Regulators call Pearlman savings plan a fraud
By HELEN HUNTLEY
Published February 3, 2007
The savings program that boy band promoter Lou Pearlman sold to more than 1,000 investors was a massive fraud, Florida regulators said Friday. At least $95-million was collected from investors, most of which is gone.
Orange County Circuit Judge Renee Roche appointed a receiver to take over Pearlman's Trans Continental Airlines Inc., which sponsored the savings program, and two affiliated companies, Trans Continental Airlines Travel Service Inc. and Trans Continental Enterprises LLC.
The receiver, Jerry McHale, took control Friday night of Trans Continental's offices at Orlando's Church Street Station and will attempt to recover assets belonging to the companies and ultimately to investors.
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. They also were ordered not to alter or destroy records related to the savings program. However, their assets have not been frozen. Pearlman is reported to be traveling in Europe.
Pearlman was known for launching the boy bands *NSync and the Backstreet Boys, as well as a record company, recording studio and reality TV shows. He presented himself as a multi-millionaire and even wrote an advice book, Bands, Brands & Billions: My Top Ten Rules for Making Any Business Go Platinum.
However, his empire was built on borrowed money, including the life savings of hundreds of elderly investors. His savings program was marketed as an opportunity to earn high yields at no risk by participating in Trans Continental Airlines' "Employee Investment Savings Account," open to outsiders by Pearlman's invitation.
Investors were told their accounts were insured by the FDIC with additional insurance from Lloyd's of London or AIG. In fact, there was no insurance, the state says.
Pearlman transferred investors' money to his other businesses, used it to make payments on various bank loans and to pay commissions to the agents who sold it.
Part of the receiver's role will be to investigate actions taken by parties who were involved in those businesses.
"It's shocking," said St. Petersburg retiree Monty Montgomery, 66. He invested $200,000 in the saving program and said the interest he earned made a big difference in his lifestyle. "I feel stupid for getting involved, but you can't feel that stupid when all these banks got somehow conned as well."
Pearlman is facing more than $160-million in lawsuits and legal judgments, mostly brought by banks that lent him and his companies money. Bank of America has filed three suits totaling $44.2-million and is seeking to foreclose on the Church Street Station complex. Several investors also have sued Pearlman and the sales agents who sold them the investments.
Many savings plan investors live in the Tampa Bay area, where the primary sales agents were Steve Rodd and William Kress of Churchill Financial, Charlotte Oliver of Golden Security and Ross Dickson.
Investors may contact receiver Jerry McHale at 407 345-0004 in Orlando.
Helen Huntley can be reached at firstname.lastname@example.org or (727) 893-8230. Updates regarding Trans Continental will be posted at http://blogs.tampabay.com/money .
[Last modified February 2, 2007, 23:46:15]
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