Lou Pearlman: Difference between revisions

Louis Jay Pearlman (born June 19 1954, Flushing, Queens, New York, U.S.) was a manager for several boy bands including the Backstreet Boys, 'N Sync and US5. He is now being held on charges of running one of the biggest Ponzi schemes in United States history after being on the run from the law for eight months.

Pearlman is an only child, born to Reenie and Hy Pearlman, who ran a dry cleaning business. He was born and raised in New York City before moving to Orlando, FL.

Pearlman idolized his famous first cousin Art Garfunkel. As a teenager Lou managed a band (he could not play or sing himself), but when success in music proved elusive, he turned his attention to aviation. He spent a lot of time hanging around with the Goodyear blimp crew at Flushing Airport, where a friend had a job. By the late 1970s, he forged a partnership with German blimp tycoon Theodor Wüllenkemper. Early 1980s he started a helicopter commuter service. Next came a blimp advertising company, which suffered several controversies in and of itself including the crash of his Jordache blimp and claims of insurance fraud.^[4][5]

After moving to Orlando came claims of a travel agency called Trans Continental Travel Services, an aircraft leasing business and a charter airline, 'Trans Continental Airlines' though both mainly existed in name only. Pearlman was to some "the best salesman ever known" for being totally convincing in telling big lies, such as owning a $1.8-billion company with 412 planes.^[6][7][8]

As his aviation businesses failed, Pearlman found other ways to make money. Mid 1980s he started his allegedly fraudulent Trans Continental Airlines savings program. Also Pearlman had associations with penny-stock swindlers and reportedly earned his first big bucks as a beneficiary of one of the longest-running pump-and-dump schemes of the 1990s. ^[9]

As a side product Pearlman became involved with owning the Chippendales dancers. That combined with the New Kids on the Block inspired his boy band ideas. "I got involved with Chippendales before Backstreet and it's Chippendales and New Kids on the Block that gave me the idea to pursue Backstreet."^[10].

After receiving a charter request from New Kids on the Block, Pearlman became fascinated with the fact that the band had made hundreds of millions of dollars in record, tour and merchandise sales. Thus he started Trans Continental Records. After a massive search and $3 million dollars spent ^[11] Pearlman created the Backstreet Boys who immediately were signed to his label as his first act. Backstreet Boys went on to sell 100 million records worldwide [1][2] , hitting gold and platinum in 45 different countries. Pearlman repeated this apparent success with the band 'N Sync, which sold over 56 million records globally.

With these two major successes under his belt Pearlman became the ultimate boy band mogul. Other bands were eager to sign with Pearlman as a label and as a manager. Other boy bands managed by Pearlman were O-Town (created during the ABC/MTV reality TV series Making the Band), LFO, Take 5, Natural. Other artists on the Trans Continental label included Aaron Carter, Jordan Knight, C Note, and Smilez & Southstar. Pearlman owned an entertainment complex in Orlando, including a recording studio (Trans Continental Studios), a dance studio by Disney World named 'O Town' and Church Street Station which under his ownership became a virtual ghost town. But whatever Pearlman threw into it, he never found himself another Johnny Wright and his two major boy band successes never were repeated.

Lou's final musical project was the RTL reality TV show "Big in America" in Germany.^[12] Boy band US5 was assembled on the show. They were represented as being 'Big in America' despite the fact of only releasing one single in the United States which did not chart well. It appears that US5's management, Berlin-based company Triple M Music [3], is the only running business that Pearlman was still actively involved in right up until December 2006 when his Ponzi scheme became known. Before his arrest his last sighting was at an award show where the band received an award. US5 appear to still be under contract with Lou though their final fate is unknown. Currently it has been arranged that they are allowed to tour while money is put in escrow until the case is settled.^[13]

There is no standard musical percentage in the music industry though the average figures run about 25% to the record label, between 15% and 25% for management and another possible 15% to an agent. Musicians usually get 8 to 10 cents on the dollar, writing credit, performing credit, and merchandise and tour sales are usually their own to split with a promoter.^[14]

According to the program VH1's 100 Most Shocking Rock & Roll Moments Pearlman however being manager and label would take on average a good 75% of total profits, made him self legally the sixth member of his boy bands for writing/performing royalties (despite not being a credited performer or songwriter on any album), and also got a decent percent off of merchandise and tour revenues which is highly unusual.^[15]

All musical acts (US5 is currently the only exception) 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 law suits against him, or have been settled out of court. However settled all cases have also ended with a confidentiality agreement meaning none of the parties are allowed to discuss in depth Lou's practices. "They find talented kids, sign them, watch them get successful, don't pay them, wait for them to sue and then settle the cases," Yanger said. "It is not an isolated case."

