Talent Rock is back in business

Talent Rock, the primary asset of Lou Pearlman's Fashion Rock company, it back in business in Orlando. Here's my St. Petersburg Times story with many of the details. The photo at left is what the main phone room looked like when I visited Trans Continental offices in Church Street Station last week just before the sale. There now are about 20 employees working there, although the new Talent Rock Holdings is looking for other quarters in Orlando. One interesting aspect--the investors who bought the company had spoken with Pearlman last year about possibly being involved in an expansion of the business. Now they have the company without having Pearlman as a business partner. The investors did not assume Fashion Rock's debts other than to agree to honor deposits people had made for upcoming Talent Rock events.

Photo credit: St. Petersburg Times

Bankruptcy Court names Trustee for Pearlman and Trans Continental

U.S. Trustee Felicia Turner today appointed Soneet Kapila, a Fort Lauderdale CPA, as trustee for the Lou Pearlman and Trans Continental Airlines involuntary bankruptcies. Kapila has extensive experience in fraud investigations and bankruptcy cases, including serving as trustee for the Prime Capital Corp. and as forensic accountant for Financial Federated, both large Ponzi schemes.

Jerry McHale, the state court-appointed receiver says "we'll be working with him to determine the most cost effective way to practically and legally handle things going forward." Many of the companies that McHale is receiver for are not part of the bankruptcy filing, although that could change.

Court filing-Pearlman case

Court filing-Trans Continental case

Kapila & Co Web site

News item from St. Petersburg Times

An additional complaint has been filed in bankruptcy court by Robert Jordan and David and Beverly Mathis against Lou Pearlman, Celmar and Jerome Rosen and related entities. They own stock and notes in Trans Continental Records and previously filed an involuntary bankrutpcy petition against that company. At issue is the purchase and transfer of ownership in two Las Vegas condos in "The Signature at MGM Grand." Among other things, the plaintiffs say that a member of one of Pearlman's boy bands falsely notarized his signature when Pearlman was out of the country. The complaint asks for an injunction to prevent the properties from being transferred or sold until the court decides what to do with them. 

Trans Continental receivership costs starting to come in

Jerry McHale, the receiver for more than a dozen companies related to Lou Pearlman and his Trans Continental operations, has submitted his first request for payment (for services through Feb. 28) to the court that appointed him. Here's the rundown:

Jerry McHale $62,957 fees (includes staff compensation) and $3,791 costs

Johnson, Pope, Bokor, Ruppel & Burns (law firm) $85,503 fees and $2,828 costs

Rivero, Gordimer & Co.(accounting firm) $17,825.

This is just the beginning, of course. Expect some substantial accounting bills in the future in the attempt to reconstruct financial records, which were shredded by the boxful in Trans Continental's last days. If there are lawsuits against various people who received investor funds and international recovery efforts, the bills will be substantial. People who are good at doing this type of work don't do it for free.

At this point, paying professionals depends on recovering and liquidating assets, although possibly the state or some of the large creditors could step in to fund some of the asset search.

The phones at Trans Continental's Orlando headquarters have been disconnected for non-payment of bills. The Web site is still up and running.

 

Legal update

Friday update:

Here is the Lowy New York lawsuit.

Chase Bank is suing Lou Pearlman for $18,639 for his unpaid MasterCard bill. Last payment was made Nov. 28.

----

American Bank of St. Paul obtained a default against Lou Pearlman, TOTP, Trans Continental Records and Trans Continental Airlines in its case in the U.S. District Court in Minnesota. First National Bank and Trust Co. of Williston is asking for a default judgment against Rocks Fine Jewelry as part of its case against Pearlman, Trans continental and various related entities.

Here's an Update on Church Street Station from the Orlando Sentinel. (Auction set for April 5.)

