Tuesday, November 21, 2017
Business

Trustee files liquidation plan for Ponzi schemer Lou Pearlman's bankruptcy

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Four cents on the dollar.

That's the initial payout that many victims of convicted Ponzi schemer Lou Pearlman are likely to receive as the six-year bankruptcy saga of the onetime Orlando boy-band producer comes to a close.

Bankruptcy trustee Soneet Kapila made public Thursday what he hopes is a final creditor payment plan with the Orlando division of the U.S. Bankruptcy Court.

Since the bankruptcy process began in March 2007, Kapila has recovered about $35 million from asset sales, royalty payments and lawsuit settlements. Much of the recovered funds will go toward secured creditors, such as banks, and legal fees.

For unsecured creditors, who lost at least $260 million, the payout will be a small fraction of their loss. Court documents indicate such creditors could initially expect 4 cents per each dollar, or about a $4,000 reimbursement for a $100,000 loss. That figure could grow pending the outcome of litigation.

The committee representing unsecured creditors urged support of the plan. Rejecting it could cause delays, uncertainty and more expenses so investors would see "materially diminished or zero recovery" for their losses, the committee said.

The scheme was so widespread that Kapila is sending more than 5,000 notices to affected investors.

Pearlman, best known as the creator of the bands 'N Sync and the Backstreet Boys, is nearly five years into serving a 25-year sentence for devising a Ponzi scheme that bilked investors out of more than $300 million.

The music mogul built his financial empire through a web of insurance claims and phony accounting firms.

He assured investors their money was safe in FDIC-insured accounts and promised even bigger returns once his company went public. Neither tale was true. Instead, he printed phony statements to investors and used money from new victims to pay off earlier investors in classic Ponzi style.

Eighty-year-old retiree Waneta Reynolds of St. Pete Beach said Thursday that she and her late husband, Roger, lost nearly $4 million.

"We never took any money out. We left it all there, thinking the government was protecting it," she said.

As the Pearlman empire was collapsing in 2007, Reynolds finally tried to take money out to help pay for her ailing husband's medical bills, but was thwarted.

After six years, she had given up hope of getting anything back.

"This has been devastating," Reynolds said. Not just for her, she said, but for many seniors who were targeted and victimized.

"This has caused people early death," she said. "We were just very disappointed with the state of Florida — how they lavished Pearlman and everybody thought he was so great until the truth came out."

Kapila is seeking court approval in a July 17 hearing. Any objections to the planned payout have to be filed by July 10.

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