Pop music mogul Lou "Big Poppa" Pearlman stood before a judge in Orlando, Florida yesterday and admitted that he had indeed defrauded thousands of people – and 10 or so banks - out of hundreds of millions of dollars over about 20 years.
"Yes sir," was Pearlman's response of choice as Judge G. Kendall Sharp ran through the admissions in a 47 page plea deal that prosecution and defence lawyers had drawn up.
That agreement will save the time and expense of a lengthy trial and it could shave a few years off Pearlman's prison time. The man who introduced Back Street Boys and *NSYNC to the world, will spend the next 25 years in a cell unless he can lead investigators to much of the $300m (£150m) he bilked from banks and investors.
The judge set a sentencing date of May 21, which does not give prosecutors long to follow any leads. However there is a provision in the plea deal that allows for Pearlman's prison time to be reduced if he has provided "substantial assistance" in the 12 months after sentencing.
"We're going to follow the leads, and we, of course, hope there is $100m somewhere so we can get it and get it back to the victims, but I can't comment on what I expect is going to happen," prosecutor Roger Handberg said after the hearing. "It's doubtful we'll find 100% of the assets, but it's not going to be for lack of effort on our part. We're going to do what we can to find the assets."
"I'm accepting full responsibility," Pearlman told the judge and then spent time implicating other unnamed accomplices.
It looks though as if Pearlman will be naming those accomplices, who materially benefited from his schemes, in the weeks to come. In answer to questions from Judge Sharp he made references to others without naming names.
As part of his highly sophisticated scam, Pearlman created his own accounting firm, independent auditors and even a German bank to fool investors. When Judge Sharp asked if the Cohen & Siegel accounting firm was merely a figment of his imagination, Pearlman replied: "myself and some other people."
Pearlman was hardly alone in the execution of the Ponzi scheme, said the plea agreement. "To the contrary other conspirators performed key roles in making that scheme succeed as long as it did. Pearlman's conspirators among other things prepared false documents to be provided to prospective investors"
Pearlman needed those fictitious businesses and faked documents to legitimise Transcontinental Airlines Travel Services, which he told banks and individual investors, was a thriving business to attract buyers of its stock and that it had a foolproof pension plan that could take in outside investors.
In fact neither assertion was true. Transcontinental had few assets and was not a going concern and the pension plan was a pure scam and a classic Ponzi scheme, where early investors received "dividends" paid for by cash from newer victims.
Even after Transcontinental had its incorporation voided by the state of Delaware, prosecutors say Pearlman accepted $118m in investments into its employee savings account between January 2003 and December 2006. He returned roughly $43m to investors, but distributed more than $38m to himself and an entity called Pearlman Enterprises.
That Pearlman was able to fool people for such a length of time is indeed baffling. Investigators began looking at his operations in earnest early last year after investors complained and banks filed lawsuits over outstanding loans.
He disappeared from filming a TV show in Germany, where he was launching yet another boy band, but was spotted weeks later by a tourist in Bali in June. He was arrested and brought back to the US and has since been in a prison cell near Orlando.
He initially proclaimed his innocence but for reasons yet unknown decided against fighting the charges.
