Lou Pearlman Architect of the Backstreet Boys and ‘N Sync – Guilty of Ponzi Scheme!

Described as an American conman, Louis Jay “Lou” Pearlman plead guilty to a variety of charges related to running one of the biggest and longest running Ponzi schemes in history.

Named after Charles Ponzi, a ponzi scheme is a fraudulent investment operation where high returns are promised to investors and usually paid out of other investors money rather than from profits generated from the investment promised.

According to the plea agreement, for more than twenty years Pearlman was successful in raising millions of dollars based on false representations about two companies affiliated with him. One of those companies was Transcontinental Airlines Travel Services, Inc. The other was Transcontinental Airlines, Inc. Pearlman represented to thousands of investors and several federally insured financial institutions that those two companies were successful companies in the airline business and that Pearlman’s ownership interest in those companies was worth millions of dollars. That was not true. To the contrary, Transcontinental Airlines Travel Services, Inc. and Transcontinental Airlines, Inc. existed only on paper. Those companies had minimal employees, business operations, and revenue.

According to the US Attorney, this case involves three conspiracies and schemes to defraud perpetrated by Pearlman and others: (1) a “Ponzi” scheme based on fraudulent investments offered in connection with Transcontinental Airlines Travel Services, Inc. and Transcontinental Airlines, Inc., (2) a bank fraud scheme involving misrepresentations about the financial condition of Pearlman and his companies, and (3) a bankruptcy fraud scheme. The amount of loss for these three schemes is currently estimated at over $300 million.

The Plea Agreement can be seen here.

Where did all the money go? Pearlman could not clearly answer the judges question. “In different investments,” he said. “Aircraft, living expenses, working capital.”

Pearlman has agreed to cooperate with the government to locate any remaining assets, help prosecute coconspirators, make restitution (although I don’t know how) and spend a substantial time in federal prison. At age 54, possibly facing 20+ years in prison, Pearlman might find that the rest of his life is spent there. And, speaking from experience, that is not a happy place to be for any length of time.

As a business ethics and white collar crime speaker, Pearlman clearly had a knack for promotion. Whether it was promoting his failed aviation businesses or finding and promoting new musical talent. Unfortunately, Pearlman didn’t seem to have a knack for understanding and applying business ethics.

Here’s a rule that Pearlman should have been tuned to early on – every choice has a consequence. When it finally came time to place hand on the Bible – Pearlman came clean. It is true and Biblical – You reap what you sow. Soon, Pearlman will begin the reaping process – perhaps for the rest of his life.

White Collar Crime speaker – Chuck Gallagher – signing off…

Home Schooling Is Criminal? That’s an Ethical Travesty!

Ethics are often spoken of as absolute – easy to discern – simple right and wrong. As an ethics speaker, from experience, I know that such a simple concept is wrong. Ethics are often situational and can easily be argued from radically different points. Such is the case in a recent article featured in Time Magazine (see on-line article here).

One of my best friends was the poster child for effective and efficient home schooling. To be clear, my children were taught in the public school system. While I admit I didn’t really understand home schooling, I observed with interest the process with my friend and his family. It was a unique opportunity for me to learn without having to be invasive. The results were incredible.

Then, on Friday March 7, 2007, an article appears indicating that a ruling on February 28th by Judge H. Walter Croskey of the Second District Court of Appeals in Los Angeles ruled that school age children may only be taught by credentialed teachers in either public or private schools.

Judge Croskey’s comments:

“California courts have held that … parents do not have a constitutional right to homeschool their children,” Justice H. Walter Croskey said in the 3-0 ruling issued on Feb. 28. “Parents have a legal duty to see to their children’s schooling under the provisions of these laws.”

Quoting from an earlier 1961 (yes that far back) Judge Croskey wrote, “A primary purpose of the educational system is to train school children in good citizenship, patriotism and loyalty to the state and the nation as a means of protecting the public welfare.”

