Money Crimes with Nicole Lapin - CELEBRITY: Lou Pearlman

Episode Date: January 2, 2025

When it comes to pop culture, few have had an impact like Lou Pearlman. For years, it seemed like the mastermind behind boy bands like the Backstreet Boys and *NSYNC could do no wrong. But behind the hit albums and worldwide tours, Lou spun a web of deceit that eventually destroyed his music empire. Money Crimes is a Crime House Original. For more content, follow us on Instagram and TikTok @crimehouse. To learn more about listener data and our privacy practices visit: https://www.audacyinc.com/privacy-policy Learn more about your ad choices. Visit https://podcastchoices.com/adchoices

This is Crime House. When it comes to pop culture crazes, there was nothing quite like the boy band era of the 1990s and early 2000s. The screaming fans, the sold out stadiums, and more frosted tips than we'd care to admit. None of these groups were bigger than the Backstreet Boys and NSYNC. They were everywhere, competing for record sales

and dominating the Billboard charts. But even though the Backstreet Boys and NSYNC may have seemed like rivals, they both came from the same place, the mind of Lou Pearlman. Operating from his base in Orlando, Florida, the music mogul known as Big Papa kickstarted the careers of some of the world's biggest pop acts. By all appearances, it seemed like Lou had everything, a successful career, an adoring

entourage, and more money than he knew what to do with. But after two decades of lying and scheming his way to the top, the world learned the truth. Lou Perlman was nothing more than a fraudster who'd scammed his way into hundreds of millions of dollars. And when the curtain fell, he found himself behind bars, with no one to blame but himself. As the saying goes, those who don't understand history are doomed to repeat it. That's especially true when it comes to money.

If you want to make the right decisions when it comes to managing your assets, you need to know what mistakes to avoid and how to spot a trap. This is Money Crimes, a Crime House original. I'm your host, Nicole Lapin. Every Thursday, I'll be telling you the story of a famous financial crime and giving you advice on how to avoid becoming a victim yourself. At Crime House, we want to express our gratitude to you, our community for making this possible. Please support us by rating, reviewing, and following Money Crimes wherever you get your

podcasts. Your feedback truly matters. And for ad-free and early access to money crimes plus exciting bonus content, subscribe to Crime House Plus on Apple podcasts. Today I'm going to tell you about one of the most jaw dropping financial scams in music history. In the 1990s, the name Lou Pearlman was synonymous with the world's biggest boy bands. But while Lou was busy managing groups like NSYNC and the Backstreet Boys, he was also

orchestrating a different kind of performance. One designed to cheat investors out of hundreds of millions of dollars. In 100 meters, turn right. Actually no, turn right. Actually no, turn left. There's some awesome new breakfast wraps at McDonald's. Really? Yeah. There's the sausage bacon and egg, a crispy seasoned chicken one, mmm, a spicy end egg, worth the detour.

They sound amazing. Bet they taste amazing too. Wish I had a mouth. Take your morning into a delicious new direction with McDonald's new breakfast wraps. Let's turn back the clock a few decades to the mid-1990s in Orlando, Florida. The world of pop music was exploding, and Orlando was at the center of it. wannabe superstars flocked to the city for auditions searching for their big break. But only a few of them got it. Because to make their dreams a reality, they had to impress one man, Lou Pearlman.

Born in Queens, New York in 1954, Lou was his parents' pride and joy. As an only child, they constantly doted on Lou. His dad worked tirelessly to support their family with his dry cleaning business, while Lou's mom put her dreams of being a teacher on hold to stay at home full-time. Along the way, there wasn't a ton of discipline in the Perlman household. Lou's childhood friends said he was spoiled and rarely punished. If it's any indication, while his parents slept in the living room, Lou was given the only bedroom in their small apartment.

And although Lou was definitely coddled, his parents also encouraged him to dream big. He took their advice to heart. By the time he was nine years old, Lou considered himself an entrepreneur, hustling his way through lemonade stands and newspaper delivery gigs. But when it came to Lou's childhood dreams, his head was in the clouds. Literally.

