The promoter behind the 1990s boy band explosion is facing a different kind of music for a series of business deals that one Florida state regulator described as a Ponzi scheme.
Lou Pearlman, the music impresario credited with creating multi-platinum-selling acts like the Backstreet Boys and ‘N Sync, had his Orlando, Fla., offices and home raided yesterday by a task force of FBI agents, bank regulators and Florida investigators.
The bust came amid allegations that more than $317 million of employee and investor capital had been sucked out of an investment that one regulator labeled “a Ponzi scheme.”
At the center of the probe is Pearlman’s once high-flying Trans Continental Cos., as well as four other companies owned by the Flushing native, who happens to be a first cousin of pop icon Art Garfunkel.
According to investigators, the alleged scheme was simple: Pearlman purportedly offered employees and “select” investors a high rate of return for their investments in “employee investment savings accounts” that were supposedly guaranteed by the FDIC, AIG and Lloyd’s of London.
However, in fact, the guarantees did not exist because there appeared to have been no investments, according to investigators.
What’s more, despite numerous regulatory inquiries dating back to 1994, Pearlman appears to have been accepting deposits as recently as last December.
Last week, a Florida judge ordered the spider web of companies that Pearlman owns be placed into receivership.
The court-appointed receiver, Jerry McHale, told the Orlando Sentinel that he had only examined three of Pearlman’s five companies, which suggests the number of defrauded investors, now 1,400, may jump even higher.
McHale said he had identified $204.5 million in claims from Trans Continental’s “employee investment savings accounts” and an additional $113 million from his sale of corporate stock. Some claims went as far back as the 1980s.
“Bank records indicate the investors’ deposits of approximately $118 million have been utilized to pay earlier investors both dividends and cash withdrawals, as is the case in Ponzi schemes,” the Florida Office of Financial Regulation wrote two weeks ago in a complaint against Pearlman.
Banks such as Bank of America, Countrywide Financial and Washington Mutual have pummeled Pearlman and his companies over the past few months, suing for more than $130 million in claims. In addition, courts have levied another $33 million in judgments against Pearlman.
Furthermore, sheriff’s deputies in Florida have seized his Gulfstream jet, citing a $19.6 million loan balance to a North Dakota bank.
