Lou Pearlman

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Lou Pearlman
Birth name Louis Jay Pearlman
Also known as Big Poppa,[1] Incognito Johnson[2]
Born (1954-06-19) June 19, 1954 (age 60)
Flushing, Queens
New York City, New York, U.S.
Genres Dance-pop, boy band
Occupations Producer
Manager
Years active 1993–2006
Labels Trans Continental Records
Associated acts Backstreet Boys, 'N Sync, O-Town, LFO, Take 5, Natural, US5, Jordan Knight, Aaron Carter, Smilez and Southstar, C-Note, Marshall Dyllon, Innosense

Louis Jay "Lou" Pearlman (born June 19, 1954) is an American impresario of successful 1990s boy bands such as the Backstreet Boys and 'N Sync. In 2006, it was discovered that Pearlman had perpetrated one of the largest and longest-running Ponzi schemes in American history, leaving more than $300 million in debts. After getting caught on the run, he pleaded guilty to conspiracy, money laundering, and making false statements during a bankruptcy proceeding. In 2008, Pearlman was convicted and sentenced to up to 25 years in prison.[3][4][5][6]

Early life and career[edit]

Lou Pearlman was born and raised in Flushing, Queens, the only child of Jewish parents Hy Pearlman, who ran a dry cleaning business, and Reenie Pearlman, a school lunchroom aide. Pearlman is the first cousin of Art Garfunkel. His home at Mitchell Gardens Apartments was located across from Flushing Airport, where he and childhood friend Alan Gross would watch blimps take off and land. According to Pearlman's autobiography, Bands, Brands, & Billions, it was during this period that he used his position on his school newspaper to earn credentials and get his first ride in a blimp. (This version of events is disputed by Gross, who claims he was the school reporter, and allowed Pearlman to tag along.)[7][8]

His cousin Garfunkel's fame and wealth helped fire Pearlman's own interest in the music business. As a teenager he managed a band, but when success in music proved elusive, he turned his attention to aviation. During his first year as a student at Queens College, Pearlman wrote a business plan for a class project based on the idea of a helicopter taxi service in New York City. By the late 1970s, he had launched the business based on his business plan, starting with one helicopter.[9] He convinced German businessman Theodor Wüllenkemper to train him on blimps and subsequently spent some time at Wüllenkemper's facilities in Germany learning about the airships.

Suspicions of insurance fraud and pump & dump[edit]

Returning to the United States, Pearlman formed Airship Enterprises Ltd, which leased a blimp to Jordache before actually owning one. He used the funds from Jordache to construct a blimp, which promptly crashed. The two parties sued each other, and seven years later Pearlman was awarded $2.5 million in damages. On the advice of a friend, Pearlman started a new company, Airship International, taking it public to raise the $3 million he needed to purchase a blimp, claiming (falsely) that he had a partnership with Wüllenkemper. He leased the blimp to McDonald's for advertising.[7][8]

He then relocated Airship International to Orlando in July 1991, where he signed MetLife and SeaWorld as clients for his blimps. Airship International suffered when one of its clients left and three of the aircraft crashed. The company's stock, which had once been pumped up to $6 a share, dropped to a price of 3 cents a share, and the company was shut down:[10][11]

After he took his air charter company, Airship International, public in 1985, Pearlman became personally and professionally close to Jerome Rosen, a partner at small-cap trading outfit Norbay Securities. Based in Bayside, Queens, and frequently in trouble with regulators, Norbay actively traded Airship stock. This sent Airship's stock price consistently higher, enabling Pearlman to sell hundreds of thousands of shares and warrants at ever-higher prices. However, Airship was reporting little revenue, cash flow or net income. In return for keeping his penny stock liquid, Pearlman allegedly paid Rosen handsome commissions, according to a mutual friend, that reached into 'the tens of thousands of dollars' per trade.[10]

—Roddy Boyd, New York Post

Entertainment industry career[edit]