It all started in 1964, when 10-year-old Lou spotted a Goodyear blimp landing at Flushing Airport during the World's Fair. He was desperate to get a ride on it. But in order to do that, he needed to either be a pilot or a member of the press, so Lou convinced his school newspaper to let him cover the event. Armed with his press credentials, Lou secured a ride, sparking a lifelong fascination with the aviation industry. Throughout his time in school, Lou's obsession only grew stronger. As an accounting student at Queens College, he created a business plan for a commuter helicopter service. But Lou was still living at home and didn't have the money to get his

company off the ground. So he started hitting up banks, asking for loans, but none of them would take a risk on a 20 year old kid with zero business experience. Luckily for Lou, a finance exec was at one of these banks while Lou was pitching his business. The executive thought it was a great idea and became Lou's first angel investor. After running his commuter helicopter service

for a year or so, Lou launched another company in 1976 that would eventually be called Transcontinental Airlines. Instead of helicopters, Transcon used small planes to shuttle people between major airports in New York and New Jersey. It seemed to go so well that in 1979, 25-year-old Lou reportedly started buying bigger planes in order to start a discount travel company. In order to pay for them, Lou cashed in on his relationships with wealthy friends and

family. He told them that they weren't necessarily investing in the business, they were investing in the assets. According to him, it was a win-win. They got a return on their money as the business grew, and they could also deduct the cost of the planes from their taxable income. Except, Liu didn't actually buy any planes. Instead, he ran his flights through other fleets.

But Lou's investors didn't catch on, and it didn't seem like the IRS did either. Lou suddenly had a lot of cash to burn, and he decided he was going to use it to finally buy the one thing missing in his life. A blimp. A fully functioning blimp can cost millions of dollars, and even though Lou had some money at this point, he didn't have that kind of cash. So he decided to build one instead for as little money as possible.

Those who worked on the blimp never thought it would get off the ground. And maybe Lou didn't either because he took out a multimillion dollar insurance policy on it. Still, in October of 1980, 26 year old Lou launched his airship. It got to 30 feet, then rolled over and spiraled down into some pine trees near a New Jersey

landfill. It was a PR nightmare. But thanks to that insurance policy, Lou came out a winner. He was awarded a $2.5 million settlement in January of 1981. Lou put that money back into his business and he even managed to purchase a real blimp. By 1982, he was telling his friends and family that he had made $400 million from his helicopter, blimp, and airline transportation businesses. And he started living like it. Lou moved out of his parents' place and into a penthouse, then rented office space on Fifth Avenue. And he had another trick up his sleeve to make him even more money. Lou convinced his friends and family to buy shares of Transcon for $5,000 each, promising

20% interest on their investment. As a privately held company, regulating Transcon was extra challenging. So Lou could offer a sweetheart deal like this without facing too much scrutiny. And the folks he was approaching didn't have any reason to suspect he was pulling one over on them. Judging by Lou's lifestyle, the company had to be doing well. He found plenty of investors, and some even gave him their entire life savings. After all, they were never going to find anything near a 20% interest rate anywhere else. In reality, those investments only looked good on paper.

Although Liu was paying out the interest for the moment, the actual value wasn't growing. And by the time his investors found out they couldn't actually get their money back, it would be too late. It's hard to tell just how much money Lou made off his investments. But it does seem like he made an honest attempt to keep growing the business. His blimp business, Airship International, which was separate from Transcon, went public in 1985. And four years later in 1989,

he offered another killer deal to his early investors in Transcon. Because they were share owners, Lew said they were able to participate in the company's employee investment savings account. The name was suspiciously close to something called an Employee Retirement Investment Savings Account or ERISA. E-R-I-S-A's are tax advantaged accounts that let your employer invest pre-tax money for

you. Think 401K's or health savings plans. They're a great way to build a nest egg for retirement while also lowering your taxable income in the short term. But here's the thing. Lou's plan, the EISA plan, was totally bogus. First off, his investors weren't employees, so it wouldn't be legal for them to join it.

