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Bilked to the tune of millions

Lou Pearlman's financial scheme cost many people dearly. Here are tales of a few of the 1,800 victims who trusted him.

By HELEN HUNTLEY
Published February 25, 2007

Nancy Hostetler's voice trembles.

"It's not losing the money that hurts. It's that my dad worked so hard for that money," said the Texas nurse. "He worked at Continental Steel in Kokomo, Ind., and I think he missed 10 days in 39 years. He was always hammering us about saving for retirement."

Joe Causey, who lived in New Port Richey, died three years ago at 79, never knowing the investment he chose for his wife and children was a fraud. His legacy for Hostetler was $44,000 invested in Trans Continental Airlines' Employee Investment Savings Account. Hostetler said her father carefully checked out the investment, even going to Orlando to visit Lou Pearlman personally.

Hostetler, 53, is one of more than 1,800 victims of what is shaping up to be one of the largest investment fraud cases in Florida history.

More than $317-million in investor money is missing in the ruins of Pearlman's Orlando entertainment empire. State officials say Pearlman used investor money to pay off earlier investors, run his businesses and pad his own bank account. Pearlman, known for launching the bands *NSync and Backstreet Boys, is out of the country and not responding to inquiries.

Most of the investors are retirees. Some are in nursing homes. Some are resigned to returning to work to survive. Others are angry regulators took so long to shut down Pearlman's money-raising machine. All of them face the prospect that they may never see a dime of their money.

George and Sonia Kysela, Palm Harbor

How much invested: $182,986

At 72, both Kyselas are contemplating going back to work. "Maybe a main-tenance job," he said. "Whatever I am able to take. My English is not so perfect still." His wife? "She will do some food service job," he said.

The Kyselas came to the United States 37 years ago from what is now the Czech Republic. They settled in Chicago, where he repaired televisions and she ran a restaurant. Then they realized their dream of retiring to Florida.

But the $1,200 a month they get in Social Security didn't go far. They ended up selling a boat and their house in Seminole and buying a smaller place in Palm Harbor because, he said "I wanted to have money for my future so I would be able to live."

On the advice of their tax preparer, Richard Blackey of Largo, the Kyselas started investing in Trans Continental in 2004, eventually socking away about $160,000, valued at $182,986 on their last statement. Blackey promised them 8.08 percent interest and an account that was FDIC insured.

Kyselas thought all was well until he read a Times story about Trans Continental in December. Alarmed, the couple drove to Orlando with a letter asking for the return of their money.

A secretary took the paperwork and assured them "this is just a story in the newspaper that means nothing." But no money ever came.

Kyselas said he expects they will have to sell their house and move to an apartment, but working may generate enough income to allow them to wait until the real estate market improves.

"I really love America and I would never believe this could happen," he said. "I know it's my fault. I was supposed to call somewhere. But you trust your accountant."

"I feel real bad about what happened," said Blackey, 82, a former CPA who said his tax business has about 50 clients. "I wish I hadn't even recommended it now, but the longer I was in it with people, nine or 10 years, the more I thought it was all right."

He said he worked under another sales agent, Ross Dickson of Seminole, who told him banks could pay 8 percent because they made 40 percent.

"He had quite a few people selling for him, but the last month or so I haven't even been able to get a hold of him." The Times couldn't reach him either.

Bruni Jaeger, Oldsmar

How much invested: $60,000

Retirement was short-lived for Jaeger. "I can't live on my $776 Social Security check, so I have no choice," she said.

Jaeger, 66, retired last May from her job selling advertising in a health magazine. When she found out she had been defrauded, she said, "I called back and said 'I guess I'm not retired.' "

She said earning 6.08 percent on the $60,000 investment in Trans Continental Airlines that Churchill Financial sold her seemed like a great deal. Brochures promised FDIC insurance but the state says no such insurance existed.

Said Jaeger: "Who would think that somebody would go out there, do this kind of stuff and write 'insured' on every single paper?"

She is angry at sales agents who continued selling the investment while the state investigated. "You can't tell me they didn't smell a rat after a while."

William and Gayle Knoll, Aston, Tenn. formerly New Port Richey

How much invested: $224,000

William Knoll already has outlived his doctor's life expectancy predictions, but he knows that his debilitating lung condition eventually will claim its toll. The $175,000 he invested in Trans Continental -now $224,000 with interest - was supposed to help his wife live on after he died.

"It's sickening," said Knoll, 59, a former maintenance man living on Social Security disability checks. "I've been honest all my life and never wanted to cheat anybody out of anything. I've actually driven back to stores if I got too much change."

The Knolls sold their home in New Port Richey last year, adding $50,000 in profits to their Trans Continental account, and moved to cheaper east Tennessee. Gayle Knoll, 53, left behind her work as a medical claims processor. Knoll said there aren't many jobs in the rural area where they live.

He said he found out his savings might be gone Feb. 4 when he called the Lakeland tax preparer, Jack Arnold, who had sold him his original investment in 1999. Arnold could not be reached for comment.

"I feel bad because I talked my sister into this, too," he said. His widowed sister, Virginia Butler, 64, and her daughter, Patty Murdock, 42, both invested.

"I was really depending on that money to get me through nursing school," said Murdock, who lives in Bedford, Pa., and has about $35,000 at stake. She rolled over her retirement account to Trans Continental last year after losing her job as a payroll clerk when the factory where she worked closed. She says she'll keep going in spite of the setback, but she said the stories of retirees like her uncle "bring tears to my eyes."

Monty Montgomery, St. Petersburg

How much invested: $200,000

Monty Montgomery anticipated "pleasant, comfortable years" in his apartment overlooking St. Petersburg's Crescent Lake, but without the interest on his Trans Continental account, he says he can't afford the rent. "I'm exploring painful alternatives," he said.

Montgomery, 67, worked 45 years in management consulting and multimedia production in New York and southwest Florida. After his partner died two years ago, he sold their house on Sanibel Island and retired to St. Petersburg. He paid off his debt and invested $200,000, about half his savings, in Trans Continental.

He says he went to Churchill Financial's Clearwater office in response to a CD ad in the St. Petersburg Times, but when he got there, agent Steve Rodd was selling something else: the Trans Continental savings account at 6.08 percent interest. He says Rodd promised the account was fully insured and handed him a Dun & Bradstreet report showing Trans Continental Airlines was in great shape.

Rodd declined to comment. "At this point I wouldn't know what to say," he said.

Montgomery said the lost money is "the difference between an easy, comfortable lifestyle and budgeting and juggling again." He said one of the things he hates most is no longer being able to give money toward an annual award for a Lee County art teacher.

He said he is shocked government regulators haven't done more to protect investors.

"What happened to us can happen to anybody," he said.

Read more about the Trans Continental Airlines case at blogs.tampabay.com/money . If you have a question about investments or personal finance, write hhuntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified February 25, 2007, 05:51:49]