Pearlman became fascinated with the success of the New Kids on the Block, who had made hundreds of millions of dollars in record, tour and merchandise sales. He started Trans Continental Records with the intent of mimicking their boy-band business model. The label's first band, the Backstreet Boys, consisted of five unknown performers selected by Pearlman in a $3 million[12] talent search. Management duties were assigned to a former New Kids on the Block manager, Johnny Wright, and his wife Donna.[13] The Backstreet Boys went on to become the best-selling boy band of all time, with 130 million record sales under their belt,[14] hitting gold, platinum, and diamond in 45 different countries. Pearlman and the Wrights then repeated this formula almost exactly with the band *NSync, which sold over 55 million records globally.

With these two major successes under his belt, Pearlman had become a music mogul. Other boy bands managed by Pearlman were O-Town (created during the ABCMTV reality TV series Making the Band), LFO, Take 5, Natural and US5, as well as the girl group Innosense (with Britney Spears in the very beginning as a short-time member), co-managed with Lynn Harless (the mother of *NSYNC band member Justin Timberlake). Other artists on the Trans Continental label included Aaron Carter, Jordan Knight, Smilez & Southstar and C-Note. Pearlman also owned a large entertainment complex in Orlando, including a recording studio he called Trans Continental Studios, and a dance studio by Disney World named "O-Town".[10]

Lou Pearlman also was an officer at TAG Entertainment.The independent film company TAG Entertainment produced some low-budget yet profitable movies and DVDs.

Band lawsuits[edit]

With the exception of US5, all of the musical acts who have worked with Pearlman have sued him in Federal Court for misrepresentation and fraud. All cases against Pearlman have either been won by those who have brought lawsuits against him, or have been settled out of court. All cases have also ended with a confidentiality agreement, meaning none of the parties are allowed to discuss Pearlman's practices in detail.[8]

The members of Backstreet Boys were the first to file a lawsuit against Pearlman, feeling that their contract — under which Pearlman collected as both manager and producer — was unfair, since Pearlman was also paid as a sixth member of the Backstreet Boys (i.e., one-sixth of the band's own income). The band's dissatisfaction began when member Brian Littrell hired a lawyer to determine why the group had received only $300,000 for all of their work, while Pearlman and his record company had made millions. Fellow boy band *NSYNC was having similar issues with Pearlman, and its members soon followed suit.[8]

At the age of 14, pop star Aaron Carter filed a lawsuit in 2002 that accused Pearlman and Trans Continental Records of cheating him out of hundreds of thousands of dollars and of racketeering in a deliberate pattern of criminal activity. This suit was later settled out of court.[15]

In a January 2009 interview on Howard Stern's radio show, LFO frontman Rich Cronin described Pearlman's alleged inappropriate sexual conduct.[16] However, fellow LFO band member Brad Fischetti expressed sympathy for "his friend" Lou Pearlman in a 2007 AOL.Music interview, in which he made no mention of sexual improprieties.[17] As of late November 2011, Nick Carter had not confirmed his mother's statements regarding Pearlman, and in a later interview, when asked if true, he chose his words carefully when he spoke, but he seemed to hint that bitterness might be a motivating factor for the sexual gossip.[18] In an interview conducted by the Orlando Sentinel, openly gay former *NSYNC member Lance Bass, when asked about the Vanity Fair article, stated that Pearlman had never behaved inappropriately with them.[19]

Talent scouting scandal[edit]

In September 2002, Pearlman purchased Mark Tolner's internet-based talent company, Options Talent Group f/k/a Sector Communications (previously named Emodel and Studio 58), which would then go through several names including Trans Continental Talent, TCT, Wilhelmina Scouting Network (WSN), Web Style Network, Fashion Rock and Talent Rock. Regardless of the name, all incarnations were based on the business model used by Emodel founder Ayman el Difrawi (aka Alec Defrawy), himself a convicted conman,[20] who played a principal role in running Options / TCT / WSN[21] and setting up Fashion Rock. The companies received unfavorable press attention, ranging from questions about their business practices to outright declarations that they were scams.[22][23][24][25][26][27][28][29][30]

