New details on filing a bankruptcy claim

Bankruptcy trustee Soneet Kapila provided some additional info Monday regarding filing a bankruptcy claim.

•A claim form must be filed for each form of account ownership. A joint account, a trust account, an individual account and an IRA are all different forms of account ownership. If you have already filed one claim consolidating all accounts, you can amend that claim to cover only one account and file additional claims for the other accounts.

•Duplicate claim forms must be filed if you want to participate in more than one bankruptcy case. A claim in the Lou Pearlman bankruptcy needs to state a case for holding him individually responsible for an investment in Trans Continental.

•Claim forms must include proof of your investment, such as canceled checks (copy of both sides) and wire transfers. Statements alone are not enough. If you have already filed a proof of claim, just send the documents with a cover letter that includes the case number.

.Claims must be received by July 30 at the clerk’s office for the U.S. Bankruptcy Court, 135 West Central Blvd., Orlando, FL 32801.

You can find a copy of the claim form in the notice to creditors on the April 6 blog entry. More information is available on the trustee's Web site.

Kapila's lawyer , Denise Dell-Powell, said that because the case is a "liquidating Chapter 11," the debts will not be discharged. My interpretation of this is that it is not necessary to file a complaint asking that a debt be made nondischargable.

Today's Creditors' Meeting

I just got back from the creditors' meeting which roughly 120 people attended, and I was pleased to have the chance to meet many blog readers. Thanks for introducing yourselves!

Unfortunately there wasn't much in the way of cheery news from this meeting. Soneet Kapila did say he was going to investigate all kinds of transfers, including commissions to sales agents and contributions to charity and political candidates. He said he was interested in hearing from investors about who their sales agents were and details of addresses and phone numbers for agents. He also said he'd welcome copies of canceled checks (both sides) to assist in his investigation (in addition to those you file with your bankruptcy claim.) However, it is abundantly clear that there will be no speedy resolution to this case. For those who weren't aware of this, Kapila spelled out that he and the professionals (lawyers, accountants) who work with him on this case will be paid out of the assets they recover. If they don't recover anything, they don't get paid. He said he is committed to pursuing the case.

Kapila distributed copies of frequently asked questions and his first letter to creditors, both of which can be found on the trustee's new Web site.  Look under FAQs and "trustee's status reports."

I'd welcome comments and observations from others who attended the meeting.

St. Petersburg Times story, Orlando Sentinel story, WFTV story

Senior insurance deals--not such a great deal?

Business Week recently had an interesting piece, "The High Price of Free Insurance" about investors trying to convince wealthy seniors to take out life insurance policies for the purpose of resellign them. According to this articles and others I've seen, promoters are offering inducements such as cars and cruises to people to take out these policies. Have any of you ever come across that in the Tampa Bay area? If you have, I'd appreciate it if you'd email me the details. I have seen solicitation letters, but that's about it.

If you've ever thought of taking out one of these policies for resale, I recommend discussing the details with a financial adviser (other than the one trying to sell you on the policy) to confirm that it's right for you.

See you at the creditors' meeting

I will be at the creditors' meeting Monday in Orlando and look forward to meeting blog readers who attend. I hope that you will come up and introduce yourself to me before or after the meeting. You'll probably be able to recognize me from my blog photo--I have blonde hair and wear glasses.

If you need info, check the blog entry of April 16 for details of the meeting. (If you click on "Trans Continental News" under the "categories" to the left, you will see all the posts.)

Are capital gains taxes really going to zero?

Q. I read somewhere that in 2008 capital gains will not be taxed. Truth or fiction?

A. Partial truth. They are indeed going to zero from 2008 through 2010 for people in the 10 or 15 percent tax bracket. In other words, people who now pay 5% tax on their capital gains will pay 0. People who now pay 15% tax will continue to pay 15%.

It does indeed offer a tax planning opportunity for some families. However, if you have good reasons for selling an investment, a 5 percent savings may not be an adequate reason to wait.

Here's one article that gives more details. Note the examples.

Future uncertain for Church Street tenants

FYI-An update from the Orlando Sentinel.

Warning: Don't do business with the National Foundation of America

Florida Chief Financial Officer Alex Sink issued a warning today to avoid the Tennessee-based company, which has been selling annuities in Florida without a license. If you have done business with the company, call the department's consumer helpline at 1-800-342-2762.

Are you tuned in to your employee benefits?