The Backstreet Boys were the first band to sue Pearlman because they felt their contract, under which Pearlman collected as both manager and producer, was unfair. Fellow boy band *NSYNC had similar issues with Pearlman and soon followed suit. According to VH1's 100 Most Shocking Rock & Roll Moments, Pearlman and BMG claimed nearly all of the $300 million dollars *NSYNC had made from record, tour, and merchandise sales. This left only $7 million dollars for the five members of the band. Frustrated, *NSYNC attempted to leave RCA and sign with competitor Jive Records, a migration which Pearlman hoped to prevent with legal action. Both BMG and Pearlman's lawsuit and the countersuit filed by *NSYNC were settled out of court.

Looking back at those days, 'NSYNC star Justin Timberlake said during a September 2006 interview with Rolling Stone: "I was being monetarily raped by a Svengali".^[16]

Teenage pop star Aaron Carter at the age of 14, 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 for a deliberate pattern of criminal activity. The suit was later settled out of court. Carter once again took Pearlman to court in 2006; the outcome is unknown.^[17]

For years rumors swirled that Pearlman initiated inappropriate relationships with the boys he worked with; both underage and of age. The November 2007 issue of Vanity Fair investigated the claims and found allegations by several former boy band members of such conduct including Rich Cronin, 13 year old members of Take 5, an early member of the Backstreet Boys, and Nick Carter.^[18] Despite the innuendo and rumors that dogged him for years, Pearlman was only threatened with going public a few times. At one point an unidentified male singer or singers (it is unknown how many) threatened Pearlman with going public. J. Cheney Mason, Pearlman's long time attorney, confirmed that the situation was turned over to the FBI for investigation as a possible extortion. No charges were ever filed and the boy or boys never went public. It is unclear if any future charges may be filed in relation to the claims.^[19]

In September 2002 Pearlman purchased the Internet oriented talent scouting company Options Talent which would go through several names including Trans Continental Talent, TCT, Wilhelmina Scouting Network, WSN, and finally the Web Style Network before disbanding. Pearlman then started another similar scheme this time with the names Fashion Rock, and Talent Rock. Options Talent had been started as eModel (later Studio 58 and other names) by Ayman Ahmed El-Difrawi who had a criminal record, spent nearly four years in prison for fraud, and is banned from doing business in Illinois. ^{[20][21][22][23][24]}

Originally Pearlman downplayed El-Difrawi's part in the business stating that he was "just the computer guy." Later, when Pearlman tried to distance himself from the criminals in the organization, he admitted that El-Difrawi was a principal in the organization that, "he set the whole thing up; he was the one that really developed the business."^[25]

The SEC noted that Trans Continental had issued shares and paid monies to trusts which, in turn, owned consulting companies that employed El-Difrawi, Ralph Edward Bell, Cortes Randell, and Jason Hoffman. These consulting arrangement kept these individuals' names off most paperwork, nonetheless the SEC forced Trans Continental to disclose the felony records of El-Difrawi and Randell, and that the FTC had sought permanent injunction against Bell and Hoffman for using deceptive practices in another modeling business.^[26]

In September of 2002, Pearlman purchased a major share of Orlando's 'Karma magazine' which he then renamed 'Industry Magazine' and turned the publication into a franchised celebrity magazine while using it as an in-house promotional piece for Transcontinental Talent.^[27] Industry was founded by TCT's Ayman Ahmed El-Difrawy (aka Alec Defrawy, Dufrawy), ralph Edward Bell, and Armand Kulpa (Trans Continental Talent's VP of Sales and Marketing).^[28][29][30] Notably, Ralph Edward Bell (Along with TCT's Jason Hoffman) had already been in troble with the FTC regarding another modeling agency scandal.^[31] (The other websites that are hosted on the same server as industrymagazine.com and the used attorney in the trademark case (Alex Finch), show Defrawy's current involvement with 'Toospoiled', 'Good Grades Now' and 'Ask America', owned by Internet Solutions Corp.^[32][33])