In fact, there wasn't even a plan for them to join it. In fact, there wasn't even a plan for them to join in the first place. The EISA plan didn't even exist. But Liu filed the paperwork with fake information to make everything look legit. And with how successful Transcon seemed, nobody was asking too many questions. Business was booming and everyone was happy, especially Lou Pearlman. At this point, Lou was renting out charter flights to wealthy clients. Think A-list celebrities like Paul McCartney and Michael Jackson. And according to Lou, one of those clients was a boy band called New Kids on the Block. He had never even heard of them, but they were able

to pay the quarter million monthly rental fee in cash. And when he learned the group had done a total of $200 million in concert sales and another $800 million in merchandise sales, Lou had his biggest idea yet. Now that he could pay for it, why not create his own boy band? By 1991, 37-year-old Lou Pearlman had made a name for himself in the aviation industry, and now he was looking to diversify through his other passion, music. Lou had always loved music, which might have been because of his famous cousin Art Garfunkel of Simon and Garfunkel. Unlike his cousin Art, Lou didn't have the talent, but he did have the vision.

And in his opinion, it was all about boy bands. So in 1991, Lou moved to Orlando, Florida. At the time, Orlando was becoming a hub for pop music, and Lou figured it was the perfect place to launch his new career in the entertainment industry. But while Lou was telling his friends and investors he was making hundreds of millions of dollars, the truth was much less glamorous. To really get his project off the ground, he needed another cash infusion.

So in 1992, he turned to a tried and true method. Crashing one of his blimps. Once again, he got a giant payout. This time, he used the money to turn Transcon into a music company. And the next step was finding talent. Lou placed an ad in the Orlando Sentinel newspaper looking for teenage male singers. There was no shortage of interest. When he held auditions a month later, about 40 guys showed up. Lou and his team sat through days of callbacks,

but no one had the it factor. Then they heard about a talented 14-year-old named Alexander James McLean. AJ was perfect and they wanted him in the group. But of course, a boy band means more than just one member. In late 1992, Lou held another round of auditions, this time at his enormous blimp warehouse in Kissimmee, Florida. Lou and the others were blown away by a precocious 13-year-old named Nick Carter.

In the past, Nick had been offered a role in the Mickey Mouse Club, but he'd turned it down to pursue his goal of becoming a pop star. Lou told him he could make his dreams a reality. By the following year, Lou had found another three boys to join the band, Howie DeRoe and cousins Brian Littrell and Kevin Richardson. Lou called them the Backstreet Boys. He rented them a four-bedroom house in the suburbs and converted the garage into a dance studio where they would rehearse six days a week.

After a year or so of practicing together, the group was a polished act. Lou hired managers who'd worked with successful groups like New Kids on the Block, and in 1994, they got the Backstreet Boys a record deal with Jive Records. But when their first single, We've Got It Goin' On, was released, it topped out at 69 on the Billboard charts before flopping. To keep the deal alive, Lew needed to come up with a solution fast. So he decided to conquer the pop-hungry European market, then ride the wave of international

success back to the United States. But Lew was never one to put all of his eggs in one basket. While the Backstreet Boys were in Europe, Lou was in Orlando putting together another band. The first three members came to him as an acapella trio, Chris Kirkpatrick, Joey Fatone, and Justin Timberlake. Justin was fresh off a run on the Mickey Mouse Club, and he suggested bringing on his fellow Mouseketeer J.C.

Chazee. They were rounded out with a church-singing boy from Mississippi named Lance Bass. By October of 1995, InSync was born. But while Liu was busy with his fledgling boy band empire, someone was taking a closer look at his EISA scheme. That same year, an agent who had been hired to market Liu's EISA plan to investors, wrote a letter to the FDIC, which is an independent agency that supervises financial institutions and insurers banks. It also investigates complaints,

like the one filed by this agent. In his letter, the agent said he was instructed to sell the plan to investors who weren't employees of Transcontinental. The agent also couldn't figure out exactly how his plan worked or how its funds were invested. Neither could the FDIC. So they asked Lou about it, and he insisted it was a 401k program that was only available to employees, which clearly wasn't the case. But for whatever reason, the FDIC seemed to buy it, which left Liu free to keep selling his shady investment schemes to unsuspecting targets.

Around the same time, in 1995, Liu convinced three big-time investors to take a chance on Transcon. Two of them did, no questions asked. They transferred several million dollars to the company in exchange for hundreds of shares. But the other investor asked to see the numbers. Liu didn't waver. He handed over statements showing $74 million in assets and a total operating revenue of $76 million. Liu insisted the numbers had been properly audited, and that was apparently good enough.

