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As time ran out, so did Lou Pearlman

A court-appointed receiver paints a picture of chaos as Pearlman sees his scheme unravel.

By HELEN HUNTLEY
Published February 24, 2007

As time ran out on the Ponzi scheme he kept alive for two decades, music producer Lou Pearlman and his associates frantically prepared for the end, shredding documents, converting assets to cash and walking off with plasma TVs and office furniture.

The situation in Trans Continental Airlines' Orlando offices last December and January "was one of chaos as Pearlman and his employees knew that the inevitable end was near," said court-appointed receiver Jerry McHale.

McHale was back in Orange County Circuit Court on Friday, asking a judge to expand his powers. He took control of three Pearlman-affiliated companies Feb. 2, but wants authority over 10 more so he can control their assets if any can be found. The companies owe more than $317-million to 1,800 investors and at least another $120-million to financial institutions. McHale also asked the court to prevent additional liens from being filed against the companies. Judge Renee Roche is expected to rule on the requests next week.

Pearlman, "the apparent mastermind of the fraudulent scheme," created more than 100 companies, but ran them as one big enterprise, ignoring accounting formalities, McHale said. Investors were told their money was going into FDIC-insured accounts, but it was actually being used to operate the network of companies, he said.

Cash flow slowed dramatically last summer and investors began having trouble getting their money. As agents continued to sign up investors, Pearlman began liquidating his assets, McHale said.

He said Pearlman sold New York condos, luxury cars and his interests in the Rocks jewelry store and Pearl Restaurant in Orlando. In December, $5-million flowed through Pearlman's bank account, McHale said.

McHale said that just before he took over as receiver, Pearlman associates took valuables from company offices, including plasma TVs, a surround sound system and a conference room table and chairs and $20,000 worth of crystal vases, all of which were returned to the office at McHale's insistence.

He said employees also shredded and carted off "massive" amounts of documents.

Only one of the companies McHale wants to take over has been functioning in recent weeks. Fashion Rock, operating as Talent Rock, has continued to sell event packages, including a summer cruise.

Another Pearlman-affiliated company, FF Station, is in bankruptcy to facilitate the sale of the Church Street Station property where Trans Continental has its headquarters.

So far McHale has found few assets and a lot of unpaid bills. Pearlman is believed to be out of the country.

Read more about Lou Pearlman at blogs.tampabay.com/money

[Last modified February 24, 2007, 02:01:00]