful misrepresentations. Forging money or...
Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
, AIG
AIG
AIG is American International Group, a major American insurance corporation.AIG may also refer to:* And-inverter graph, a concept in computer theory* Answers in Genesis, a creationist organization in the U.S.* Arta Industrial Group in Iran...
and Lloyd's of London
Lloyd's of London
Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...
documents to win investors' confidence in his "Employee Investment Savings Account" (EISA) program and he used fake financial statements created by a fictitious accounting firm Cohen and Siegel to secure bank loans.
Investigation
In February 2007, Florida regulators announced that Pearlman's Trans Continental Savings Program was indeed a massive fraud and the state took possession of the company. Most of the at least $95 million which was collected from investors was gone. Orange County Circuit Judge Renee Roche ordered Pearlman and two of his associates, Robert Fischetti and Michael Crudelle, to bring back to the United States "any assets taken abroad which were derived from illegal transactions."Arrest
Following a flight from officials, Pearlman was arrested in IndonesiaIndonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
on June 14, 2007 after being spotted by a German
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
tourist couple. Pearlman was then indicted by a federal grand jury on June 27, 2007. Specifically Pearlman was charged with three counts of bank fraud
Bank fraud
Bank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. In many instances, bank fraud is a criminal offense...
, one count of mail fraud and one count of wire fraud
Wire fraud
Mail and wire fraud is a federal crime in the United States. Together, 18 U.S.C. §§ 1341, 1343, and 1346 reach any fraudulent scheme or artifice to intentionally deprive another of property or honest services with a nexus to mail or wire communication....
.
Conviction and sentencing
On May 21, 2008, Pearlman was sentenced to 25 years in federal prison, after pleading guilty to charges of conspiracy, money laundering, and making false statements during a bankruptcy proceeding. U.S. District Judge G. Kendall SharpG. Kendall Sharp
George Kendall Sharp is an American lawyer and federal judge.Sharp was born in 1934 in Chicago. He received his Bachelor of Arts degree from Yale University in 1957. Sharp entered the Naval Reserve in 1957, and served on active duty from 1957 to 1960. He retired in 1988 with the rank of captain....
gave Pearlman the chance to cut his prison time, by offering to reduce the sentence by one month for every million dollars he helped a bankruptcy trustee recover. He also ordered that individual investors were to be paid before institutions in distributing any eventual assets.
As of late November of 2011, Pearlman was serving his sentence with a release date of March 24, 2029.
External links
- Lou Pearlman case
- Page Six Story on Pearlman
- Interview, HitQuarters Jul 2005
- CNBC's American Greed program, narrated by Stacy Keach Jr.Stacy KeachStacy Keach is an American actor and narrator. He is most famous for his dramatic roles; however, he has done narration work in educational programming on PBS and the Discovery Channel, as well as some comedy and musical...
, describes, in Episode #18, "Lou Pearlman: Boy Band Bandit," the massive fraud and Ponzi scheme, victim outrage at the federal offer to reduce Pearlman's sentence, and his proposed "Jailhouse Rock" (gag) reality series, and it also discusses the issue of sex with underage boys. Bryan BurroughBryan BurroughBryan Burrough is an American author and correspondent for Vanity Fair. He has written five books: Barbarians at the Gate , Vendetta: American Express and the Smearing of Edmond Safra , Dragonfly , Public Enemies and The Big Rich...
, interviewed for the episode, noted of this last that he had not expected to hear about sexual improprieties, and ascribed the lack of willingness to come forwards about them to Pearlman's repeated usage of the tactic of veiled threats to intimidate those who would have otherwise done so.