Who has what at risk in frozen state fund

The State Board of Administration faces a very thorny problem in deciding what to do with its state and local government fund. Calling a temporary halt to withdrawals has investors screaming--and who can blame them--but I haven't heard any real alternatives to a. a state bailout or b. liquidation at a loss. You can bet there will be lots of political pressure in favor of a bailout, which could take the form of a subsidy or a loan or loan guarantee. In addition to the cities, counties and universities that each have millions at stage, Citizens Property Insurance Corp. has $2-billion invested in the fund. Here is a list of all investors and how much money they have in the fund. Here's what was in the portfolio at the end of October. You can listen to yesterday's meeting or read the transcript here.

Here's some of today's coverage: St Petersburg Times, New York Times, Tallahassee Democrat.

Saturday update: St. Petersburg Times, Bloomberg

Sandpearl Resort is Soneet's latest target

Bankruptcy trustee Soneet Kapila has made another move to recover money he says belongs in the Lou Pearlman bankruptcy estate. The latest salvo: this suit against The Residences at Sandpearl Resort LLC, developers of a swanky complex on Clearwater Beach; Title Security II and Richard Lowry, an Illinois investor. Here's how the tale unfolds:

Lowry, who is executive vice president of the Great Lakes Dredge and Dock Corp. in Oakbrook, IL., entered a lottery two years ago for the right to purchase a condo, storage unit and two parking spaces at Sandpearl. When he won, he basically sold his purchase right to Pearlman for $50,000 through an option agreement. Kapila said this manuever was to avoid restrictions in the contract preventing buyers from assigning their rights to someone else without the seller's consent. Pearlman then made $610,000 in deposits to the title company toward the $3.1-million purchase price.

Kapila says he's asked for the money back but has been turned down. In fact, he says Lowry is demanding the money Pearlman paid as deposits. In the suit, Kapila says the Sandpearl project wasn't properly registered with the Department of Housing and Urban Development and purchasers did not get paperwork the law requires. Kapila also says the payments amount to fraudulent transfers under the bankruptcy law.

Sandpearl Residences is a condo development next door to the Sandpearl Resort hotel. JMC Communities, the developer behind Sandpearl, declined to comment. Lowry did not respond to an email.

State takes steps to shore up fund

As local governments and school districts continued to pull money out of a state-run investment pool Wednesday, officials announced plans to shore up the fund. About $8-billion has left the pool in recent weeks, leaving it with about $19-billion. The pool, similar to a money-market fund, ran into trouble with mortgage-backed securities, some of which have had their credit ratings downgraded. (Here's my earlier story on this.) The State Board of Administration next week will consider a plan to insure about $1.5-billion of the pool’s securities against default. Executive director Coleman Stipanovich also is recommending that the board seek a AAA credit rating for the pool, adopt more conservative investment guidelines and build a larger reserve fund. Continued withdrawals could force the fund to sell securities at fire-sale prices.

Thursday update: The state suspended withdrawals from the fund after a continuing run on the fund. Another story with more background. And another.

Lou's original boy band

The group Flyer was Lou's original boy band. In this fascinating video (give it some time to load), band members talk about their early days when Lou Pearlman was their manager. When they couldn't get a contract with Columbia Records, Lou promised them "I'll back you with my company." That never happened. "We thought if anybody could make it happen, Lou could make it happen with his connections," one band member said. They said when they saw Backstreet and 'NSync perform, their thought was "that could have been us."

Lou's visitors

Periodically I check with the Orange County Jail to see who's been visiting Lou Pearlman. The last three months the faithful visitors have been his girlfriend Tammie Hilton, who has made 28 visits, usually with her son, Michael, and Dave Hedrick, who has visited 10 times. Dave is the guy who bought so much of Lou's stuff at the auction and who has even expressed an interest in buying Lou's house. Lou's only other visitors: Mary Cooper and Linda Mayo, who visited him together in October.

How have higher gas prices affected you?

Here's last week's question of the week:

How have higher gas prices affected you? Have you changed your driving patterns?

Here are some of the responses I received from Times readers. Feel free to add your own as a comment.

