Boy Band Mogul Lou Pearlman’s Ponzi Scheme

Most of you are sure to have never heard of Louis Jay “Lou” Perlman, but he created successful 1990s boy bands he Backstreet Boys and NSYNC familiar to many. He became known for a criminal scheme worth 300 million dollars — one of the largest and longest-running Ponzi schemes in American history.

In 1981, a former mogul Lou Pearlman founded the company Trans Continental Airlines Travel Services, Trans Continental Airlines Inc and a dozen other organizations that existed only on paper. That, however, did not prevent him from selling shares of these companies for over 20 years!

For more than two decades, Pearlman had enticed individuals and banks to invest in Trans Continental Airlines Travel Services Inc. and Trans Continental Airlines Inc., both of which existed only on paper. Pearlman used falsified Federal Deposit Insurance Corporation, AIG and Lloyd’s of London documents to win investors’ confidence in his “Employee Investment Savings Account” (EISA) program, and he used fake financial statements created by the fictitious accounting firm Cohen and Siegel to secure bank loans.

In February 2007, Florida regulators announced that Pearlman’s Trans Continental Savings Program was indeed a massive fraud and the state took possession of the company. Most of the at least $95 million which was collected from investors was gone.

On May 21, 2008, Pearlman was sentenced to 25 years in federal prison and a fine of $ 1 million, after pleading guilty to charges of conspiracy, money laundering, and making false statements during a bankruptcy proceeding. And this was after he made a deal with the court, where he admitted fraud against about 250 victims who have lost more than a million dollars, and 10 financial institutions that have lost about 100 million. Pearlman is serving his sentence with a projected release of March 24, 2029.

Ponzi Scheme is an investment scheme that provides incomes of earlier investors on account of the funds received from later investors. At first, it may seem perfectly legitimate, but Ponzi scheme is usually destroyed as soon as the flow of funds from new investors is no longer sufficient to make payments to the old ones. The scheme is named after Charles Ponzi, who is notorious for using this affair in early 1920. Ponzi is not the author of the idea, but he was the first con artist in the United States who managed to get a huge amount of investment.