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Lou Pearlman's Ponzi scheme was just one of his lies

First his boy bands faded from the spotlight and his business collapsed. Then he got sent off to federal prison. Now Orlando music man Lou Pearlman has been dethroned as the king of Ponzi schemes. Somehow that seems a fitting conclusion for a life story woven from a web of audacious lies.

In The Hit Charade, Tyler Gray distills the facts from the fiction of Pearlman's life story, previously told by Pearlman himself in exaggerated and self-aggrandizing fashion in Bands, Brands and Billions. The lemonade stand and the paper route Pearlman fondly recalled from his youth in Queens were creations of the same fertile imagination that later gave birth to a phony accounting firm. Oh, and Gray found no evidence that the New Kids on the Block ever chartered one of Pearlman's planes, which Pearlman often said was his inspiration for getting into the boy band business.

The sordid truth as Gray lays it out is that Pearlman built his empire through blimp crashes and insurance claims, sleazy stock transactions, forged documents and crafty contracts with *NSYNC and the Backstreet Boys. He propped it all up with stolen money. Pearlman pleaded guilty last year to stealing $300-million, although the grand tally is probably closer to $500-million. He fleeced supposedly sophisticated bankers and elderly widows with equal ease, printing phony statements and using money from his newer victims to pay off the earlier ones, the hallmark of a classic Ponzi. His efforts produced one of the largest and longest-running such schemes in U.S. history.

But Bernie Madoff topped Pearlman last month, confessing to having taken $50-billion from his hedge fund investors. And no doubt other big-time thieves are out there right now winning the trust of investors disillusioned by puny CD yields and plunging stock and bond prices. No matter how many Pearlmans and Madoffs are uncovered, the supply of schemers never runs dry.

"People will always be looking for an extra 1 or 2 percent return on their investments," Gray said. "Right now, the time is fairly ripe. There are a lot of desperate people who feel burned by banks and legitimate institutions."

But Gray says money was always secondary to Pearlman.

"He wanted to be appreciated, loved and adored for what he was doing, and nothing, not even the law, was going to get in the way of that," he said.

Gray says Pearlman was never the fast-talking salesman: He "didn't sweet-talk his investors and then ask for their credit card numbers in the next breath. He listened. He internalized people's dreams. He made them his own. Then he sold them back a share at a time."

The portly Pearlman inspired trust, reassuring some that their money was safe in FDIC-insured accounts and promising others that they were about to hit it big with his company's public stock offering. Neither, of course, was true. But most people bought Pearlman's lies, including regulators who for years were easily turned away by his reassuring responses to their occasional inquiries.

Gray spoke to some who saw through Pearlman's lies, including Edwin Brooks, a lawyer for the family of the late Joseph Chow, who lent Pearlman $14-million that was never repaid. In reviewing documents for a court case, Brooks found evidence of the Ponzi scheme. Rather than turning Pearlman over to authorities, Brooks used the information to try to get his clients' money back. Others discovered enough to back away from doing business with Pearlman, but not enough to blow the whistle.

Gray feels some regret for not having dug deeper as an Orlando Sentinel reporter during the boy band era. "Just hearing the music and realizing all these guys from Orlando were getting super rich from a guy you weren't sure how he got super rich should have been a red flag," he said. Gray is now a senior editor at Blender magazine in New York City.

St. Petersburg Times readers will find much of Gray's book covers familiar ground, including photos collected by Pearlman's childhood friend, Alan Gross. But Gray also provides many new details, including the inside scoop on Pearlman's 10-year relationship with his girlfriend, Tammie Hilton. They never had sex, she told Gray, because "he doesn't even believe in premarital sex." She stood by Pearlman, but eventually his lies forced her to face reality. One of the last straws: Pearlman, she said, told his fellow inmates that she would buy Christmas presents for their wives — and passed out her cell phone number.

Pearlman is in the U.S. penitentiary in Atlanta, serving a 25-year sentence. His latest venture is giving career advice to Biteboy, an Orlando rock band that aspires to be his next big hit.

Helen Huntley covered the Pearlman investment scam for the St. Petersburg Times. In his book, Gray credits Huntley for tracking down many leads in the case. "Fortunately, she never had any interest in writing a book," he wrote. Huntley retired in August and is now a financial adviser with Holifield Huntley Financial Advisers (www.holifieldhuntley.com) in St. Petersburg.

Lou Pearlman's Ponzi scheme was just one of his lies 01/03/09 [Last modified: Wednesday, January 7, 2009 4:45pm]
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