As a small business owner, it has affected me greatly. I have employees that I reimburse for gas and have noticed a significant increase in my operating costs. If this continues, I will be forced to pass these costs onto the customer.
Michael Dash, Hudson

Regardless of price fluctuations, my consumption remains very stable. I take steps to ensure the best fuel efficiency when driving, such as having proper tire inflation, keeping the engine tuned and performing all scheduled maintenance.
Michel Curi Jr., Seminole

I will definitely reconsider some longer day trips that I had wanted to make in the near future. Since everything, not just gasoline, has gone up in price in the last year or two, the rising gas prices are just about “the last straw,” making longer trips very expensive.
Margit Crowell, Spring Hill

There is not much more I can do short of buying a hybrid or similar car, but the payback period for a hybrid is still unacceptably long, even at today’s gas prices. I try to incorporate everyday errands into my daily commute and I use www.tampagasprices.com to find low prices on or near my commute route.
Chas. E. Lehnert, Riverview

The days of driving across town for a dollar coupon are over.
Marv Bachman, Clearwater

A little background regarding Difrawi vs Henderson

Alec Difrawi's lawsuit against some of his outspoken critics on the Internet is not the first legal salvo in the war of words between them. Les Henderson currently has a lawsuit pending in the Ontario Superior Court of Justice against Difrawi and others. The lawsuit, filed in 2005, says Defrawi funded a Web site that defamed Henderson by falsely accusing him of having a criminal record and making other disparaging comments about him and his Web sites. It seeks damages and an injunction restraining Difrawi and other defendants from making or publishing defamatory statements. Other defendants include Lou Pearlman, Greg McDonald, Mark Tolner, Frank Vazquez, Rene Chamberlain and Trans Continental Companies.

Henderson's suit followed this suit  against him, Frank Torelli, Klaas DeVries and others by Fashion Rock. The case against Henderson was dismissed last February.

Difrawi lawsuit cites posts on Money Talk blog

Ayman Difrawi (aka Alec Difrawi) and Internet Solutions Corp. filed this lawsuit in U.S. District Court in Orlando Wednesday against Les Henderson, Jeremy Scalf, Conrad Longmore, Daniel Bruce Scalf (aka Frank Torelli) and three "John Does" identified by Internet names Klaas Devries, Dilly McGilly and Sooper Joo. It acuses them of libel, invasion of privacy, civil conspiracy and racketeering violations.

Difrawi describes himself as one of Lou Pearlman's victims, saying he was defrauded out of his interest in a successful modeling company. He says he was a business associate of Pearlman's for only a brief period. The suit cites various Internet posts, including some on the Money Talk blog and edits of Wikipedia articles, Henderson's books (Crimes of Persuasion and Under Investigation), complaints to the Better Business Bureau and a concerted effort to get consumers to complain about Difrawi's businesses. 

Here are the attachments to the lawsuit: first, second, third.

Tuesday Update: St. Petersburg Times story on suit

Happy Thanksgiving

As I stepped outside this morning to welcome another beautiful Florida day, coffee cup in hand, I thought how fortunate we are to live here. Sometimes we become overwhelmed thinking about the things and people we've lost in our lives and sometimes we are filled with longing for things and relationships we've never had. Today is a day to stop and give thanks for what we do have--for living in a free country, for the wonder of nature around us, for the relationships we have with family and friends and just for being alive to enjoy one more day. I'm thankful too for each one of you who visit this blog and grateful for the opportunity we have to share our thoughts.

Some of you know that I'm a big fan of country music. Today the song that comes to mind is Montgomery Gentry's Lucky Man. (Lyrics here--the version you'll hear on Tampa Bay radio stations substitutes Bucs for Bengals.) Today I know I'm a lucky woman.

Who's a good candidate for claiming a fraud loss?

Here's another installment on tax issues related to the Trans Continental scam. You may be a candidate for a fraud (section 165 deduction) if you meet these criteria:

1. Your loss was in a taxable account. (IRAs don't qualify.)

2. You lost a lot of money. There is no hard and fast rule about how much is a "lot," but the more you lost, the more worthwhile it will be for you to go through this process. If you lost $100,000 or more, this is definitely something you should consider.