But Liu wasn't just targeting Big Fish for his cash infusions. He also recruited local salespeople to convince local retirees and their families to invest in the company's fake EISA plan. They had no idea the plan was fake and the money was going straight into Lou's pockets. By 1997, he seemed untouchable. That year, the Backstreet Boys returned to the U.S. after successfully building up a European fan base. Their self-titled album made it all the way to number four on the American Billboard charts

and sold 28 million copies worldwide. Come December of 1997, the group set off on a 60-city, 20-country tour. Lou celebrated their success in style. He bought lavish gifts for the boys and chartered planes to shuttle them from show to show. Lou paid for their hotels and gave them a daily allowance. Whenever they went out to dinner, Lou would bring along dozens of guests and always picked up the tab. In Orlando, he strutted through life like a celebrity, renting out entire nightclubs for his entourage and whisking them away on luxury vacations to the Bahamas.

He wore a $250,000 Rolex on his wrist and drove a cornflower blue Rolls Royce. Both of his boy bands were worldwide sensations, and the whole time Transcon kept growing. One accountant tallied at least 84 corporations and limited partnerships under the Transcon umbrella, including fashion brands, modeling companies, and steak houses. The City Commissioner of Orlando even gave Lou the key to the city. In 1998, 44-year-old Lou moved his entertainment ventures to a $6 million complex. to a $6 million complex. He went all out, hiring vocal coaches, choreographers, musicians, tutors, and technicians to work with talent.

Lou was at the center of the pop world and everyone wanted in. Banks and investors loaned him millions to expand his music empire. But just like Lou and his blimps, what goes up eventually comes down. And the boy bands he had worked so hard to create were about to tell the world the truth about Lou Pearlman. By the end of 1998,

NSYNC had been performing for three years, living off an allowance of just $35 a day. When Lou announced the boys were getting their first real payout, InSync was ecstatic. In December of 1998, Lou invited the boys and their families to one of his indulgent dinner outings to present the checks. After three full years of round-the-clock rehearsing, recording, and performing in sold-out arenas, Lou had handed each member a check for $10,000. Needless to say, the guys were underwhelmed.

With their record-breaking tour and huge CD sales, NSYNC had generated over $500 million in revenue. Even factoring in operating costs, the guys were expecting checks for hundreds of thousands of dollars or more. Factoring in the hours they'd worked, the $10,000 Liu had given them broke down to less than minimum wage. The Backstreet Boys had a similar experience, and by 1998 they'd had enough and sued Liu. They claimed they'd only been paid about $300,000 total since 1993.

Meanwhile, Liu had made $10 million off the group. In a court filing, the Backstreet Boys said they were treated like indentured servants, touring and practicing constantly while only being given a meager allowance. And all the lavish meals, limos, hotel rooms, and parties that Lou claimed to be paying for? Well, they were actually funded by the group's own record sales. As if that weren't enough, Lou made himself the honorary sixth member of the Backstreet Boys without anyone's knowledge. Which is important because it seems Lou was paying himself as if he were a member of the

band. By writing this into the contract, Lou could claim he was entitled to one sixth of the group's profits. This included money they made from concerts, CD sales, and royalties. Whether they didn't read the fine print or Lou snuck this clause into the contract later on, the Backstreet Boys were shocked by his claims. Especially because he was still raking in way more than just a sixth of the profits.

Ultimately, the case settled out of court. Lou received a final 30 million dollar payment but was officially kicked out of the band. The Backstreet Boys would go on to sell over a hundred million records, becoming one of the best-selling boy bands of all time. N'Sync was right there with them. After what happened with the Backstreet Boys, N'Sync tried to renegotiate their contract with Lou. But when negotiations hit the wall in September of 1999, Lou sued the band for $150 million for breaching their contract. Insync filed a countersuit for $25 million, claiming Lou was committing fraud and not

acting in their best interest. Lou's attorneys did their best to convince the judge that Lou was in sync and the other members could be replaced. The judge wasn't buying it. He said, quote, So you're telling me that Mr. Perlman is in sync and these five guys over here my daughter has a poster of on her wall are not NSYNC? In December of 1999, the group settled just like the Backstreet Boys and the details were never publicly disclosed.