How to contact the FBI

Some readers who have information to share about the Trans Continental case have asked how to contact the FBI. I imagine that if you know where Lou Pearlman or his money is, they'd be interested in hearing from you. Although I am not in contact with the FBI myself (they don't talk to reporters about their investigations), I'm pretty good at looking up information on the Internet. So here are the details:

The FBI office serving Orlando:

Federal Bureau of Investigation
850 Trafalgar, Suite 400,
Maitland, FL 32751
Phone: (407) 875-9976
Assistant Special Agent in Charge Christopher W. Davis

Tampa is the headquarters for the region that includes Orlando.
Tampa Division Contact Information
5525 W. Gray Street
Tampa, FL 33609
Telephone (813) 253-1000
Facsimile (813) 253-1456
Email: tampa.division@ic.fbi.gov

Special Agent in Charge: Carl Whitehead

You also can use this form to submit a crime tip or lead:
https://tips.fbi.gov/

Clearwater connections to Lou Pearlman and Trans Continental

A condo development on Clearwater Beach has connections to Lou Pearlman and Trans Continental. As things were falling apart last October, Pearlman paid $1,425,000 for a condo at Belle Harbor. Unfortunately, for those who are hoping to attach his assets, he took out a mortgage from SunTrust Mortgage for $1,140,000. The seller: Pearlman associate Michael Crudele, who had purchased it in December 2005 for $1,325,000. An interesting side note: Two of Trans Continental's sales agents, Robert and Charlotte Oliver of Golden Security, live in the same development.

The three-bedroom, three-bath condo is in a gated development with a view of the Intracoastal Waterway from the balcony. It includes a boat slip. The condo (unit 609) is listed for sale for $1,475,000. It does not appear that Pearlman ever lived there. Here are photos and more details on the real estate listing. If you're thinking of buying, be aware that the 2006 taxes were $18,684. The monthly maintenance fee is $688, according to the listing. 

Shedding some light on brokered deposits

Do you buy your CDs from a bank or a broker? Both options have their advantages and I've personally used them both. However, dealings with a broker require an extra level of care. If you buy directly from a bank, you know you're getting an FDIC-insured investment. If you buy through a broker, you're placing faith in the broker to carry out your instructions and place your money in an FDIC-insured deposit. That's why I recommend using only brokers who are licensed as securities dealers and thus covered under SIPC insurance, which pays off (within limits) if the brokerage fails and your investments are missing. The FDIC does not regulate deposit brokers.

Brokered deposits pay above-average rates, but not necessarily the best interest rates. You may be able to find a higher yield on your own by comparison shopping through sites such as Bankrate. What I like about brokered CDs is the convenience of having all your investments on a single brokerage statement.

The dark side of brokered deposits is fraud and sleazy bait-and-switch sales tactics. You'll see ads in the newspaper from deposit brokers who offer above-market yields. Among the clues that something is fishy: You must go to the company in person and there's a limit on how much you can place in the advertised accounts. They use these ads to lure customers who then get a sales pitch for another investment, be it annuities or unregistered securities. My advice: Stay away from any company doing this type of advertising.

Here's an article on brokered deposits from Investment News, looking at these deposits from the point of view of brokers and banks.

Lessons Learned from Trans Continental Debacle

In today's column, I wrote about lessons learned from Lou Pearlman's investment scheme that could benefit all investors. Here are the lessons I highlighted:

- Know where the information you're relying on came from. Lack of good information is a big reason why investing in private companies is inherently risky.

- Because of that risk, never invest more than you can afford to lose in any single company. Spreading your money among many different investments is a good idea for public company stock too, even though fraud is not as likely.

- The surest way to get an insured deposit is to deal directly with a bank, savings institution or credit union.

- If you want a brokered deposit, deal only with a licensed brokerage firm. The money should show up on your statement as a deposit in a specific bank.

- Promises of high yields and no or low risk really are too good to be true.

- Investments should be purchased from banks, brokerages and mutual fund companies and not from insurance agents, tax preparers and unlicensed promoters who call themselves financial advisers.

What lessons would you add to this list?

Private investigator interviewing Churchill clients

A Churchill Financial client tells me that a private investigator came to his door recently claiming to represent one of the agents who sold the EISA investment. The investigator was asking questions about the transaction and the investor's view of the agent.

If you are considering making a legal claim against an agent, it probably would be a good idea to consult an attorney before answering any questions posed to you by someone representing that agent.

