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Lou Pearlman arrested in Indonesia

The music producer is accused of defrauding investors out of millions.

By HELEN HUNTLEY
Published June 15, 2007

Pearlman is charged with one count of bank fraud, but over the next month, federal prosecutors are expected to seek significantly broader grand jury indictments.
	[Orlando Sentinel]

ADVERTISEMENT [Handout] Lou Pearlman in happier days with a few of his possissions at his Orlando mansion.

The FBI arrested globe-trotting music producer Lou Pearlman in Indonesia on Thursday and flew him to Guam, his first stop on the way back to Orlando to face banks and investors who say he stole millions from them.

Pearlman, 52, is charged with one count of bank fraud, but over the next month, federal prosecutors are expected to seek significantly broader grand jury indictments.

The state has accused Pearlman of running one of the largest investment frauds in Florida history. He owes $317-million to 1, 800 investors and $160-million or more to banks. Federal prosecutors filed the bank fraud charge against him March 2, but it remained sealed while he was at large.

Pearlman was captured while staying at the Westin Resort at Nusa Dua, Bali, a tourist area with upscale hotels, an 18-hole golf course and a Western-style shopping center. The Westin is attached to a convention center and has three swimming pools and ocean views.

Although Indonesia has no formal extradition treaty with the United States, the Indonesian National Police-Bali worked with the FBI to take Pearlman into custody, and the country expelled him as "an undesirable visitor, " the FBI said.

Indonesian and FBI agents escorted Pearlman to Guam, the U.S. territory closest to Indonesia, where he will be in the custody of the U.S. Marshals Service. Pearlman will have an initial hearing before a magistrate judge in Guam to determine whether he should continue to be held. He is expected to be brought back to Orlando for prosecution.

Two-pronged scheme

Investors were thrilled by the news of his capture.

"This really makes my day," said Frank Marcia, 62, of Tampa, who lost about $30,000. "He hurt so many people."

Like many other investors, he's hoping for a lengthy sentence.

"He needs to be behind bars for life," said Largo investor Patty Wilson, 60, who lost about $82,000. "Death would be too easy."

If there is a financial recovery for investors, it probably won't be quick, said Denise Dell-Powell, lawyer for bankruptcy trustee Soneet Kapila. "What may happen is that part of any deal he cuts will provide information on assets, assuming they're still out there." Pearlman's possessions also might contain clues about his assets.

Pearlman collected millions from investors with a two-pronged scheme. One was a savings plan that supposedly was FDIC-insured with excess insurance from Lloyds of London. The other was a stock plan, promoted with promises that the company would go public. He won investors' and lenders' trust with phony insurance certificates and phony financial statements from a nonexistent accounting firm.

Pearlman hit it big as a music producer with boy bands 'NSync and Backstreet Boys but was not able to replicate their success. He relied on cash infusions from investors and big bank loans to finance an empire that included a recording studio and record company, television and movie productions, a travel service, charter airline, restaurants, a talent search program, real estate development and a jewelry store.

Things began falling apart last year and, as the Times reported in December, investors became upset because they couldn't get their money back. Recognizing the end was near, employees began carting off valuables and shredding records.

In January, Pearlman left the country and everything he left behind collapsed. His Rolls Royce and Gulfstream jet were repossessed. Banks filed foreclosure suits against Church Street Station where he had his headquarters, and creditors forced him and some of his companies into involuntary bankruptcy.

Around the world

So far, few assets have been found to pay off his debts. Tuesday the bankruptcy court raised about $227,000 before expenses by auctioning off Pearlman's boy band memorabilia, office furniture and other possessions.

Pearlman's first stop after Orlando was Germany, where he was caught on camera at an awards show featuring one of his bands, US 5, on Feb. 1. After that, there were reports that he was in numerous other countries.

Lawyers say Pearlman may have chosen Indonesia because he thought the lack of an extradition treaty with the United States protected him from being forced to come back for trial.

"What he failed to take into consideration is that for whatever reason, Indonesia decided that didn't make any difference," said Douglas McNabb, a Washington lawyer and extradition expert.

Ironically, had Pearlman stayed in Germany, which does have an extradition treaty with the United States, the process of bringing him back to stand trial would have been far more complicated, McNabb said.

"If you have a good aggressive counsel who knows what they're doing and you go through the appellate process, it generally takes several years," he said.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

Fast facts: What's next for Lou Pearlman

• A federal magistrate in Guam will accept his plea and determine whether he should continue to be detained.
• Federal officials will bring him back to Orlando, assuming he is not released by the magistrate.
• A grand jury will consider whether to indict him.
• If indicted, he will be tried on the charges.
• The bankruptcy trustee will continue efforts to find assets that could be used to pay creditors.

[Last modified June 15, 2007, 01:05:14]