Regardless of the name, all incarnations of the Talent Scouting networks were nothing more then a website which young hopefuls paid money (usually around $2,000 dollars) to have their pictures and some information posted on the site in promises that 'A&R' would scout the site and the young talent may be discovered. Models, Musicians, Dancers, and Singers were all 'promised' a chance to sign up. No such promotion of the talent seemed to occur and no talent appears to have been 'discovered' via the costly site.^[34] Agencies Ford and Elite asked to have their names removed from the company's web site and said they have never used models from the company.^[35] Other agencies had problems with the modeling company's use of their name in reference and Bill Ford of Ford Models said, "They say they work with us. We do not work with them. They're not reputable people."^[36]

As early as 2001, local and national media in many of the major cities where the talent agency set up shop independently declared the company a scam that took people's money and didn't live up to promises. Many news outlets did hidden camera investigations. The allegations in the media, begun before Pearlman bought the company, continued throughout his ownership .^{[37][38][39][40][41]}

When Pearlman purchased Options Talent he allegedly did so without being informed by then CEO Mark Tolner about the criminal pasts of some of that company's officials, Ayman Ahmed El-Difrawi (aka Alec Defrawy/Defrawi), Cortes Randell, and David Elliott. However, SEC documents revealed that Pearlman knew of the criminal history of these individuals for at least 10 months prior to them leaving, and even defended them months before making a statement that he didn't know of their records.^[42][43]

The New York State Consumer Protection Board did issue a consumer alert about the then named WSN/TCT due to many consumer complaints.^[44] The CBP issued a statement in 2003 that this was the largest example they had found of a photo mill scam. In the same statement, State Senator Charles Fuschillo Jr. said, "By targeting the young, hopeful and innocent of our state, these 'agencies' try to make a quick, dishonest dollar and that is unacceptable..."^[45]

In 2003, the San Francisco labor Comissioner declared that the company was acting as a talent agency and that it's practice of collecting money up-front was a violation of California law. The San Francisco District Attorney's office along with agencies in Florida, Hawaii, and Massachusetts were reported to be investigating. ^[46]

In Florida about 2,000 complaints were filed with the then Attorney General Charlie Crist and the Better Business Bureau. A lawsuit was in preparation by Assistant AG Jacqueline (Jackie) Dowd, as a result of a two year investigation. The case never made it to court. A few months after Dowd's unexplained replacement by John MacGregor, the inquiry was discontinued because in MacGregor's opinion the probe was unable to find quote, "any substantial violations," and the company was bankrupt - leaving no deep pockets to collect damages from."^[47][48]

Also in 2003, a walkout of key firm members El-Difrawi and Ralph Edward Bell led to the theft of some credit card numbers of the company's customers. Although it is unclear who took the numbers, charges started appearing which were traced to Eyemodel, a new modeling company started by Bell and El-Difrawi.^[49]

After WSN's questionable bankruptcy, a civil case was filed in which Pearlman was accused of conspiracy and bankruptcy fraud. "Plaintiff is informed and believes that defendant Fashion Rock was created . . . for the avoidance of certain liabilities, including liability to plaintiff."

Pearlman then started up again, this time under the name 'Fashion Rock' (which later became known as Talent Rock)^[50] in September 2003, with Tolner as CEO. Defrawy and several other former WSN staff members were involved with the 'new' company.^[51][52][53]

In 2004 Pearlman started an aggressive campaign against some websites that contained criticism (both facts and opinions) of his companies methods of talent scouting. To "attack critics" more than a dozen sites were erected by then Fashion Rock CEO Mark Tolner [4] and by Fashion Rock business model creator Alec Defrawy ("The Bureau of Ethical Internet Commerce" [5]. ^[54][55]

By June 2004 Fashion Rock, LLC filed a civil suit for defamation against a number of individuals and companies (the alleged "group of criminals"). According to the Orlando Business journal this was done after Orlando City Council member, Vicki Vargo questioned TCT's practices and whether the city should award Pearlman incentives to move his business to Church Street Station.^[56] No evidence was ever presented by Fashion Rock. Defendants alleged the suit was frivolous, and only meant to harass and to hurt them financially. The cases against co-defendants Bill Rosenberger, Les Henderson, and Roberto Villasenor were dismissed. Consequently the whole case was closed. No reasons for the dismissal were revealed by the Court. ^[57][58][59]