3. You have enough taxable income to be able to use the deduction. This is a deduction, not a credit, so if your income is too low to pay taxes, it's not worth anything. The higher your income, the more the deduction is worth. If you are in the 10% tax bracket, each $1,000 deduction is worth just $100, but if you are in the 25% bracket, it's worth $250. If you have an IRA or 401(k), you can use withdrawals to increase your income. However, it's important to wait until you are certain your deduction will pass muster with the IRS (three years after filing your return) before ramping up your income.

4. You are prepared to be audited. Most returns claiming a 165 deduction are audited. Although the audit usually focuses only on the 165 deduction, the IRS may choose to look at other areas of your return.

$1-million down, $499-million to go

Bankruptcy trustee Soneet Kapila has filed October financial reports for the Lou Pearlman bankruptcy as well as various Trans Continental Entities. Here are the reports for the Pearlman bankruptcy and the Trans Continental Airlines bankruptcy. They show total collections to date of $1,046,388.

Discrimination lawsuit against Raymond James expands

The three women who sued Raymond James Financial in September for discrimination have been joined by six others, including two current employees. In an amended complaint filed this week, the women detail more ways that they say the St. Petersburg-based company has penalized women, paid them less, denied them opportunities for advancement and hired and promoted men known for harassing women or treating them in a demeaning manner. Broker Andrea Duda, who still works for the company, says she was demoted as manager of the Ann Arbor office this summer after returning from leave for breast cancer treatment even though the office's financial performance exceeded projections for the last two fiscal years. A younger, less-experienced male manager got the job.

In addition to the parent Raymond James Financial Inc., the lawsuit names subsidiaries Raymond James & Associates, Raymond James Financial Services and Eagle Asset Management. The company declined to comment.

When can you claim your loss from the Pearlman scam?

Yesterday's meeting to discuss tax deduction options for Trans Continental investors provided a good bit of fodder for discussion. One of the key points is when you can take a loss on your tax return. If you are going the route of taking a capital loss (offset by capital gains plus up to $3,000 a year in ordinary income), then I think it's clear that you should claim the loss on your 2007 return, since that's the year of discovery of the loss and the official bankruptcy filing. However, if you are going to claim the more lucrative but much more complicated Section 165 fraud loss, it's less clear. Alan Gavel, a lawyer working with JK Harris 165 services, gave his opinion that 2007 is the proper tax year. "My opinion is that your chances of recovery are remote and nebulous," he said. However, others aren't so sure. Officially you should claim a 165 loss in the year when it can be ascertained with reasonable certainty how much of the loss will be recovered. Tim Kelleher, founder of the Investment Fraud Recovery Network, says he considers taking the loss in 2007 to be a very aggressive stance unless there is some corroboration from bankruptcy trustee Soneet Kapila. "If he would give an indication, the gates are open," Kelleher said. However, Soneet told me today that he isn't going to be giving an indication any time soon. "The reality is that this case by virtue of its magnitude is still very young," he said. "I don't have any idea of what kind of return investors will get, if any. I would be speculating."

I'll be writing more on other issues raised at the meeting.   

Settlements available on some burial policies

African-Americans who bought "burial insurance" in the early 1970s or earlier from companies affiliated with Americo Life may be eligible for benefits under a settlement agreement with Florida, Texas, Georgia, California and Ohio. These are small life insurance policies that were sold to African-Americans at higher costs or lower benefits than they were to white customers. If you have one of these policies, and meet eligibility criteria, the company will add 25 percent to its face amount. Cash payments may be available on terminated policies. To find out whether your company is one of the ones affected by the settlement or to get a claim form or information, go to this Web site maintained by the Texas Department of Insurance.

One of Pearlman's creditors/former tenants is in trouble today

The Orlando Sentinel has a story today about Fereidoun "Fred" Khalilian, Paris Hilton's former partner in Club Paris, being arrested on rape charges. Club Paris was a tenant in Church Street Station. According to this story last June, Khalilian gave Pearlman nearly half a million dollars last December, expecting he would be paid back in 30 days and get free rent for the club for a year.

Pearlman also had a status hearing in federal court today in Orlando, which he did not attend. Trial is still set for March, although it's likely to be delayed. The date will be reconsidered at the next status hearing Jan. 9. Prosecutors repeated their previous statement that they probably will file additional charges. There wasn't any news, although an Orlando TV station filed this report.