Another Lowy lawsuit

Tampa lawyer Jim Lowy (International Law Group) is preparing to file a lawsuit today in the U.S. District Court for the Southern District of New York on behalf of New York investors. The individuals named as defendants are Pearlman, Robert Fischetti, Michael Crudele, Kristin Finger, Salma Bacchus, Theodore Wullenkemper, Gregory McDonald, Mark Tolner, Richard Carl Jans, Reca Rena Chamberlain, Andreas Pohl, Charles Crist, Bill McCollum, Gerard McHale, Don Saxon and Danielle Brooks. The lawsuit contains many of the same allegations as the one Lowy filed in Florida. However, it also asks the New York court to appoint a special prosecutor to investigate the case and to prevent Florida's attorney general and Office of Financial Regulation from participating. Another addition: McHale and Brooks are accused of interfering with and disparaging Lowy's efforts to obtain evidence, documents and information. New York City lawyer Robert Hantman (Hantman & Associates) is handling the trial.

Here's a New York Post story about the lawsuit.

In other news:

More than a dozen North Dakota banks may have lost money in the Lou Pearlman/Trans Continental Airlines Ponzi scheme according to this Associated Press story.

Appointment of bankruptcy trustee

The U.S. Bankruptcy Court today agreed to appoint a trustee for Lou Pearlman and Trans Continental Airlines as part of the involuntary Chapter 11 bankruptcy proceedings. Negotations are in progress to determine who the trustee will be. Jerry McHale, currently the state-appointed receiver for Trans Continental, could be appointed trustee or could end up relinquishing his role with regard to that company. (He'd still have a dozen other Trans Continental companies under his wing.) Stay tuned.

Court filing from today's hearing

Court filing 2 from today's hearing

Court filing 3 from today's hearing

Orlando Sentinel update

Orlando Sentinel story

New York magazine story

Tuesday's St. Petersburg Times story, in case you missed it.

In case you thought Bank of America would take responsibility for Trans Continental's misdeeds...

Southwest Florida investor Michael Connelly has a particularly painful story, having invested $1-million in the Trans Continental savings program Dec. 20 as the company and the state were negotiating to stop sales. Once deposited, the money was transferred from "Trans Continental Inc." to a "Trans Continental Enterprises" account and quickly dissipated. Last month Connelly's attorney sent Bank of America a letter demanding $1-million to cover the loss.

The reply, from Bank of America attorney Jeffery Deery, said the bank "has determined that it has no liability to your client for any loss that your client may have suffered. The legal grounds for the bank denying liability to your client are numerous and include, without limitation, the protection afforded banks under Chapter 674 Florida Statutes, the applicable provisions of the Uniform Commercial Code, lack of contractual privity with Mr. Connelly, estoppel and your own client's negligence." The letter suggested Connelly pursue his claims in bankruptcy court.

Connelly says he finds it difficult to believe that Bank of America didn't get a "heads up" from the state about its investigations and negotiations with Trans Continental.

New judge assigned to Lowy lawsuit

U.S. District Judge Richard Lazzara will hear the lawsuit Tampa lawyer Jim Lowy filed on behalf of a group of investors against Lou Pearlman, Gov. Charlie Crist and numerous others. U.S. District Judge Elizabeth Kovachevech was previously assigned, but recused herself "because her family has known defendant Crist's family for many years."

No More Posts on the Modeling Investigation

Dear Bloggers:

I am tired of reading posts rehashing the modeling investigation and the frequent libelous comments being made. Please limit future posts to items of current interest to investors in the EISA/stock investment programs.

Posts about the modeling investigation will be deleted. In addition, regardless of content, posts will be deleted that mention any of these names: Jackie Dowd, Les Henderson, Alec Difrawy or John MacGregor. (Those persons are welcome to post if they wish, but their names may not be contained in the post itself.)

In addition, DO NOT post that anyone received a commission or referral fee for selling an EISA investment unless you submit the proof to me first.

Thank you for your cooperation.

New Report from Trans Continental Receiver

Receiver Jerry McHale has published a new report to investors detailing the current status of recovery efforts for certain assets, including Lou Pearlman's mansion and smaller house, Church Street Station, vehicles, cash and music royalties.

