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

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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…

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