After Hotjobs and Monster.com pulled over a thousand of the company's job ads from their boards,[31] they were further advertised on the Difrawi-founded[32] "Industry Magazine" website. The Better Business Bureau's opinion about Options / TCT / WSN was negative (a "pattern of complaints concerning misrepresentation in selling practices").[33] The New York State Consumer Protection Board issued an alert, naming it the largest example they had found of a photo mill scam[34] (in which agencies force models to shoot portfolios with photographers on their own payrolls), and a state senator called it trying "to make a quick, dishonest dollar".[35]

The San Francisco labor commissioner declared it in violation of California law, and several state agencies were reported to be investigating.[36] In Florida, around 2,000 complaints were filed with the then-Attorney General Charlie Crist and the Better Business Bureau, and an investigation was started by Assistant AG Dowd. However, no charges were filed, as the newly appointed Assistant AG MacGregor was unable to find "any substantial violations" and the company had declared bankruptcy, "leaving no deep pockets to collect damages from."[37][38]

By June 2004, Fashion Rock, LLC had filed a civil suit for defamation against some who had criticized Pearlman's talent businesses. The case was dismissed and closed in 2006.[39][40] One of the accused, Canadian consumer-fraud expert Les Henderson, successfully pursued a libel lawsuit against Pearlman, Tolner, El-Difrawi and several others.[41][42][43]

Fashion Rock, LLC lived on until February 2, 2007,[44][45] when its assets were sold in Pearlman's bankruptcy proceeding.[46][47] Mr. Difrawi continued filing lawsuits that all got dismissed and currently runs Expand, Inc. dba Softrock.org aka Employer Network, from the same address as former TCT.

The Ponzi scheme[edit]

In 2006 investigators discovered Pearlman had perpetrated a long-running Ponzi scheme that defrauded investors out of more than $300 million. For more than 20 years, Pearlman had enticed individuals and banks to invest in Trans Continental Airlines Travel Services Inc. and Trans Continental Airlines Inc., both of which existed only on paper.[48] Pearlman used falsified Federal Deposit Insurance Corporation, AIG and Lloyd's of London documents to win investors' confidence in his "Employee Investment Savings Account" (EISA) program, and he used fake financial statements created by the fictitious accounting firm Cohen and Siegel to secure bank loans.[8]

Investigation[edit]

In February 2007, Florida regulators announced that Pearlman's Trans Continental Savings Program was indeed a massive fraud and the state took possession of the company.[49] Most of the at least $95 million which was collected from investors was gone. Orange County Circuit Judge Renee Roche ordered Pearlman and two of his associates, Robert Fischetti and Michael Crudelle, to bring back to the United States "any assets taken abroad which were derived from illegal transactions."[50]

Arrest[edit]

Following a flight from officials, Pearlman was arrested in Indonesia on June 14, 2007 after being spotted by a German tourist couple.[51] Pearlman was then indicted by a federal grand jury on June 27, 2007.[52] Specifically, Pearlman was charged with three counts of bank fraud, one count of mail fraud and one count of wire fraud.

Conviction and sentencing[edit]

On May 21, 2008, Pearlman was sentenced to 25 years in federal prison, after pleading guilty to charges of conspiracy, money laundering, and making false statements during a bankruptcy proceeding. U.S. District Judge G. Kendall Sharp gave Pearlman the chance to cut his prison time, by offering to reduce the sentence by one month for every million dollars he helped a bankruptcy trustee recover. He also ordered that individual investors were to be paid before institutions in distributing any eventual assets.[53][54]

Pearlman is serving his sentence with a projected release of March 24, 2029.