Tuesday's St. Petersburg Times story

In related news:

The lenders who have filed to put Trans Continental Airlines and Lou Pearlman into involuntary bankruptcy are asking the court to appoint a Chapter 11 trustee to take control of the entities and pursue collection of assets. This could mean that another receiver will replace Jerry McHale, who was appointed by the state court. McHale filed a response saying he is willing to do whatever the court determines is in the best interests of creditors. However, he says the motion does not qualify as an "emergency". 

Another involuntary bankruptcy has been filed, this one against Trans Continental Records. Four individuals who live in Valrico and Huntley, Ill. (I like that name) say Trans Continental Records owes them $595,089 on promissory notes.

More details on German Savings

No surprise--German Savings is not holding $40-million for Trans Continental investors. The Orlando Sentinel offers more details regarding German Invest-und Finanzberatung, which is a real company, but says it never held any Trans Continental funds.

German newspaper reports Lou Pearlman is leading authorities to money

Here is a VERY interesting story from the German newspaper Express.  According to my German source, the short version is this: This article states that they have spoken with a"close friend" of Lou and that Lou is not in hiding. He says that Lou was in the Cayman Islands last week with the authorities to bring them to some money. After Cayman, they went to Switzerland as well. He also says that Lou's partner who is in charge with all finances is responsible for all that and that this partner is missing/hiding. While I think this is very interesting, I would caution investors not to get their hopes up. Here is the translation from AltaVista's Babel Fish. If any of you are more adept at German translation, please supply it in the comments. Of JOERG SCHULZ DOLGNER Lou Pearlman: A cheat? Photo: AP NEW SERVICE: Giant excitement around US music uS-Musikmulti Lou Pearlman. The inventor of Backstreet Boys, o-Town and US 5 is investors around 229 millions euro betrogen to have had - and disappear. It is the largest financial crime film of Pop history: Over 1000 backers Lou Pearlman (52) is to have brought banks with its global Firmenimperium (under it the flight charter line of trans Continental airlines) 229 millions euro, fears for her money, private investor, who wanted with Pearlmans firm fund age precaution to operate. The money should be away - and Pearlman also, so the "pc. Petersburg Times". What is to at the bad reproaches? Fact is: Already in February the FBI had scanned Pearlmans office in the USA. It stands firmly also that Finanzermittler of the US authorities on the search for the contentious millions are. Out well informed circles experienced EXPRESS however: "it is not abgetaucht. We know that Lou travels with the Ermittlern around the world. Ten days ago they were on the Cayman islands, where on accounts a large part of the disappeared money was found. Next Lou with the officials wanted into Switzerland. The problem is that its ex-Kompagnon worried about the investment trusts. That is away." Is Lou Perlman real a cheat? The friend: "everything began the Lou with a process around license rights for DVDs of the Backstreet Boys and N'Sync, had won." Allegedly Pearlman with its lawyer had agreed upon a fixed fee, it went over converted to 99,281 euro. After the process that is to have demanded suddenly 992,810 euro fee. The Insider: "the lawyer sued Pearlman, won and let the Pearlman accounts seize."

Some other German articles, which I understand to be straightforward news articles similar to those previously posted: MTV Germany

Financial Times Germany

Church Street Station auction set for April 5

Minimum bid set at $34-million. Here's the Orlando Sentinel story.

Also, a Sarasota Herald-Tribune story tells about the plight of some Port Charlotte investors. Other investors who live outside the Tampa Bay and Orlando areas and are willing to tell your stories might consider contacting your local newspapers or television stations. The media are more likely to be interested in a story if it has a strong human interest element as this Herald-Tribune story does.   

fyi-St. Petersburg Times story today about the article in Bravo, previously posted on the blog. WFTV in Orlando also picked up the story.

Why isn't Lou Pearlman getting more national coverage?

"Why isn't this in the national news?" That's one question Trans Continental investors keep asking. One recent email: "Where are the national newscasters?  Is he being protected because he was so involved with the entertainment world?  It seems the only people who know anything about Lou Pearlman are the Orlando and Tampa populations.  Everyone in the country needs to know!"