Canadian anti-consumer-fraud expert Les Henderson filed a libel lawsuit against Pearlman, Tolner, El-Difrawi, Rene Chamberlain (Pearlman's Attorney) and several others. The suit is in progress.^[60][61] Henderson is the author of the book "Under Investigation" about the talent scouting scandals and the questionable way the now current Florida Governor Charlie Crist and his office handled the case.^[62][63]

Fashion Rock, LLC lived on until February 2, 2007 when Bank of America filed a suit against the business.^[64] The state shut the company down not more then a week later.^[65] In March the assets of Fashion Rock were sold to Californian Alan Joelson company Camino Ventures^[66] Their daughter company Talent Rock Holdings, LLC continues to run talent scouting event Talent Rock and its websites since April 2007. In October Talent Rock still used "legendary music manager Lou Pearlman’s multi-Billion dollar Trans Continental conglomerate" as a point of sales.^[67].

November 14, 2006, WFTV.com reported Frank Vazquez, Vice president of operations for the Trans Continental Companies, took his own life. The article mentioned Florida state investigating a savings program offered by the company. ^[68]

On December 17, 2006, the St. Petersburg Times wrote the savings program was offering "high yield at no risk", and was presented as a way to participate in a special deal for Trans Continental Airlines employees. Investors were notified by Trans Continental Airlines that it stopped processing withdrawals from its "Employee Investment Savings Account" and the company wrote in a form letter to "anticipate a resolution soon after the first of the year". Pearlman disappeared from Orlando soon after.^[69] After getting sued by the state Office of Financial Regulation, the company agreed to halt all sales, while denying the charges.^[70][71][72] The Florida Office of Financial Regulation then filed a Complaint, alleging Pearlman had been operating a Ponzi scheme, using falsified FDIC documents to lure investors.^[73] Consequently several banks and groups of private investors filed suits against Lou Pearlman for failing payments on loans and investments.^{[74][75][76][77][78][79]} In their suit filed on December 28, 2006 Integra bank called Pearlman a 'deadbeat Ponzi operator'. "While Pearlman's public persona is that of a man whose life seems lifted from a Horatio Alger story - a life filled with glamour, glitz and financial success beyond most peoples' dreams - Integra's recent dealings with Pearlman and his first company, TCA, would indicate that this outward mask conceals the fundamental economic instability more common to a Ponzi scheme."

On January 22, 2007 The Orange County Sheriff's Office seized Pearlman's 1968 Gulfstream jet and turned it over to the First International Bank & Trust.^[80] "Two additional loans -- each for $10 million -- were to be used to build an entertainment complex and develop three television shows with MTV, among other endeavors." After the seizure, Pearlman's empire soon fell into chaos. On January 27, 2007 some people who worked for Pearlman were laid off. Office equipment had been removed from Trans Continental headquarters in Downtown Orlando. Soon after all employees were laid off and further office equipment was raided.^[81][82]

In February 2007 Florida regulators announced Pearlman's Trans Continental Savings Program was indeed a massive fraud and the state took possession of the company. 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". The court ordered receivership froze company assets as the state investigation continued. Pearlman was still missing at the time and reported to be in Germany or Israel.^[83][84][85]

Soon after claims have grew to more than $130 million, not including the previous $33 million judges had recently ordered him to pay on previous lawsuits. But according to Pearlman's letter to the Orlando Sentinel the claims of Florida state, the banks and the investors were nothing but lies.^[86] "I know a lot of people come at me, as a deep-pockets theory," he said then. "The more successful you get the more lawsuits you get, unfortunately."

By February 6, 2007 there were more than $317 million in claims at that point.^[87] That figure later grew to $500 million ^[88] Due to Lou's dealings not only individual investors but several banks may be out millions of dollars. North Dakota banks may lose more than $20 million in soured loans. At least two banks already have filed lawsuits.^[89]

The investigators then took control of Pearlman's Trans Continental company website and began using it to convey information to investors and media. The amount of missing money was reported to be one of the largest in Florida; if not the United States for a Ponzi Scheme.^[90] It was soon revealed according to records filed by the Office of Financial Regulation, many of Pearlman's misrepresentations were first brought to the attention of authorities almost a decade ago.^[91][92] A federal investigator suspected as early as 1995 that Lou Pearlman's investor program might not be as secure as the mogul claimed -- and asked Florida officials to investigate. But despite that and other red flags raised in 1999, 2001 and 2004, government authorities did not seek to shut down the Orlando-based investment program until late last year. The local alt weekly Orlando Weekly was not pleased having blown the whistle on Pearlman several times in the past years^[93] Old news, amigos. We told you three years ago that Pearlman was a corpulent pusbag who would rip off anybody and anything within reach of his scaly appendages. But did you listen? No, you did not.