Most companies offer at least a few employee benefits and some have a whole array of options. However, many employees focus on health insurance and forget about everything else. If you're one of them, you could be leaving important benefits on the table, from retirement savings plans to disability and life insurance to flexible spending accounts. The key questions to ask are: What are my options? How much do they cost? Does my employer subsidize the cost? Are there tax benefits in it for me for participating? Is this something I need? If you are married, you and your spouse should go over this together, reviewing information from both your employers. Here are two benefits I especially recommend:

*Saving through payroll deduction. Saving is easiest when you don't get your hands on the money. Sign up for a retirement savings plan AND for direct deposit of part of your paycheck into a credit union or money market account where it can accumulate to help cover emergencies and major expenses.

* Flexible spending accounts for health care and child care expenses. Money is deducted from your paycheck and from your taxable income. You get it back tax-free when you submit receipts for covered expenses. If you've got  predictable expenses in either category, this is a very valuable benefit. It's great for paying for day care and orthodontics.

Some defendants dropped from state case

Robert Fischetti, Michael Crudele, Kristin Finger and Aegis Consulting Inc. have been dropped as defendants in the original case the Office of Financial Regulation filed in December against Lou Pearlman, Trans Continental Airlines and others.

The reason? The state says it is assisting federal law enforcement in investigating the case and "does not wish to compromise or complicate the ongoing federal investigation by subjecting otherwise confidential information to the discovery process" that would be available to defendants in the state case.

The judge approved dropping the defendants without prejudice, which means the action could be brought again. Ultimately the entire state case could be dropped, leaving everything in the hands of federal prosecutors and the bankruptcy court.

State motion

Lou Pearlman's now a punchline for jokes

"Speaking of weather, have you been watching the arctic conditions around the country? Man, it's been so cold in the Northeast that Lou Pearlman has had to keep his hands in his own pockets." --Mike Bianchi, Orlando Sentinel.

Mike's one of my favorite sports columnists, so I thought I'd share a bit of his wit with you.

If you've got a good line or joke about Lou, post it here as a comment--just keep it clean; no profanity or sexual references.

Fiscal education for midlife

Retirement may seem like an impossible dream, but if you're still earning income, there are things you can do now to improve your quality of life down the road.  In today's Life Times section, I offer some of my top tips for people in their 40s, 50s, and 60s. Here are three that are among the most important:

40s: Keep debt under control. Pay off credit card balances in full each month and resist the temptation to cash out home equity.

50s: Empty the nest. Develop a timetable and a strategy for helping your children achieve financial independence.

60s: Test drive retirement finances. Live within your projected retirement budget to see if it's realistic. Keep a record of your spending for a few months to identify where adjustments might be needed.

Here's the story that goes with the tips.

The free programs at Analyze Now! can help you with your planning.

Good news and bad news from Social Security

There's a little bit of good news out today from the Social Security trustees. Their annual report to Congress says that the money will run out in 2041, one year later than last year's estimate. The bad news: Benefits are still projected to exceed income in just 10 years and they're counting on the old Social Security trust fund (a stack of government IOUs) to make up the difference. Even assuming the trust fund is up to the job, it will take an extra $4.7-trillion to pay all promised benefits over the next 75 years, which is about $100-billion more than projected last year. It says the problem could be solved by immediately increasing the Social Security payroll tax 1.95 percentage points or immediately cutting benefits 13%. Of course we all know that nothing will happen immediately, so any tax increases or benefit cuts will be more drastic.

If you're the type that likes to delve into these things, the report contains lots of interesting info about population growth, fertility rates, earnings and inflation assumptions.

Here's one take on the report, from the Center for Retirement Research at Boston College.

Dates for other bankruptcy cases

The creditors' hearings for Louis J. Pearlman Enterprises and Trans Continental Studios will be May 14 in Orlando bankruptcy court. The deadline for filing claims in those cases is Aug. 13.

As I mentioned earlier, if you have a claim specifically against one of those companies (such as a loan to Trans Continental Studios), you should file a claim. But if you are a Trans Continental Airlines stock or EISA investor, I suggest filing two claims now--in the TC Airlines and Louis Pearlman bankruptcies--and then waiting a bit to see what happens. (The dates in those cases are April 30 for the creditors' meeting and July 30 for the claims deadline.) The various Pearlman and Trans Continental cases could end up being consolidated, which would eliminate the need to file more claims in the other cases.

FYI-here is the Notice to creditors in the Louis J. Pearlman Enterprises bankruptcy.