State fund feels the pinch of mortgage market problems

Florida's State Board of Administration says it has almost no direct exposure to subprime mortgages, but its short-term investment portfolio is still taking a hit from problems in the mortgage market. Investors now shy away from asset-backed securities even when the borrowers for the underlying debt have good credit. The result: The board said Wednesday that some of its its debt holdings have been downgraded, including $2.2-billion worth of short-term debt that is now rated below the initial purchase requirements. Here's the SBA Report for those interested in the details. The downgrade means the debt is worth less if the SBA were to try to sell it--some securities have dropped 5 to 10 percent in value. The SBA said it expects to be able to redeem two of the positions at their maturity and is working to restructure other positions. The SBA manages $187-billion in government funds, including the $138-billion pension fund for state and local government employees.

CFO Alex Sink had asked for the report, but I couldn't reach her to comment on it Wednesday. After the meeting, Gov. Charlie Crist said "we're concerned, but we're also hopeful."

Does Uncle Sam owe you money?

I don't know about you, but if I were looking for a big refund check from the IRS, I'd notice if it never showed up. Apparently not everybody does. The IRS says it is trying to find 1,305 people in the Tampa Bay area to whom it owes $1.3-million, or about $1,000 apiece. The checks were returned to the IRS as "undeliverable." In most cases that seems to happen when people move without leaving a forwarding adddress.

You can check on whether you are due a refend by calling toll-free 800-829-1954 or going to the IRS Web site. Warning: You need to know how much your refund is supposed to be. Update your address with the IRS if you move and whether you've moved or not, have your refund deposited directly in your bank account next year.

Lou's story is going Hollywood

Laura Dunn says pre-production work is underway on a feature film about Lou Pearlman's life. There's no title yet and she says she can't discuss the details, but the movie most likely will  be released in 2009. "We have a lot of Hollywood money behind it...some very big names in Hollywood." Laura, who is one of the producers, says she bought the rights to Lou's life story three years ago when they were working together on a reality show. She's not saying what she paid, but she said she thought it was an interesting story: "Here's an aviation mogul getting rich off boy bands. It was just a fluke interesting story. Then it got to be really interesting." Laura lives in LA and her daughter dates one of the members of Before 4, one of Lou's boy bands.

How can anybody own the rights to the life story of a public figure? I asked entertainment lawyer Fred Bernstein, who represents Laura, about that. He says that even public figures have and can sell the rights to private parts of their life stories. Of course there can be touchy issues regarding what's  private and what isn't. "It gets complex when you have people who engage in public interviews," he said. "Once it's disclosed, it's in the marketplace. But there's a whole lot about Lou Pearlman that we as the public don't know." He said that once someone has been charged with a crime, information that has a reasonable relationship to the offense is no longer private. In addition, he said there are distinctions between reporting information about a person and using that information commercially, such as in a movie. "What Laura has done is developed a wonderful take on how to tell Lou's story without it being limited by deciding if he is a good guy or a bad guy," he said. 

[iStock.com photo]

Soneet's hiring an entertainment consultant

Soneet Kapila says he needs help valuing and marketing entertainment assets owned by various Trans Continental entities (productions, publishing, studios, TV productions) and has asked the court for permission to hire entertainment consultant Barbara Bolan.

Update from the bankruptcy court

A hearing yesterday covered many of the items I've previously written about on the blog. Among them--approval of Soneet Kapila's motion for the court to hold the buyer's deposit on Pearlman's Windermere home to cover repair of damages. The judge also granted Kapila's request to use Pearlman's Delta frequent flyer miles to help cover travel expenses related to the case, but hasn't decided yet about his American Express points.

The judge approved auctioning the list of items on eBay except for four US5 tapes that Dave Hedrick says belong to him based on his earlier auction purchases. Speaking of auctions, here is a report from the first auction, which was just filed in court although dated July (the full list of items purchased is available through Pacer.)

Lou's lawyer is leaving

Fletcher Peacock is stepping down as federal public defender Feb. 28 when his term expires. He plans to go into private practice doing federal criminal defense work in the central Florida area. Peacock said he is interested in continuing to represent Lou Pearlman as a court-appointed lawyer although he has not discussed that yet with the judge. "That's a important case and it would be good to have continuity," he said. Peacock said there have been other instances when lawyers left his office but continued their work on a case by appointment.

