Make us your home page
Instagram

As Lou Pearlman ran, investigators built their case

While Lou Pearlman flew around the world in high style last year, the investigators charged with bringing him to justice never left Central Florida. They were stuck in Tampa and Orlando, digging through boxes of bank records, trying to decipher just how a music mogul managed to put together one of the biggest financial frauds Florida has seen — and keep it going for more than two decades.

The investigators hadn't even had a chance to start looking for the globe-trotting Pearlman when a tip from a curious tourist led to his capture in Bali, where he was hiding out under the alias "A. Incognito Johnson."

You can't call it glamorous, but when it was finished, the two-year investigation produced a mountain of evidence that convinced Pearlman, at the age of 53, that he was better off agreeing to 25 years in prison than facing the facts in a courtroom.

Three investigators and one prosecutor dismantled the $300-million fraud in the biggest case of their careers. More than a third of the about 2,100 victims were from the Tampa Bay area, where Pearlman raised about $80-million. "Everyone has visions of teams of investigators working on something like this, but it wasn't that way," FBI agent Scott Skinner said.

Danielle Brooks, then an investigator with the Florida Office of Financial Regulation, worked alone for the whole first year. Her supervisor, Mike Brown, assigned her the case after a Pinellas County investor asked how Pearlman's company could be selling FDIC-insured accounts. Pearlman had deflected previous state inquiries with ease, but his strategy didn't work on Brooks.

"Pearlman thought he had a young, naive little girl on this, but what he had was a pit bull," Skinner said. Pearlman himself returned one of her calls to the company.

"I answered the phone and he said to me, 'I don't know if you know who I am,' " said Brooks, who now works for the Indiana Gaming Commission. "He tried to come off as very concerned and not knowing anything about the investment program."

For more than three months, Brooks, 30, did nothing but analyze bank records, entering transactions into a spreadsheet to follow where the money went.

"If there's one thing I wish people knew, it's that it's not like TV where you can just rush out and get somebody," she said. "I knew it was going to be something massive, but you have to be able to walk into a courtroom and lay it all out and prove it."

When she got to that point in December 2006, the state took Pearlman's company to court and he knew the game was over. Investors began demanding their money back and he fled the country the next month.

That's about when Pearlman's former attorney, Cheney Mason, went to the FBI. "Cheney was fed up with all the lies and misrepresentations," FBI agent Skinner said. "It's unusual for a defense attorney to call you, so we thought maybe we ought to look into this."

One of the first things Skinner learned was that Pearlman had two sets of financial statements. The one he gave Mason showed he was too poor to pay the $19-million judgment Mason obtained against him for unpaid legal fees. The one he gave the banks when he applied for loans showed he was wealthy.

Pearlman's operating methods were sometimes crafty and sometimes simplistic, investigators found.

"What stumped me were the fictitious people," said IRS investigator Annette Waldon. "He created people. He resurrected the dead. He did whatever it took to cover this up."

Proving Pearlman's fictional accounting firm didn't exist was a major challenge. Pearlman had gone so far as to create a fake office for Cohen & Siegel in Germany to fool visiting bankers.

"Being the great showman that he is, he did a very elaborate staging," Skinner said. "He had people in there who were knowledgeable about accounting and could answer questions. There were plaques on the walls, flags out front, carpets, nameplates."

Investigators also had a challenge trying to track down Harry Milner, whose signature appeared on a reassuring letter sent investors in December 2006. He turned out to have been a real person, but a dead one since 2003.

The investigators' first priority was filing a single charge of bank fraud, which they had sealed for secrecy. The goal was to have grounds to arrest Pearlman if he came home. However, Skinner said they wanted to have a more extensive case ready before trying to find him overseas. Many countries require all charges to be presented as part of extradition hearings.

Things didn't go according to plan, but they went better than any of them could have hoped. A German tourist spotted Pearlman at a luxury resort in Bali and e-mailed the St. Petersburg Times his whereabouts. The Times passed the tip to investigators, who doubted its legitimacy.

Skinner thought the e-mail might have been a ruse by Pearlman. Skinner replied to the tourist, acting as though he wasn't interested, then asked the FBI's legal attache in Jakarta to check out the resort. The agents found Pearlman eating breakfast in the resort's coffee shop and got local police to pick him up. Within hours, he'd been expelled from the country as an undesirable and was on his way to Guam in U.S. custody.

"Neither Scott nor I are particularly lucky, so we thought it couldn't be true," said prosecutor Roger Handberg, chief assistant U.S. attorney in Orlando. "However, we thought it should be checked out. I was surprised that it actually worked out."

Handberg, 37, said most white-collar investigations drag on for years, but "things went so fast on this case."

Skinner said Pearlman's memory, his knowledge of accounting and his intelligence were key to keeping the scheme going.

