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Lou Pearlman gets 25 years in scam, time off for loot

By Helen Huntley, Times Personal Finance Editor
In print: Thursday, May 22, 2008

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ORLANDO — A federal judge sent Lou Pearlman off to prison for 25 years Wednesday, then offered him what he called the "keys'' to his jail cell. For every $1-million Pearlman recovers for the investors he scammed, he'll get a month trimmed off his sentence.

Unfortunately for them, the former music mogul may not be able to scare up much cash. Pearlman has admitted stealing $300-million from investors and banks in a scheme that operated for more than two decades. But investigators trying to find where the money went have so far recovered only about $3.5-million, which may not even be enough to pay the lawyers and accountants sorting through the rubble of Pearlman's possessions.

"There's no pot of gold out there," said Fletcher Peacock, who was appointed to represent Pearlman based on Pearlman's claim that he is broke. Pearlman has been cooperating with investigators trying to recover assets, but so far nothing has come of it.

He also is offering his music industry expertise to help the bankruptcy trustee try to make a hit out of Pearlman's last boy band, US5, which has had some success in Europe but hasn't been promoted in the United States.

"I'm truly sorry and I apologize for what has happened," Pearlman told U.S. District Judge G. Kendall Sharp. He offered to do "whatever I can" to help recover money for investors. Pearlman, who appeared in navy blue jail garb shackled at his ankles, showed no emotion during the hearing and avoided looking at the audience packed with investors. More than 130 people jammed the courtroom with another 30 or so outside unable to get in.

The federal courthouse is just a few blocks from Church Street Station, where Pearlman's entertainment empire was headquartered. He launched the careers of *NSync, the Backstreet Boys and other boy bands, but alongside his legitimate businesses, he operated one of the largest and longest-running investment scams in Florida history.

In addition to selling stock, Pearlman and a network of sales agents marketed a high-yield savings account to retirees as a safe, FDIC-insured place for their life savings. He also borrowed millions from banks based on false financial statements and tax returns prepared by a phony accounting firm. The money was never invested, flowing out as soon as it came in, with a good chunk of it going to support Pearlman's lavish lifestyle.

Investors were devastated when Pearlman's empire collapsed in January 2007. He fled the country, and investors gradually discovered their money was gone. Prosecutors chose five investors to speak at Pearlman's sentencing, including Waneta Reynolds of St. Pete Beach and Marie Weber of Naples.

Reynolds, 75, broke down as she recounted how her 87-year-old husband, Roger, was crushed by the loss of their life savings of $3.4-million. "Roger was an astute businessman," she said. "He said 'I've lost all my self-confidence.' Roger died seven months later feeling that he failed to provide for me. … Now my husband's dead and I'm all alone."

Weber, 54, told how she and her husband are each working two jobs, trying to make up for their loss of $606,000. "We've been robbed of time together that we'll never get back," she said. "We're on antidepressants. We're trying to cope." Weber said they questioned their sales agent about the 9 percent interest they were getting and he assured them Pearlman was earning 12 to 13 percent investing the money in Germany.

"Give us some justice," she told the judge. "You're our only hope."

Sharp gave Pearlman the maximum sentence permitted under the plea agreement worked out with federal prosecutors. In addition to 25 years of prison followed by 12 years of supervised release, Sharp signed a $200-million judgment against Pearlman and also will order him to pay restitution. The judge set a hearing on restitution for July 15 after prosecutors said they haven't completed their accounting of how much victims have lost.

Sharp ordered Pearlman to report to the Bureau of Prisons on or before Aug. 15, remaining in Orange County Jail in the meantime.

Peacock asked for Pearlman to be assigned to a prison in Florida, preferably the federal prison complex at Coleman in Sumter County. Peacock argued for Pearlman to receive a lesser sentence, noting that Pearlman soon will turn 54, has significant health problems and has no prior criminal record. "A sentence of 25 years is potentially a life sentence," he said.

Peacock said Pearlman "always thought he could pay people back" and said that "truly in Lou Pearlman's mind he always meant to make good on his obligations and still wants to."

Peacock defended Pearlman's lavish lifestyle, saying "that's how people in the entertainment business live," and said Pearlman's five months abroad last year were misconstrued. He said Pearlman, who was captured in Indonesia and then expelled from that country, voluntarily went with federal agents to Guam, where he was arrested, when he could have gone to another country. That statement elicited some disbelieving gasps in the courtroom.

"The sympathy factor doesn't run very high with this court," Sharp said. Noting that Pearlman's crimes could have resulted in a longer sentence, the judge said he accepted a plea agreement limiting the sentence to 25 years because of Pearlman's age.

Sharp said he also had little sympathy for the banks that were duped.

"The banks were negligent; they didn't do their due diligence," he said.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.