Sorry, but surely he’s not saying that parents are incompetent to teach their children good citizenship and patriotism. Unless I read this wrong, the good Judge feels that only licensed teachers are competent to provide such education. But, here’s a simple question: Are teachers taught as part of their education how to teach citizenship, patriotism and means to protect the public welfare?

Background: The issue did not start as a home schooling case, but rather a child welfare case. According to the San Francisco Chronicle: “A juvenile court judge looking into one child’s complaint of mistreatment by Philip Long found that the children were being poorly educated but refused to order two of the children, ages 7 and 9, to be enrolled in a full-time school. He said parents in California have a right to educate their children at home.” From that complaint came the instant ruling.

Philip and Mary Long of Lynwood, CA have been homeschooling their eight children. Mary Long is their teacher, but holds no teaching credential as required by California state law. The Long’s also enrolled their children in Sunland Christian School, a private religious academy in Sylmar (Los Angeles County), which considers the Long children part of its independent study program and visits the home about four times a year. The assumption is that by enrolling in Sunland program they would meet one of the exceptions to the California law.

Now to be clear and fair, the ruling upholds California law that provides in the simplest form that children must be taught by a credentialed teacher.

That is where the ethical issue arises!

Ethical Arguments: California law has been clear since at least 1953, when another appellate court rejected a challenge by homeschooling parents to California’s compulsory education statutes. Those statutes require children ages 6 to 18 to attend a full-time day school, either public or private, or to be instructed by a tutor who holds a state credential for the child’s grade level.

The Chronicle reports, “California courts have held that … parents do not have a constitutional right to homeschool their children,” Justice H. Walter Croskey said in the 3-0 ruling issued on Feb. 28. “Parents have a legal duty to see to their children’s schooling under the provisions of these laws.”

So the first ethical question is: Is the law right? If the ruling came about in 1953 (before I was born) does it mean that it is still correct as it applies in the times we live in today. In 1953 access to information was entirely different than what is available today. In 1953 the educational level of our society in America was much different than it is today. So is it possible that the interpretation of the law in 2008 is only upholding something that is vastly out of date?

The second ethics question: Who does this ruling serve? Chairman of the largest teachers union, Lloyd Porter said, “We’re happy. We always think students should be taught by credentialed teachers, no matter what the setting.” Interesting that the group served by the ruling is happy. What about those teachers who fail miserably at their job, but due to their participation in the teachers union are protected from disciplinary action for poor performance? Ethics are a clear matter of perspective. Instead of finding a solution that is a win-win for all, the teachers union enjoys the protection that this law seems to provide.

The third ethics question: Are children provided good education by home school teachers? The law has provided for 50+ years that children have to be educated in a public school, an accredited private school, or with an accredited tutor. Private Christian schools are, likewise, acceptable. However, the criteria is that they child has to attend the school – not be taught at home.

So are home schooled children undereducated? Perhaps that depends on the commitment of the teacher or parent. As I began this article, I noted a friend of mine’s family wherein home schooling took place. As their daughters aged, they felt it best to enroll them in a private Christian school in preparation for their continued education in college. The children were tested for admission. All three tested in the top 5% of the students in this prestigious school – and yet – they had never had a day of traditional schooling. Rather, their mother was active in a home schooling network and made sure that educational discipline was in place.

The results were astounding. I was impressed.

Conclusion: As an ethics speaker, I generally have many opportunities to confront ethical situations exposing differing points of view. In this case the Judge interpreted California law and it is not the role of the judiciary to create law. Therefore, I have no issue with the Judges ruling.

On the other hand, there is little doubt that an appeal to the California Supreme Court may be in the works…although I do not know on what grounds. The solution would be to have a legislative change enacted if there is enough momentum to sustain the votes needed.

Certainly, from my limited experience, home schooling can be an effective educational method for children. Perhaps, all parties need to look beyond their own self interests and evaluate the needs of the children.