"Lou has almost total recall on just about anything and he has great attention to detail," he said. "That he didn't use a computer, yet was able to keep all those balls in the air, shows he is a very bright guy."

When Pearlman was captured, he had with him little black notebooks filled with notations about his friends' birthdays and other details in tiny handwriting.

However, Waldon said Pearlman wasn't so careful about concealing bank transactions.

"I was pretty shocked at how blatant it was," she said. "The money transferred right into Trans Continental (his company) and right out into his personal accounts. He treated it no differently than he treated his own piggy bank."

Skinner, 47, and Waldon, 46, both accountants, teamed up to interview Pearlman's agents and employees, many of whom refused to talk. That investigation is continuing.

"I'm always the good cop and Scott's always the bad cop," Waldon said. "It works great. Sometimes you need sugar and sometimes you don't."

Because Pearlman agreed to plead guilty to four counts (involving fraud, money laundering and filing a false statement in bankruptcy court), the investigators didn't get a chance to lay out all the evidence they had against him.

"If there had been an indictment, there could have been 100 charges," Waldon said.

Investigators are looking for assets Pearlman might have stashed away or transferred to someone else, but the longer it takes, the more pessimistic they become.

"The most difficult part of this," Skinner said, "is telling an investor that their life savings are probably gone and they're not going to get it back."

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230. Read more about the Lou Pearlman case at blogs.tampabay.com/money.

FAST FACTS

Who is Lou Pearlman?

Pearlman, 54, managed an Orlando entertainment empire that included the Backstreet Boys, *NSYNC and other boy bands. He also ran a huge investment fraud. Pearlman fled the country in January 2007 as his empire and investment scheme collapsed. He was captured in Bali in June 2007 and brought back to Orlando, where he pleaded guilty in March to stealing $300-million from banks and investors. Judge G. Kendall Sharp sentenced him to 25 years in federal prison in June. A restitution hearing in the case is scheduled for Wednesday.

As Lou Pearlman ran, investigators built their case 07/12/08 [Last modified: Friday, July 18, 2008 11:29am]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Citigroup agrees to pay nearly $100 million fine for Mexican subsidiary

    Banking

    NEW YORK — Citigroup has agreed to pay nearly $100 million to federal authorities to settle claims that a lack of internal controls and negligence in the bank's Mexican subsidiary may have allowed customers to commit money laundering.

    Citigroup has agreed to pay nearly $100 million to federal authorities to settle claims that a lack of internal controls and negligence in the bank's Mexican subsidiary may have allowed customers to commit money laundering. 
[Associated Press file photo]

  2. Goodbye Tampa Bay Express, hello Tampa Bay Next; but toll lanes aren't going anywhere

    Transportation

    TAMPA — Tampa Bay Express is dead.

    But its replacement — Tampa Bay Next — will likely include many of the same projects, including express toll lanes on the rebuilt Howard Frankland Bridge.

    The Florida Department of Transportation on Monday announced that it was renaming its Tampa Bay Express plan, also known as TBX. The plan will now be known as Tampa Bay Next, or TBN. DOT officials say there are still re-evaluating the most controversial aspect of the old TBX plan: spend $6 billion to add 90 miles of toll roads to bay area highways - Interstates 4,75 and 275 - that are currently free of tolls. But TBN will keep the plan to add express toll lanes to the rebuilt Howard Frankland Bridge. [Florida Department of Transportation]
  3. Trigaux: Tampa Bay lands on Forbes 2017 ranking of best places for young professionals

    Working Life

    Consider this one more notch in the belt of Tampa Bay starting to win serious attention from millennials as a place to live and build a career.

    Mike Griffin is a senior managing director in Tampa for Savills Studley Occupier Services, which provides integrated real estate services. He is also chairman for 2017 of the Greater Tampa Chamber of Commerce, the first of the next generation of leadership emerging in this metro market. [Courtesy of Greater Tampa Chamber of Commerce]
  4. Leaders of Tampa Bay's top workplaces share insights, suggestions

    Business

    TAMPA — Nearly 300 people gathered at the Straz Center for the Performing Arts Tuesday morning to hear tips and insights from leaders of the highest-ranked workplaces in Tampa Bay.

    Bays Florida associates (From left) Robert Patterson, Amanda Boser, and Kellly Banchak talk during the reception before the start of the Tampa Bay Times Top Workplaces Live! program at the Straz Center for the Performing Arts in Tampa, Florida on Tuesday, May 16, 2017.
[OCTAVIO JONES   |   Times]
  5. Study: Florida most friendly state for retired veterans

    Working Life

    Florida is the nation's best state for military retirees looking for somewhere to settle. That's according to a study released Monday by WalletHub which rated Florida the most friendly when it comes to economic factors, quality of life and health care.

    Veterans watch the Tampa Bay Buccaneers during training camp in 2016. Florida is the most friendly state for retired veterans according to a new WalletHub study. | LOREN ELLIOTT, Times