Books[edit]

  • Lou Pearlman, Wes Smith (2002). Bands, Brands and Billions: My Top 10 Rules for Making Any Business Go Platinum. McGraw-Hill. p. 261. ISBN 978-0-07-138565-7. 

References[edit]

  1. ^ Handy, Bruce (1999-02-01). "Big Poppa's Bubble Gum Machine". Time Magazine. Retrieved 2009-04-09. 
  2. ^ Handy, Bruce (2007-06-18). "Lou Pearlman appears at hearing in Guam". USA Today / AP. Retrieved 2009-04-09. 
  3. ^ "Boy band founder to plead guilty in $300M suit". Associated Press. 2008-03-04. Retrieved 2009-04-09. 
  4. ^ Liston, Barbara (2008-05-21). "Boy band mogul Pearlman sentenced to 25 years". Reuters. Retrieved 2009-04-09. 
  5. ^ Huntley, Helen. "Special report: Unraveling a transcontinental fraud". tampabay.com. Retrieved 2009-04-09. 
  6. ^ "More coverage of the Lou Pearlman saga". Orlando Sentinentel. Retrieved 2009-04-09. 
  7. ^ a b St. Petersburg Times By Helen Huntley, October 21, 2007 In humble Queens, Lou Pearlman was king
  8. ^ a b c d e Mad About Boys
  9. ^ Henderson 2006. p. 174.
  10. ^ a b c Orlando Sentinel April 1, 2007 A world out of sync
  11. ^ New York Post February 22, 2007 BOY BAND KINGPIN'S PENNY ROOTS SHOWING
  12. ^ Tyler Gray, The Fat Man Sings in Radar Magazine October 7 Issue, p. 91
  13. ^ St. Petersburg Times The starmaker
  14. ^ Garcia, Cathy Rose A. (February 22, 2010). "Backstreet Boys Share Secrets to Success". The Korea Times. Retrieved January 24, 2011. 
  15. ^ St. Petersburg Times June 25, 2002. Lawsuit: Pop star's manager a racketeer[dead link]
  16. ^ Stern, Howard (Jan 2009). "Rich Cronin Interview Part 1". 
  17. ^ ONTD (July 2007). "LFO's Brad Fischetti stands up for Lou Pearlman". 
  18. ^ "Backstreet Boys Open Up To John Norris About Disgraced Boy-Band Mogul Lou Pearlman: 'Karma's Karma'". MTV. Oct 2007. 
  19. ^ Abott, Jim (Oct 2007). "Lance Bass book comes out". Orlando Sentinel. 
  20. ^ SEC Info Trans Continental Entertainment Group Inc - 8-K For 10/7/02 The SEC about the nature of the business relations between Trans Continental and Ayman El-Difrawi, Ralph Edward Bell, Cortes Wesley Randell and Jason Hoffman, the felony records of El-Difrawi and Randell, and the FTC sanctions against Bell and Hoffman.
  21. ^ Barker, Tim (2003-10-05). "Scouting Network's History Troubles Pearlman". Orlando Sentinel. Retrieved 2010-10-20. 
  22. ^ Olson, Wyatt (2001-09-06). "Hustling for Models". New Times Broward-Palm Beach. Retrieved 2009-04-08. 
  23. ^ Barack, Lauren (2002-01-26). "MANNEQUIN MESS TOP AGENCIES DENY CONNECTION TO EMODEL". New York Post. Archived from the original on July 14, 2011. Retrieved 2009-04-08. 
  24. ^ Kimberlin, Joanne (2002-01-28). "Cashing in on dreams of glamour". pilotonline.com. 
  25. ^ "Is eModel Golden Opportunity Or Big Business?". Ksat.com. 2002-02-12. 
  26. ^ Reed, Travis (2002-05-13). "Options Talent Group: An I-Team Investigation". Fox Atlanta. Archived from the original on 2005-11-07. Retrieved 2009-04-08. 
  27. ^ Thompson, Connie (2002-08-13). "Buyer Beware: Ever Thought About Being A Model?". Komo News. Retrieved 2009-04-08. 