After the settlement, NSYNC came out with a new album, Without Lou. It was pointedly titled No Strings Attached and sold 1.2 million copies the day it was released. Fittingly, one of its most popular and enduring tracks was called Bye Bye Bye. With two of the biggest boy bands in the world walking away from him, Lou was in damage control mode. And while he was safe for the moment, it wouldn't be long until his whole charade was revealed. After N'Sync and the Backstreet Boys cut ties with Lou Pearlman, he brushed himself

off and looked for new talent to take to the top. By the year 2000, Lou still had a couple of bands on his roster. They included a girl group, Innocence, featuring young Britney Spears, and another boy band called LFO. While neither group was as popular as Lou's previous ones, they kept him relevant. And he continued to believe his empire would never crumble, especially because he was still living like royalty. By this time, Lou had a mansion in Orlando, two penthouses in Las Vegas, an apartment in New York, and a condo in Atlantic City. He flaunted expensive cars, boats, and even had a Salvador

Dolly print hanging above his bed. And yet in 2001, Lou reported to the IRS that he was worth negative three million. Because the truth was, Lou had stopped making any money once the Backstreet Boys and Instinct left him. His Transcon investment scams were still bringing in a little bit, but without his boy bands to exploit, Lou couldn't maintain his lifestyle. He was taking out loans left and right, forging bank documents to prove he had the money to pay the interest. But Lou's carefully curated act was hanging

on by a thread. And in 2002, at 48 years old, he tried to come back from the brink. That year, Lou bought the Options Talent Group, which claimed to be the country's largest model scouting network. But calling it an actual agency would be generous. You've heard this story before. A young person is approached at the mall by a talent scout and asked, have you ever considered modeling? Promising fame and fortune, the scout convinces the wannabe model

to buy an expensive photo package and all other kinds of services to get their name out there. In the case of Options Talent Group, this so-called investment in their future could cost anywhere between one and $2,000. But aside from a few nice pictures, it almost never paid off. Sometimes chance encounters like these can be legit, but the options talent group definitely wasn't.

The first red flag was promising work. Jobs are never guaranteed, not even for the world's most well-known models. And those pricey photo packages? Well, real modeling agencies do not require talent to pay for professional photos. Any legit agency gets paid through commission. If you book a job, they take a

portion of the profits. Of course, it can be hard to say no when someone is complimenting your looks. But if you're getting asked to put in money upfront, you should be very careful. But even with options talent added to Lou's portfolio, it was too little too late. Because the FDIC was already onto him. In October of 2001, one of Lou's investors went to them with concerns about Transcon's employee investment savings account program. He said that Lou and his sales team made EISA seem legitimate,

sometimes bundling it with other investments to add to the air of authenticity. He assured investors that the accounts were backed by FDIC protections and prestigious insurers like AIG and Lloyds of London. But in reality, the EISA had no protections or backing. The documents were forged and the accounts didn't even exist. Instead, the money went straight to Lew.

Still, once again, Lew did just enough to get the FDIC to back off. And in 2003, he collected $13.8 million in phony EISA payments. But even that wasn't enough to pay off his insurmountable debts. Between the luxury properties and fancy cars, Lew owed over $100 million in loans. That year, Florida's Office of Financial Regulation took a closer look into TransCon and the EISA. In 2004, Lou's legal team wrote to the agency claiming the savings account hadn't been offered to the public claiming the savings account hadn't been offered to

the public since at least 2002. But the Florida office wasn't convinced. They kept looking into Transcon, and before long, other organizations started to get suspicious too. In 2004, U.S. Bancorp sued Lou and Transcon for over $2 million in unpaid loans. Liu used the EISA money to pay them back. But by 2006, more banks started coming for their money. Meanwhile, the Florida Office of Financial Regulation was still building its case against

him. Liu knew his days were numbered, but instead of facing the consequences, he appointed his longtime friend and business partner, Frankie Vasquez Jr., to oversee Transcon. For months, Frankie managed to keep things running. But by November 2006, he'd had enough. He wrote to Lew asking to discuss some concerns he had about Transcon. He also wanted to withdraw some money he'd invested with the company. But Lou told him that wasn't possible because the money was all gone.

It was too much for Frankie to bear. A week later, he died by suicide. After Frankie's death, all eyes were on Lou and Transcon. Elderly investors desperate for answers began showing up at Transcon's headquarters, which was still a private entity, demanding to know where their money had gone. Meanwhile, banks were calling in droves, chasing down overdue payments. By 2007, the lawsuits were piling up, and Liu had stopped making payments to banks altogether. One by one, his properties fell into foreclosure.

