tampabay.com

Lawsuit faults Crist in giant Ponzi scheme

As attorney general, the governor delayed or interfered with investigations, the suit says.

By HELEN HUNTLEY
Published March 6, 2007


Music promoter Lou Pearlman needed help to keep his huge financial Ponzi scheme going. Tampa lawyer Jim Lowy said he got it from then-Florida Attorney General - and now Governor - Charlie Crist as well as major financial institutions.

Crist delayed or interfered with investigations against Pearlman and his companies, Lowy said in a lawsuit filed Monday in U.S. District Court in Tampa. The complaint alleged that $10,500 contributed by Pearlman and his companies to Crist's campaign for governor may have been diverted from scammed investors. And while Crist was attorney general, he enjoyed the use of Pearlman's skyboxes and private jet, according to the complaint, reimbursing the impresario for trips at far less than the actual cost.

"Crist violated his professional duty to avoid the appearance of impropriety," said Lowy's lawsuit, which states Crist reported the cost of a trip on Pearlman's Gulfstream jet at less than $350, when the actual cost is about $4,000 an hour.

Crist declined to comment, saying he had not been briefed on the details of the complaint.

Lowy and his 78-year-old mother count themselves among the victims of Pearlman's $317-million Ponzi scheme, in which early customers were compensated not from returns on investments but from the funds provided by later investors. His mother is among the 80 plaintiffs in the lawsuit, along with Beverly Silva, who had about $850,000 invested in Pearlman's companies and is now destitute.

"You expect the government to protect you," said Silva, a former St. Petersburg resident who now lives in Center Conway, N.H. "Everyone was covering up things and we're the ones to suffer."

The millions invested in Pearlman's companies have vanished, along with Pearlman, who is believed to be out of the country. That has left investors looking for ways to be compensated for their losses. Monday's lawsuit also names as defendants nine former employees of Pearlman's Orlando businesses.

A court-appointed receiver who has been sifting through the remains of Pearlman's interrelated companies says the only assets left have liens or mortgages against them. A group of banks has filed to force Pearlman and one of his companies, Trans Continental Airlines, into involuntary bankruptcy.

Two Pearlman ventures attracted state regulators' attention during Crist's years as attorney general. A model-scouting business that generated 2,000 consumer complaints was the subject of a full-fledged investigation by Crist's office. The inquiry ended in 2003 with a statement that there was insufficient evidence to file charges.

The Trans Continental investment program kept a much lower profile but sporadically came to the notice of state financial regulators as early as 1995. There were questions about the company's claims that its accounts were FDIC insured and inquiries into whether the company was selling unregistered securities. However, Pearlman deflected investigations with letters claiming he was doing nothing wrong.

If state officials had done their jobs and conducted even a modest investigation, they would have discovered the Ponzi scheme and been able to protect investors, Lowy said.

Lowy and the other investors also are suing Fiserv, which acted as custodian for retirement accounts invested in Trans Continental, and Bank of America, Fifth Third Bank and Wachovia Bank, which handled investor funds. Lowy says they had a duty to stop Pearlman from transferring money from investor accounts to offshore accounts.

Dun & Bradstreet, which issued a positive report on Trans Continental that was distributed to some investors, also is a defendant.

This is the first legal complaint to name Pearlman's long-time business associate Theodore Wullenkemper, who owns a blimp advertising business in Germany. According to the lawsuit, Wullenkemper helped Pearlman set up a German company that received millions of dollars of investors' money.

State officials say Pearlman once claimed that $40-million of investor money was in a company called German Savings.

-- Times staff writers Steve Bousquet and Kris Hundley contributed to this report. Helen Huntley can be reached at huntley@sptimes.com or 727 893-8230.