On February 15, 2007 The Federal authorities served a warrant on Pearlman's companies, conducted by various agencies, the state of Florida, FBI, the IRS and the FDIC. Some of Pearlman's attorneys filed a court motion to withdraw from representing him.^{[94][95][96][97]} Pearlman's property manager has stayed on to continue paying utility bills and such, but told Eyewitness News he has not been paid for three months. He also said that Pearlman's company intercepted the most recent rent payments from the tenants there and disappeared with that money. With Pearlman still on the run his home was put up for sale^[98] Shortly after Pearlman officially resigned from Trans Continental Airlines. ^[99] FF Station LLC, Lou Pearlman's company that owned Church Street Station, filed for Chapter 11 bankruptcy protection.^[100] Ten more of his former companies were put under the control of a court-appointed administrator to protect any remaining assets. The receivership now included Trans Continental Airlines, Trans Continental Airlines Travel Service and Trans Continental Enterprises, Louis J. Pearlman Enterprises, Trans Continental Records, Trans Continental Talent, Fashion Rock, Trans Continental Travel Service, Trans Country music Group, Trans Continental Studios, Trans Continental Aviation and Aegis Consulting.^[101] Two major auctions selling all of Lou's assets were later held in July and August 2007. The small profits (both about $300,000) were used to begin paying back investors.^[102]

On March 27, 2007 Soneet R. Kapila was appointed Chapter 11 Trustee of the bankruptcy estates of Louis J. Pearlman and Trans Continental Airlines, Inc. in the United States Bankruptcy Court, Middle District of Florida, Orlando Division by Felicia S. Turner, United States Trustee, Region 21. The Bankruptcy Court signed the order on March 30, 2007. ^[103]

After being on the run since December 2006, Pearlman was finally arrested in Indonesia on June 14, 2007 after being spotted by a German tourist couple.^[104] Pearlman was then indicted by a federal grand jury on June 27, 2007.^[105] Specifically Pearlman is charged with three counts of bank fraud, one count of mail fraud and one count of wire fraud. On July 11, 2007 at a bond hearing, the Judge set a September 4, 2007 trial date in Federal Court for Pearlman on the bank fraud charges.^[106] Pearlman requested, and was granted, a delay in the start of his trial. Pearlman's trial is now scheduled to begin on March 3, 2008.^[107] Other criminal indictments are expected to follow. A civil lawsuit currently in progress also faults Governor Charlie Crist. The suit alleges he delayed or interfered with investigations as attorney general at the time.^[108]

He has not granted any detailed interviews to date. Radar Magazine obtained a brief exclusive interview with him which they published in their October 2007 issue. According to the interview Pearlman sees himself as unfairly represented in the media (but unable to legally talk), bragging on past achievements, developing new acts, and still getting a profit off the Backstreet boys.^[109] "I'm planning on this chapter ending soon...This is just one of those hurdles in life that you have to get past...I mean the Backstreet Boys are about to get going again. They had a band member quit, but they're about to stage a comeback...we are still entitled to a share of the revenue." Through friends, Pearlman has denied all allegations and claims to be set up. He promises to find the real culprits as soon as he can get out of jail on bond.^[110]

• Lou Pearlman's website (defunct)
• Trans Continental Companies. Former Lou Pearlman company website, now the State investigation website.
• Lou Pearlman case
• St. Petersburg Times editor Helen Huntley's Money Talk Blog covering the History of Pearlman's Bankruptcy
• Page Six Story on Lou
• Vanity Fair Article About Pearlman
• ScammedByPearman.com A resource site for those "scammed" by Lou Pearlman
• Orlando Sentinal Story Gallery for Lou Pearlman

• Les Henderson, Under Investigation: 'The Inside Story of the Florida Attorney General's Investigation of the Wilhelmina Scouting Network The Largest Model and Talent Scam in America', Coyote Ridge Publishing, 2006 (self published)