Although Pearlman is scheduled to come to trial in March on federal bank fraud charges, it's probably not going to happen then. Peacock said he may ask the court for a postponement to have more time to review the evidence. "We got a discovery recently with 12 gigabytes of email," he said. Prosecutors are unlikely to object to a delay. They have said publicly that they plan to file a superseding indictment with additional charges. A conference to discuss the status of the case is scheduled for next week.

Bankruptcy trustee going after former Pearlman associate for fraudulent transfers

Here's what many investors have been waiting for: Soneet Kapila's first public attempt to recover some of the millions of dollars that went to Lou Pearlman's former associates in the years before his investment scheme collapsed.

Kapila filed this complaint today against Gregory T. McDonald and Heritage Entertainment Inc. Kapila is after $2.5-million Louis J. Pearlman Enterprises paid Heritage in late 2004and $740,000 Pearlman paid in 2005. What he got in return were interests in F.F. Station, owner of Church Street Station. Kapila called these "worthless membership interests in an insolvent limited liability corporation." McDonald was the sole owner of Heritage, according to the suit.

I was not able to reach McDonald.

[Trans Continental photo]

Predators stake will net $79,662

In case you were wondering how much Lou's stake in the Orlando Predators was worth, here's the answer: not much. The Predators want to buy back Pearlman’s small stake in the arena football team for $79,662. The team says it will pay $1.64 for each of the 48,574 “membership units” owned by Louis J. Pearlman Enterprises, which invested $59,500 in the team in 2003. Pearlman bankruptcy trustee Soneet Kapila said he has had no other offers for the units and the team disputed his right to sell them to a third party. The court still must approve the deal. Pearlman is in jail awaiting trial on bank fraud charges.   

In other news, Kapila wants to abandon any interest in Pearlman's condo at Mosaic at Millenia in Orlando. He says there is no equity in the property.

Money question of the week: Will you spend more, less or about the same this holiday season than you did last year? Why?

This is the time of year when retailers and economists would like to be able to figure you out. Have higher gas prices and other costs put a crimp in your holiday plans? Or is gift giving a priority for you regardless of other concerns. So tell us: Will you spend more, less or about the same this holiday season than you did last year? Why? If you include your first and last names and city, your comments will be considered for publication in the Times.

[AP Photo]

Doing a double take when it comes to crimes of persuasion

Ordinarily I try to ignore the feud between Alec Difrawi and Les Henderson et al, but I just had to pass this along. As many of you know, Les runs a Web site known as Crimes of Persuasion, which can be found at crimes-of-persuasion.com. Alec recently created a corporation in Florida named Crimes of Persuasion Inc. Of course it has its own Crimes of Persuasion Web site, which can be found at crimes-on-persuasion.com (note the ON) or coponline.org. You know what they say about imitation being the sincerest form of flattery. Be sure to read the "about" page.

Alec and Lou Pearlman were associates in a modeling business that Les wrote about and both post comments on this blog.

Lou is asking lawyers to keep documents secret

The Orlando law firm Leventhal & Slaughter is claiming attorney-client privilege in refusing to turn over some documents Trans Continental bankruptcy trustee Soneet Kapila has requested. The interesting twist: a letter to lawyer Robert Leventhal from federal Public Defender Fletcher Peacock saying his client, Lou Pearlman, "wishes to invoke any privilege available to him to retain the confidentiality of his communications with you and members of your firm, including the privileges available to him under the Fifth and Sixth Amendments and the Florida Bar Rules."

Leventhal said his firm wants the judge to decide "what privileges and/or rights of Mr. Pearlman can be wiaved by the trustee so that any production of privileged material and information will not run afoul of Mr. Pearlman's rights and counsel's legal and ethical obligations."

Investor meeting Nov. 15

Many of you have received an invitation in the mail from JKHarris 165 Services regarding a meeting for Trans Continental investors Thursday, Nov. 15, from 9 a.m. to noon at the Crown Plaza Hotel in Tampa. My understanding is that this is an informational meeting about taking a fraud deduction on your income tax return for your Trans Continental losses. I previously wrote about this topic here. I recommend attending this meeting if you have enough taxable income to make a deduction valuable and would like to learn more about your options. This is a complicated area of tax law and one many tax preparers don't know a lot about. The more you know, the better able you'll be to make a decision about what to do. Keep in mind that JK Harris 165 Services is not the only company with a specialty in this area.  