Changes in blog format

Wow--I logged on this morning and the blog page looked different. In case you haven't already noticed, the comments have reversed order so the most recent comments are at the top. In addition, a new feature on the right-hand side labeled "recent comments" links to the most recent comments (how clever!) Those little links across the bottom of the post (facebook, newsvine, etc.) are supposed to be for you to submit links to one of those sites if you think a post is worthy of attention. If you are not interested in any of those sites, just ignore the links.

I don't have any background information about the changes, but I have had some blog readers ask me how to identify recent posts, so I think that feature may be useful.

Enjoy! 

Finding assets hidden in foreign countries

If Lou Pearlman has indeed taken most of his millions overseas, finding and seizing those assets won't be a quick and easy process, as my story in today's Times discusses. The key point to understand is that U.S. court judgments and subpoena powers aren't enforced in other countries. Getting access to bank records or cash means taking the case into the foreign court. That can be done, but it takes time and money.

Bankruptcy judge freezes $250,000 in Pearlman money

The U.S. Bankruptcy Court ordered a freeze Thursday on $250,000 that one of Lou Pearlman's associates tried to transfer to Germany. The money is in a Bank of New York account belonging to Louis J. Pearlman Enterprises, one of more than 100 business entities the Orlando music producer created. German Invest und Finanzberatung GmbH (AKA "German Savings") tried to retrieve the money, claiming that Pearlman had signed over his interest in Pearlman Enterprises as repayment for a loan. Jerry McHale, state-appointed receiver for Pearlman Enterpises, learned of the impending transfer and asked for the emergency injunction. He says the German company may be controlled by Pearlman.

The freeze will stay in place until a hearing on the matter, scheduled for 10 a.m. May 7. Here are some of the documents for the curious:

Emergency motion filed by receiver

German Savings' objection to motion and explanation of transfer

Orlando Sentinel story

Orlando Sentinel follow-up

Additional bankruptcy filings

Trans Continental receiver Jerry McHale is filing some additional bankruptcy cases in cooperation with bankruptcy trustee Soneet Kapila. New bankruptcy cases have been filed so far for Trans Continental Studios and Louis J. Pearlman Enterprises Inc.  and additional cases my follow. (I just included one filing because they don't contain much information.) McHale says he is filing the cases "just in case they do have any unencumbered assets and to protect it from any potential judgement creditors."

All about the creditors' meeting April 30

If Lou Pearlman and/or Trans Continental Airlines owe you money, you may wish to attend a creditors' meeting at 11 a.m., Monday, April 30, at the U.S. Bankruptcy Court's Orlando office on the sixth floor (Suite 600) of the office  building at 135 West Central Boulevard, Orlando. The purpose of this meeting is for a representative of the U.S. Trustee's office and creditors to have an opportunity to ask the debtor questions. At least in theory, Lou Pearlman could be there, although I wouldn't count on it. Soneet Kapila, the trustee for both the Pearlman and Trans Continental, plans to be there to provide an update on the case and answer questions.

If you plan to attend:

Bring a photo ID, but do NOT bring a cell phone, camera or tape recorder. Court rules say that anyone appearing in court should dress in business attire "consistent with their financial abilities." Shorts, sandals and shirts without collars are not acceptable.

The bankruptcy court building is just east of Interstate 4, two blocks north of Church Street Station, where Trans Continental had its headquarters. There is a parking garage next to the building. The clerk's office is on the ninth floor (phone number 407-648-6365).

You are NOT required to attend the meeting. However, you MUST file a claim by July 30 to be included in any distribution of funds that may occur. See the blog entry for April 6 for forms and notices to creditors.

ABC News runs Lou Pearlman scam story

Those of you who have been waiting for the national media to pay attention to this scam should be pleased to see that ABC news picked up the story. However, it appeared only on the Web site and was not broadcast.

The Huffington Post, an influential blog, also has taken note.

Other news reports
Fox News

Philadelphia Daily News blog

Lou loved creating corporations

Lou Pearlman owns or controls more than 100 corporations, limited liability companies and other business entities, according to a new court filing by Soneet Kapila, the Chapter 11 trustee for the Pearlman and Trans Continental Airlines bankruptcy cases. And that's not all. Kapila says he believes others exist as well. Kapila is asking the court to give him the right to vote and excerise any other rights related to Pearlman's interests. "The trustee is concerned that there is a 'race to the courthouse' concerning these assets given the alleged size of the Ponzi scheme, the sheer number of creditors and investors pursuing their individual litigation, and the numerous lawsuits that have been filed against one or more of the business entities around the country. Moreover, the debtor has allegedly fled the country, but still holds various...titles..As a result, the trustee is concerned that the debtor may be continuing to act on behalf of the business entities, including in the transfer or sale of assets." The attached list of Pearlman companies ranges from A (AC Productions) to Z (Zeppelin's Restaurant). Kapila also has asked for additional authority to compel financial institutions and others to turn over information related to the case.