  28. ^ Reed, Travis (2002-11-14). "Trans Continental Talent". Fox Atlanta. Retrieved 2009-04-08. 
  29. ^ "Hidden Cameras Expose Talent Agency Scam". ClickOnDetroit.com. 2002-11-15. 
  30. ^ I Am Not A Model, Jane Magazine, March 2003
  31. ^ Braiker, Brian (2003-07-18). "Model Misbehavior". Newsweek. Retrieved 2009-04-08. 
  32. ^ National Arbitration Forum Decision - Industry Publications LLC v. Industry magazine
  33. ^ BBB Orlando report on Web Style Network a/k/a Options Talent, TC Talent, Trans Continental Talent, Wilhelmina Scouting Network, Wilhelmina Scouts, WSN. Quote: "Based on BBB files, this company has an unsatisfactory record with the BBB due to a pattern of complaints concerning misrepresentation in selling practices"
  34. ^ "Model Agency Labeled A Scam" PageSix, New York Post, Oct. 20, 2003
  35. ^ Office of Consumer Affairs Wilhelmina Scouting Network, Modeling Agency
  36. ^ "Modeling Agency- Big Fees, Small Return," KRON-4 San Francisco, Feb. 18, 2003.
  37. ^ local10.com: State Ends Probe Into Pearlman's Former Model-Scouting Company
  38. ^ tolner.com, PDF document: John MacGregor providing status of the Options Talent investigation
  39. ^ Orlando Weekly: Pearlman's jihad
  40. ^ Clerk Circuit Court Orange County Florida, search case number 2004-CA-004844-O
  41. ^ CanLII Court File No. C-8937-05, Henderson v. Pearlman, Tolner, Difrawi a.o., 2006 Ontario Superior Court of Justice
  42. ^ New York Post September 24, 2006 LOUIE WASN'T 'N SYNC / LAWSUIT BACKFIRES "LOU Pearlman picked the wrong guy to sue"[dead link]
  43. ^ CanLII - 2009/08/18 Court File No. C-8937-05 - Henderson v. Pearlman a.o., a case in the Ontario Superior Court of Justice
  44. ^ Orlando Sentinel February 2, 2007 Pearlman hit with another huge suit
  45. ^ St. Petersburg Times Blog: Money Talk February 9, 2007 State shuts down Fashion Rock[dead link]
  46. ^ Orlando Sentinel March 24, 2007 Pearlman's talent-scout company sold
  47. ^ BBB about Talent Rock
  48. ^ USDOJ press release March 4, 2008 LOU PEARLMAN SIGNS PLEA AGREEMENT THAT INCLUDES ADDITIONAL CHARGES THAT HE DEFRAUDED INVESTORS
  49. ^ www.wftv.com February 2, 2007 State Takes Over Lou Pearlman's Embattled Orlando Company
  50. ^ "State: Trans Continental Savings Program a Fraud". 2 February 2007. Archived from the original on 2 March 2008. Retrieved 29 June 2012. 
  51. ^ Lou Pearlman Taken Into Custody In Indonesia[dead link]
  52. ^ Tampa Bay's WTSP 10 News Pearlman indicted on fraud charges
  53. ^ MSNBC.com
  54. ^ Reuters Boy band mogul Pearlman sentenced to 25 years

Further reading[edit]

  • Les Henderson (2006). Under Investigation: The Inside Story of the Florida Attorney General's Investigation of Wilhelmina Scouting Network, the Largest Model and Talent Scam in America. Coyote Ridge Publishing. p. 511. ISBN 978-0-9687133-3-4. 
  • Tyler Gray (2008). The Hit Charade: Lou Pearlman, Boy Bands, and the Biggest Ponzi Scheme in U.S. History. Harper Collins. p. 320. ISBN 978-0-06-157966-0. 

External links[edit]