Money question of the week: Should the U.S. share our hurricane risks?

Should we have national windstorm insurance or some other type of federal catastrophe fund? That's a hot topic for Florida politicians but more like a hot potato for those in other states. Times Business Editor Bob Trigaux wrote last week about the politics involved. In theory, if we have national flood insurance, we could have national windstorm insurance. What do you think? If you give your first and last names and city, your comment can be considered for publication in the Times.

Join the Money Panel

Are you interested in money? If so, we’re interested in you. The Times is once again recruiting Tampa Bay area residents willing to share their opinions and experiences on the stock market, interest rates, college and retirement planning, insurance, the economy, credit cards, student loans and other money topics. We want our Money Panel to include people of all ages, income levels and investment experience. The only requirement: You must be willing to be quoted by name in the newspaper.

Here's where to sign up online.  Spouses who both want to participate should fill out two forms. Past Money Panel participants need to sign up again. To thank you for your participation, we offer a chance to win one of four great prizes: sets of four tickets to Busch Gardens, the Florida Orchestra, “Gypsy” at Ruth Eckerd Hall (Dec. 16), or a Tampa Bay Lightning game (Dec. 15). Your entry must be received by Nov. 16 to be eligible for the prize drawing, so get yours in early. Your information will not be shared with any other company or used for solicitations.

IMPORTANT: Even if you filled out the form recently, you will need to do it again. We are starting the Money Panel data base from scratch. Also, only new sign-ups be eligible for the prizes.

New Medicaid rules for long-term care penalize gifts, reward people who buy insurance

Today's column takes a look at the new rules for qualifying for Medicaid in Florida. The primary goal is to make sure that the government doesn't pick up the tab for nursing home bills unless you really are poor. People who impoverish themselves by giving away assets will be disqualified (how long depends on how much you gave away). One way you can preserve more assets for your spouse or other heirs will be to purchase a new long-term care insurance policy that qualifies under the new "partnership program." Essentially you're allowed to keep assets matching the amount of benefits under the policy.

One note of explanation: The look-back period for transfer of assets is now officially five years rather than three. However, the longer period only applies to assets transferred after February 8, 2006, when federal law on the subject changed. Thus a three-year lookback will still apply until February 2009, when gradually it will be extended until it encompasses five years. Here's some discussion on this point. A five-year lookback is already in effect for asset transfers involving trusts.

Medicaid eligibility is administered by the Florida Department of Children and Families. Unfortunately, I've never found anyone there willing to discuss the subject with me. However, you might be able to get someone to answer your questions if you call 866-762-2237.

Here are the income and asset eligiblity requirements.

Kapila still trying to get documents from Pearlman lawyers

Soneet Kapila filed this affidavit supporting a moton to compel the law firm GrayRobinson to turn over documents related to its representation of Lou Pearlman. Kapila says GrayRobinson turned over some documents but claimed attorney-client privilege for others.

Aaron Carter gets contract releases

The Trans Continental bankruptcy judge released  singer Aaron Carter from his recording and management contracts. A hearing is scheduled for Dec. 13 on the issue of ownership of copyright interests and "intellectual property" related to his recordings during his years with Lou Pearlman.

[AP Photo]

When can you stop filing income taxes?

Question: My 84-year-old father would like to know when he will be able to stop filling his income tax.  Last year the person that does his taxes said he would not have to file again and he is afraid of doing something unlawful.

Answer: If his tax preparer told him that, he probably does't have to file. The filing requirement is based on age, marital/household status and gross income, which does not include Social Security except in some cases if you are married filing separately. Here are the numbers that applied to 2006 returns filed this year. I can't find a Web site with the numbers for 2007 returns, but generally they are about $300 more on single returns and $600 more on married/joint returns. Assuming he is single, your father won't have to file unless is gross income is at least $10,050 not including Social Security.

There are a few exceptions that require people with lower incomes to file. They include people who have net self employment earnings of $400 or more and owe self-employment tax, people who are entitled to a refund and people who received the earned income credit in advance.