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The former boy band producer faces up to 25 years in prison as fraud charges expand.
By HELEN HUNTLEY, Personal Finance Editor
Published March 4, 2008
Federal prosecutors filed new fraud charges Monday against former boy band producer Lou Pearlman, who faces a sentence of up to 25 years in prison under a newly struck plea deal.
Pearlman, 53, will plead either guilty or no contest under an agreement with prosecutors expected to be presented at a hearing Thursday morning in U.S. District Court in Orlando.
In a four-count court filing late Monday, prosecutors expanded the bank fraud charges against Pearlman to include conspiracy to defraud investors through a Ponzi scheme he ran out of his Orlando office, as well as mail and wire fraud, money laundering and bankruptcy fraud.
Pearlman raised more than $200-million from at least 1,300 investors, prosecutors said. The charges cover both a savings plan labeled an "Employee Investment Savings Account" and a stock purchase plan run through Pearlman companies Trans Continental Airlines and Transcontinental Airlines Travel Service.
Pearlman spun a web of lies, disarming both investors and bankers with his genial nature and reams of falsified documents. He told savings program investors their accounts were FDIC-insured, then reinsured for up to $1-million through Lloyd's of London. He told stock investors the corporation was about to go public.
He convinced both investors and banks that his companies were financially sound, showing them false financial statements prepared by a fictitious accounting firm, records showed. He gave them documents "signed" by a dead man and told them he had millions of dollars at his disposal in a German trust.
Prosecutors' newest charge is that Pearlman presented a false claim for $5-million in the bankruptcy case of FF Station, the entity that owned the Church Street Station complex in Orlando, where Pearlman's companies had their headquarters. While abroad eluding federal agents and creditors, Pearlman caused a claim to be filed purporting to represent a loan German Savings Bank had made to FF Station in 2005, the prosecutors said.
The court filing says Pearlman used money he got from investors and banks to repay earlier investors and make payments on earlier bank loans. In addition, they say he and his unnamed co-conspirators converted some of the money to their personal use.
The charges filed Monday call for Pearlman to forfeit his interest in any property that was involved in criminal activity or that was derived from proceeds from the criminal activity.
A plea agreement in federal court does not specify the term of the sentence, which is left to the discretion of the judge. In agreeing to a plea deal, defendants typically hope to reduce their sentences by cooperating with prosecutors. In Pearlman's case, he might cooperate in locating assets or in bringing charges against his associates. It takes "substantial" assistance to the prosecutors to get a sentence reduction, said Tampa criminal defense lawyer Ed Suarez, who is not connected to the case. Prosecutors determine whether that threshold has been reached.
Suarez also said an order to pay restitution would be part of a sentence in a case like this. It would be a debt that cannot be discharged in bankruptcy, which means "if he gets out of prison and ever makes any money," the victims could pursue their claims against him.
Pearlman and many of his companies are already in involuntary bankruptcy. A bankruptcy trustee, Soneet Kapila, has been searching the world for his assets, but has recovered only about $2.4-million so far. Claims of more than $500-million have been filed in the bankruptcy cases.
The charges Monday took the form of information filed by prosecutors rather than an indictment by a grand jury. Pearlman filed a statement waiving his right to be prosecuted by indictment.
Pearlman, the producer behind boy bands *NSYNC and the Backstreet Boys, has been behind bars since his arrest last June in Indonesia. He is being held in the Orange County Jail.
Helen Huntley can be reached at email@example.com or (727) 893-8230. Go to blogs.tampabay.com/money to read more about the Lou Pearlman case.
What happens next?
- Lou Pearlman will appear in federal court in Orlando on Thursday for arraignment on the new fraud charges, followed by a hearing on his plea agreement.
- A presentencing report will be prepared for the judge.
- U.S. District Judge G. Kendall Sharp will sentence Pearlman.
- Charges still could be brought against some of Pearlman's associates.
[Last modified March 3, 2008, 23:03:04]