Boy band creator pleads guilty in $300 million fraud

ORLANDO, Florida Thu Mar 6, 2008 5:58pm EST

ORLANDO, Florida (Reuters) - A former boy band mogul pleaded guilty on Thursday to an audacious fraud that used fake accountants, fake bank accounts and a dead man's signature to swindle banks and investors out of more than $300 million.

Lou Pearlman, known for launching the Backstreet Boys and 'N Sync, took a plea deal in a U.S. court in Orlando on two counts of conspiracy involving bank and investor fraud, one of money laundering and one of making false claims in a bankruptcy.

"I'm accepting full responsibility," Pearlman, 53, told U.S. District Judge G. Kendall Sharp.

The pudgy, white-haired Pearlman, wearing blue jail scrubs and shackles, acknowledged the details of the fraud laid out in his plea deal during almost an hour of questioning by Sharp.

The judge set a sentencing date of May 21. The charges carry a maximum prison term of 25 years and a $1 million fine, but the deal offers Pearlman the possibility of a reduced sentence in exchange for full cooperation in recovering money to repay investors.

Among the spectators in the courtroom was bankruptcy trustee Soneet Kapila, who called Pearlman's scheme "very sophisticated."

Kapila said he was trying to find assets of Pearlman and his companies to distribute to the fraud victims but so far had accumulated only $2.5 million. Pearlman's house in the exclusive enclave of Windermere, near Orlando, was set to be auctioned on Saturday.

Kapila said he has filed lawsuits against HSBC Bank and a Pearlman associate seeking approximately $5 million from each, and expects to file up to a dozen additional lawsuits within the next month to recover assets valued at up to $8 million.

"There is a substantial amount of unaccounted money. We have some trails but we are not there yet," he said. "At some point, there has to be an answer to some unexplained money."

"THEY WEREN'T"

For 20 years, Pearlman succeeded in his scams by fabricating an accounting firm and an accountant to impress bankers with their strong, but fake, financial statements, according to the plea deal.

"What were those companies?" the judge asked Pearlman.

"They weren't," Pearlman replied.

Pearlman also admitted signing documents with the name of a dead man and creating a fake seal for a fake German bank to shore up his companies' image.

Prosecutors counted at least 250 individual victims who lost $200 million, plus 10 financial institutions that lost $100 million, according to the deal.

After the hearing, fraud victim David Mueller of Brandon, Florida, who lost at least $30,000, said the investments looked good "for normal people like ourselves."

"But I'm surprised at how easily he could buffalo all these banks," Mueller said.

Among the banks identified as lending money or providing a line of credit to Pearlman or his companies are:

-- Integra Bank N.A.

-- Bank of America

-- American Bank of St. Paul

-- First International Bank & Trust

-- MB Financial Bank N.A.

-- Northside Community Bank

-- Mercantile

-- Washington Mutual

-- First National Bank & Trust

-- HSBC Bank.

Reuters/Nielsen