April 16 Update: The judge approved Kapila's motion allowing him to vote Pearlman's interests in various corporations. Washington Mutual had filed an objection in the case.

There's still time to make an IRA contribution

  Here's a reminder that you have until midnight April 17 to file your income tax return and - if you wish - to make a 2006 IRA contribution. Although you can get a six-month extension of time to file your return (Form 4868), there's no extension for paying what you owe or for making your IRA contribution. The maximum per year for 2006 and 2007 is $4,000, or $5,000 if you are 50 or older.

If you're due a refund on your return, you have the option of depositing it in an IRA, but it's too late to do direct deposit for a 2006 contribution. If you use direct deposit for a 2007 contribution, check with your IRA custodian after a few weeks to be sure that your account was properly credited.

The best places for your IRA are with a mutual fund company, brokerage or bank. You have the widest selection of investments with a brokerage.   

Bankruptcy court will send notice to investors

Soneet Kapila, the trustee for the Lou Pearlman and Trans Continental Airlines bankruptcy cases, says the bankruptcy court will send notices to investors regarding deadlines and "other pertinent aspects of the case as it evolves." He said he will be providing the investor list to the court, but hasn't had time to set things up just yet.

Other media reports:

USA Today story

New report from Trans Continental Receiver

Trans Continental receiver Jerry McHale says the sale of Church Street Station for only $34-million was a big disappointment. In a new report released today, he said "it is highly unlikely that the receivership will receive any distribution from this sale." McHale said he does not know how long the receivership will continue, but that he will attempt to keep investors posted. He notes that once Soneet Kapila was apopinted chapter 11 trustee for Trans Continental and Lou Pearlman, it was his obligation to turn over all documents and assets belonging to them.

"You will be frustrated by what appears to be the slowness of the proceedings," he said. But he said penetrating the Pearlman empire of "smoke and mirrors" is a daunting task for investigators.

Please note that I have added some information and links to the April 6 bankruptcy posting.

Filing a complaint against a Trans Continental sales agent

One of our faithful bloggers, John of Clearwater, received the information below from the Florida Department of Financial Services in response to a letter he sent to Gov. Crist. (The majority of Trans Continental sales agents were licensed by the state as insurance agents.) Here is an excerpt from that response:

If you have specific information about an insurance agent who may have been involved in sales of this product, the Department of Financial Services has the legal authority to investigate the sale of unregistered securities by insurance agents. Please provide a copy of all written documentation left with you by the agent.  Also, please include all marketing information used by the selling agent.  You may send the information to us at the address listed below, or fax the information to us at 850-413-1550.  Please reference your service request number listed above on all documentation submitted.

If you have additional questions or concerns, you may call our toll-free Consumer Helpline at 1-800-342-2762 in Florida or (850) 413-3132 out-of-state.  We would like to invite you to visit our website at www.fldfs.com for additional insurance or banking information.
Florida Department of Financial Services
200 East Gaines Street
Tallahassee, FL  32399

(Note: You won't have a service request number until you file a complaint. You can file your complaint online at www.fldfs.com and get a number and then mail in documentation.)

Recent media coverage of Trans Continental and Lou Pearlman:

Tampa Tribune story.

Time to file a proof of claim in Pearlman and Trans Continental Bankruptcies

Do Lou Pearlman and/or Trans Continental Airlines owe you money? If so, the bankruptcy court is ready to hear from you. You have until July 30 to file a proof of claim. (That means the form must be received by the bankruptcy court clerk's office no later than that date). Forms should be sent to: Bankruptcy Clerk's Office, 135 W Central Blvd., Suite 950, Orlando, FL 32801. The phone number is (407) 648-6365 (Mon-Fri, 8:30 a.m.-4 p.m.). The case numbers are Louis J. Pearlman bankruptcy (6:07-bk-00761-ABB) and Trans Continental Airlines Bankruptcy (6:07-bk-00762-ABB).

Investor claims might be considered "unsecured" because they do not involve a mortgage or lien on any property. At least one lawyer is pursuing the angle that they are neither "unsecured" nor "secured" but are in an "other" category. Jack Keifner says he considers the assets to have been held in trust for investors. (See blog listing of May 1 for more info.)

