Boy band mogul behind *NSYNC admits $300m fraud

Click to follow
The Independent US

Lou Pearlman, the larger-than-life music impresario who gave us the boy band sensations *NSYNC and the Backstreet Boys, is expected to plead guilty today to charges that for more than two decades he defrauded more than $300m (£150m) out of investors in a variety of financial scams.

The sheer daring of the dealings was outlined in a 47-page plea agreement released in Florida on Tuesday. It detailed how, as far back as 1981, he duped investors into dumping cash into non-existent companies including an airline. The achievements that thrust him into the public spotlight were his launching of the pop bands, however. Never disguising that his first interest was commercial rather than artistic, he confected groups that shot up the charts with youthful heart-throbs such as Justin Timberlake.

But Pearlman's musical ventures were only part of the story. Prosecutors say that for years he operated a classic "Ponzi" scheme, duping investors into putting money into phoney entities and using each new infusion to pay promised interest to earlier investors.

The first hints that Pearlman was more – or less – than he appeared surfaced in 1999 when courts in Delaware voided the corporation at the heart of his schemes, the entirely fictitious Transcontinental Airlines Travel Services. Even his boy band success ended in legal drama. Members of *NSYNC and the Backstreet Boys sued him after claims he had been illegally siphoning profits from them.

His plea agreement on charges of conspiracy, money laundering and making false statements is expected to be entered in an Orlando court this morning. As part of the deal, he has agreed to help prosecutors pursue co-conspirators. He will also be ordered to pay restitution to the investors he defrauded and surrender money and possessions of his own, including a 2004 Rolls-Royce.

However, even with his belated co-operation, he can expect to spend as long as 25 years behind bars.

His victims over the years were by no means small fry. Among those who were duped into the Pearlman mystique and wrote him cheques were major US banks, including Bank of America, Washington Mutual and Mercantile Bank.

The tycoon, 53, has been in a Florida jail since last July. He had earlier fled the country after prosecutors began closing in on him, and was arrested by the US authorities in early 2007 after he was deported from Indonesia. Most of his boy-band memorabilia was then sold off at auction. Even after his airline was voided, he continued to spin his web of fictitious companies and find new investors to invest in something he called the Employment Investment Savings Account, which he said was guaranteed to deliver higher than average returns.

Between early 2003 and late 2006, he harvested $118m in investments for the phantom savings account, of which $43m was returned to investors, the court documents state. However, another $38m was distributed to himself and another entity by the name of Pearlman Enterprises.

His scams were nothing if not elaborate. As well as the setting up of his ghost enterprises, Pearlman established additional on-paper-only institutions, including a non-existent accounting firm in south Florida that he used to endorse the finances of his putative airline as well as a fake German bank.

But all the stories he spun for his victims, whether regarding the airline or the savings account, were bogus, the court will be told. "None of it was true," the court documents say. "Neither of those investments were legitimate. Instead, they were 'Ponzi' schemes by which money raised from later investors would be used to pay off earlier investors."

Comments