In a last-ditch effort to save himself, Liu allowed an accountant, Paul Glover, to comb through his financial records. Glover, who had no personal ties to Transcon, diligently searched for assets that could bail Lou out and rescue the company. But instead of finding a saving grace, Glover discovered a horrible secret. Hundreds of fraudulent EISA statements and certified letters from investors demanding their funds back.

On January 5, 2007, Glover gathered as many incriminating documents as he could carry. Then he reported his findings to Florida's Fraud Hotline. As the authorities prepared their case against him, Lew made one final deal. Surrounded by armed guards on the terrace of his Orlando estate, he sold off the only real asset he had left. Transcon Headquarters he had left. Transcon Headquarters An Orlando developer named Cameron Kuhn bought the compound, complete with its restaurants and nightclubs, for $34 million. But that wasn't enough to save him.

On February 1, 2007, the Florida Office of Financial Regulation officially filed a civil suit against Lou Pearlman, laying out 15 years of fraud for the world to see. A judge ordered raids on Lou's office and home. Soon, FBI agents descended on TransCon's headquarters, loading documents into a moving truck. Unfortunately, a lot of the proof had already been shredded by employees scrambling to cover their own tracks.

The remaining funds in TransCon had quietly found their way into Lou's personal accounts and those of his closest cronies. And worst of all, Lou was nowhere to be found. Before the FBI could arrest him, Lou fled the country sometime in early February of 2007. Eventually, Lou made his way to Bali, Indonesia. In June of 2007, a German tourist recognized Lou while he was tanning on the beach. German tourist recognized Lou while he was tanning on the beach.

The tourist sent an email to Helen Huntley, a St. Petersburg Times reporter who had been covering Perlman's case. Huntley alerted the FBI who discovered Lou registered at the Westin under the name Incognito Johnson, an alias as bold as the man himself. His days on the run were over. On June 14th, 2007, 53-year-old Lou Pearlman

was indicted on bank and wire fraud charges. The boy band Mastermind was arrested and flown back to the United States to finally face the music. Considered a flight risk for obvious reasons, Lou was denied bail. In 2008, Lou pleaded guilty to multiple charges including conspiracy, money laundering, and making false statements. According to the plea agreement, Lou admitted to stealing $300 million from banks and individuals,

though investors say the total was actually closer to $500 million. Over 20 years, it's estimated that Liu conned roughly 1,800 people and institutions. In the end, Liu was sentenced to 25 years in prison. In 2016, he died while in jail. He was 62 years old. According to prosecutors, he'd defrauded his investors out of over $400 million throughout his life. Liu spent his life dreaming big and flying high, But in the end, he got too close to the sun, and he rightfully got burned.

See, Lou Perlman didn't just con people out of their money. He conned them out of their dreams. He didn't need to sweet talk investors with fancy sales pitches. He seduced them with visions for an ideal future Whether it was young musicians dreaming of stardom or retirees hoping to stretch their savings Lou waved the promise of a brighter future right in front of them They had no idea the dream. He was selling was nothing more than a mirage. Thank you so much for listening.

I'm your host Nicole Lapin. Come back next time as I take you through another wild story and offer you some advice along the way. Money Crimes is a Crime House original. Join me every Thursday for a new episode. Here at Crime House, we want to thank each and every one of you for your continued support. If you like what you heard today, reach out on social media at Crime House on TikTok and on Instagram. And don't forget to rate, review and follow Money Crimes wherever you get your favorite podcasts. Your feedback truly makes a difference.

And for ad-free and early access to Money Crimes plus exciting bonus content, subscribe to CrimeHouse Plus on Apple Podcasts. Money Crimes is hosted by me, Nicole Lapin, and is a CrimeHouse original powered by Pave Studios. It is executive produced by Max Cutler. This episode of Money Crimes was produced and directed by Ron Shapiro, written by Caitlin Davis, edited by Natalie Persovsky, fact-checked by Claire Cronin, sound designed by Russell Nash,

and included production assistance from Sarah Carroll. Of the many sources we used when researching this episode, the one we found the most credible and helpful was the hit Charade by Tyler Gray.