You need to attach copies of documents proving that the debt is owed to you, inculding cancelled checks or copies of bank wires. There might be some discussion here regarding what documents should be attached to a claim filed against Pearlman that would show that Lou Pearlman would be obligated to pay a debt (such as the EISA money) owed by Trans Continental. Some documents that might be helpful can be found on this blog: the complaint filed by the state (Feb. 6 entry) and the receiver's first (Feb. 23 entry) and second (March 12 entry) reports.

A question has arisen regarding whether this proceeding will discharge Lou Pearlman's debt to investors. In general, the bankruptcy law provides that debts incurred through fraud are not dischargable. However, my understanding is that you still would need to file a claim AND an attorney would need to file a complaint to determine that these debts were nondischargable. That way should Pearlman be discovered to have additional assets years down the road, there would be a possibility of recovering more money. The deadline for filing a complaint regarding the dischargability of certain debts is June 29.

Should you wish to attend, there will be a meeting of creditors for both cases at 11 a.m. April 30, 6th floor, Suite 600, 135 W Central Blvd., Orlando. Be aware that you cannot bring a cell phone into the court.

Notice to Creditors-Lou Pearlman case

Notice to creditors-Trans Continental Airlines case

These notices include the proof of claim form and instructions

Income taxes and Trans Continental Investments

Q. Do I have to report on my 2006 tax return the interest that showed up on my Trans Continental statement?

A. No.  No 1099s were sent, so the IRS will not be coming after you for the money. Important exception: If you were among the lucky few who took all your money out of Trans Continental during 2006, you should report the interest you received.

Q. Can I claim a loss of my investment on my 2006 return?

A. No. Although the fraud obviously occurred during 2006, proof of its existence was not publicly available until 2007.

Q. So when can I claim my loss?

A. Definitly on your 2007 return. However, if you do nothing special, you will be limited to a capital loss, first deducting your losses against capital gains, then deducting up to $3,000 against ordinary income. You can carry forward unused losses to future years. You may be able to obtain a much larger deduction if you take the proper steps to establish that you were a fraud victim. See my column on this subject. This is complicated and you may wish to consult one of the companies that work in this area (such as Investment Fraud Recovery Network or JK Harris 165 Services). This is most worthwhile if you have substantial income that could be reduced by a fraud deduction. If your income is too low to pay taxes, you are out of luck.

Q. For the 2005 tax year I paid taxes on the interest I supposedly earned from Trans Continental but never received. Am I able to file an amended 2005 tax return subtracting this interest from my income?

A. Not yet. If you do that, it is highly likely that the IRS will question it. However, if you pursue a fraud deduction as mentioned above, you may be able to amend prior returns.

Church Street Station auctioned

The only bid on the property was the minimum, $34-million, which is about what is owed to secured creditors (mainly Bank of America). There's an option to purchase the "tangible personal property" in the buildings for an additional $500,000. Developer Cameron Kuhn says he wants to restore the property to its former glory. Current tenants will have to vacate or renegotiate their leases.

Sales Contract

Orlando Sentinel story.

Church Street Station Chronology

How safe is your pension fund?

The New York Times has a shocking story about New Jersey's failure to fund its pension funds for government workers. In one case, the state reported contributions to its teachers' pension fund of $551 million or $56 million when it actually contributed nothing at all.

Some people who are due pensions are collecting nothing, apparently not aware that they are even entitled. You can check to see if you have lost pension benefits at the Pension Benefit Guaranty Fund Web site. (Although the search function seems to work sporadically.)

New York investors in the news

Long Island lawyer Stanley Bogal has gone public with his complaint against his sister, Elaine Bogal-Calix, who raised money for Lou Pearlman in New York, including $1.8-million from their mother and $300,000 their mother set aside in a trust for Bogal's children. Here is the New York Post story. According to the story, Bogal has a pending legal action against his sister in Nassau County.

Back here in Florida, I have received a copy of a lawsuit that Paul and Marie Pollara filed against their Trans Continental sales agent, Craig Goodie, in Collier County Circuit Court. The allegations include sale of unregistered securities, material misrepresentation and fraud. The Pollaras lost their $61,322 investment. Marco Island lawyer Frederick Kramer is representing them.

The rise and fall of Lou Pearlman

The Orlando Sentinel published an interesting package today that offers more insight into Lou Pearlman's life. Here are links to the story and chronology of his life. The story ends with a long-time friend speculating "I think Lou's crying somewhere. I don't think he's somewhere laughing with a pile of money."
I'd love to hear what those of you who have dealt personally with Pearlman think about why he was so successful and what caused his downfall.