So far the media interest in this story has come from the Tampa Bay and Orlando areas and from New York and there's an obvious reason for that: This is where a large number of Trans Continental Airlines investors live. Their plight has not been enough to capture the attention of the national media just yet. I predict that will change if Lou Pearlman is indicted because a fugitive story has media appeal. But don't count on this story ever reaching Anna Nicole Smith proportions. I seriously doubt that the national news stations are protecting Pearlman. They just haven't gotten excited about the story yet.   

German publications are becoming more interested. Here are three articles published in Germany: Spiegel (national magazine), Bild.T-Online (newspaper) and Bravo (fan magazine). Spiegel and Bild are straight news accounts about the fraud and the Lowy lawsuit against Gov. Crist. The Bravo article (translation posted in March 7 blog entry) is an interview with Pearlman, who proclaims his innocence.

More on Crist campaign contributions from Pearlman and companies

Here's an update on the Lowy lawsuit and the governor's response to it.

Here's the Associated Press story.

Link to a copy of the lawsuit (warning: large file). Thanks to Trans Continental receiver Jerry McHale for posting it.

German magazine and Business Week cover Lou Pearlman

Here's an interesting piece from the German magazine BRAVO. Thanks very much to the readers who sent it to me and provided a translation. (Translation is best we could do; not guaranteed to be accurate.)

The (broke-)producer speaking now!

Lou: Thanks, BRAVO, for letting me talk with you about the case.

Search warrants! Lawsuits! The crime story about Pearlman continues.

In BRAVO he speaks openly.

by Y. Hückenholz and A. Berger

Could things be any worse?

Last week BRAVO reported on the complaint against US5 founder Lou Pearlman (52). Now the FBI is involved and they have even searched through Lou's properties. Is the Boyband - godfather (invented *NSYNC and the Backstreet Boys) really a criminal?

To recount: Lou is being accused of allegedly having defrauded several
banks and private investors, and having absconded with 317 million dollars
(250 million Euro) in the process. The lawsuit filed against him is 67 pages long!

BRAVO asked him about it: "Lou, what's up with these rumours about fraud?"
"I am innocent!," protests the successful producer.

But how could it become such a scandal then, which is allegedly the
largest fraud in Florida history?

And why did the State receiver "freeze" all of Lou's assets, in order to
check out all his accounts?

"Some of my directors are researching within the company right now,
to see exactly what happened", says Lou and adds: "I am not a fraud! I am
proud of my name and abilities. I can hardly wait to clear the air
and find out who the guilty ones are!"

In the U.S. press there are the wildest rumours. It is said Lou may
even go to prison! So, is he afraid?

"No, because I will prove my innocence", he self-convincedly states. He
is clearly seeing himself as a victim in the case, in no way as the
criminal!

But to prove it, Lou needs just a little time. However, that could become
short since the FBI investigations are running at high speed. During their
searches everything was checked - drawers, cabinets, furniture.

A hard blow for Lou, but instead of going into hiding the 52-year old
sought out a conversation with BRAVO.

"I am very glad to have the possibility to explain (paint) my point of
view on the matter. The American press is just writing whatever they
want - without asking me!," he complains.

But what about of his protege's Jay (24), Izzy(23), Mikel (19), Chris
(18) and Richie (18). Lou really should be busy promoting the boys in
the USA. Is that seriously in danger?

"It will not interfere in any way with the career of US 5. The boys are
obviously not at all involved in the case!" assures Lou.

And what does US 5 say about the scandal story? Has his relationship
with the band changed?

"The boys are totally behind me!" Lou proudly states. "We have talked
about my problems and the band understands what I am going through.
After all, we are almost like a family."

Here's a link to the US5 fan site where the article was posted (in German, of course).

++++++

And for those who have been waiting for this to become national news, here is a Business Week story.

Trans Continental lawsuit targets Gov. Charlie Crist

Tampa lawyer Jim Lowy filed his long-awaited lawsuit Monday naming as defendants Florida Gov. Charlie Crist and various financial institutions along with Lou Pearlman, the Trans Continental companies and various others.

St. Petersburg Times story

Orlando Sentinel story

Tampa Tribune story

Link to a copy of the lawsuit (warning: large file)

In other news, the Orlando Sentinel says an Orlando developer is dropping his bid to buy Church Street Station, where Trans Continental has its headquarters.

Mansion on the market

Lou Pearlman's Italian-style mansion in the Orlando suburb of Windermere is on the market for $12.5-million. Here's the listing detail from Stirling Sotheby's International Realty. Pearlman bought the home in 1999 for $4.3-million and the lot next door in 2000 for $900,000, building a guest house on it in 2005. According to the listing, the buildings have 16,000 square feet and Pearlman was working on an expansion to 30,000 square feet. The home is on Lake Butler. This may be a photo.

Jerry McHale, receiver for Trans Continental Airlines, said the property has about $15-million in liens against it, although some may not be valid. 

Story from Greenwich Time: How Investors Fell for a Classic Ponzi Scheme

Taking a tax loss for investment fraud

If you've been a victim of investment fraud, be sure to read my column today about one approach to taking a tax loss. You may be able to take a large loss all at once, retroactively, or spread over multiple years, depending on your tax situation, if you have proof that you were a victim of fraud. For people with large losses, this is better than taking a capital loss, which limits you to deducting $3,000 a year against ordinary income. Trans Continental investors may be eligible to use this approach for their 2007 taxes. For 2006 taxes, if you did not receive any cash from Trans Continental, I recommend that you not report any income. False statements do not constitute income. Even if you did receive interest payments, I think you have a strong case for stating that those were merely return of principal. However, you may want to discuss that one with your tax adviser.

Two companies that work with fraud victims to claim tax losses are:

Investment Fraud Recovery Network

JK Harris 165 Services

Should stock and savings investors be treated the same?

A Trans Continental investor wants to know: "There is talk of lumping the stockholders and savers into the same category in case some of the invested money is recovered. Why is this, since there is a dramatic difference between the two? The stock purchasers were speculating wtihout any guarantee whereas the savers were investing because of guaranteed safety."

The short answer is that both types of investors were victims of fraud. In fact, here is an example  in the form of a letter from Lou Pearlman to shareholders in January 2006. However, the treatment of investors is not a done deal. Should any assets be available to distribute, I am sure lawyers for both groups will be duking it out. Under normal bankruptcy rules, stockholders are last in line, recovering only after other creditors have been paid. If that's the standard used here, stockholders will get nothing. How do you think it should be handled?

Banks file petition to force Lou Pearlman bankruptcy

A group of banks filed petitions in U.S. Bankruptcy Court for the Middle District of Florida to force Lou Pearlman and Trans Continental Airlines into involuntary Chapter 11 bankruptcy. The petitioning creditors, Tatonka Capital; First National Bank of Williston, ND; Integra Bank and American Bank of St. Paul, filed $48.5-million in claims against Pearlman and $64.4-million in claims against Trans Continental. "We're evaluating and don't anticipate doing anything till we've had a thorough time to review options," Trans Continental receiver Jerry McHale said this morning. Bankruptcy Judge Arthur Briskman, the judge handling the F.F. Station bankruptcy, was assigned to the case. 

Here are the petitions:

Pearlman bankruptcy

Trans Continental Airlines bankruptcy

Saturday

St. Petersburg Times story

Orlando Sentinel story

Here is an interesting discussion of the banks' strategy in forcing Trans Continental into bankruptcy.

Trans Continental Legal Update

Assorted news on the legal front:

Here is the class action lawsuit filed by Morgan & Morgan last week in Orange County Circuit Court. It seeks to represent all investors in the Trans Continental's Employee Investment Savings Account. The named plaintiffs are Nickolas Epsilantis (Florida) and Steven Sarin (New York). Defendants are an assortment of Lou Pearlman companies plus Pearlman himself and Kristin Finger. Allegations include fraud, breach of fiduciary duty, unjust enrichment, breach of contract, sale of unregistered securities. If the case is successful, investors will be given the opportunity to participate in the settlement or opt out. There is no need to contact the law firm.

Here is a judgment US Bancorp obtained against Pearlman and Trans Continental.

In another case filed in Hillsborough County Circuit this week, investor Kathleen Clements is suing sales agent Kyran Britt Murphy of Southeastern Financial, seeking recovery of her $480,000 investment in the EISA program. She is represented by Clearwater lawyer Bruce Barnes.