How will you invest in 2008?

The eve of a new year is always a time for both hope and uncertainty. None of us can say for sure what 2008 will bring. Nevertheless, we all have to make decisions both about our lives and our money. Are you planning to change your investment strategy in 2008 or will you simply stay the course?

For two pieces in Sunday's Times, I asked for opinions from money managers, economists and market researchers and from Times readers. As you can see, there is no consensus other than that things are likely to be volatile. I'm a "stay the course" person myself, continuing to add to my 401(k) and IRA. I believe in keeping a mix of stocks, bonds and cash.

Tell us what you are doing. 

A Times reader's "Ode to Pearlman's Duplicity"

The Times' stories about Lou Pearlman prompted reader and regular letter writer Robert B. Fleming to write this letter and accompanying poem, which were published in today's business letters section.

An ode to Pearlman's duplicity

Lou Pearlman is a flat-out fraudster and shameless bilker. His scam tactics were incredible. This man led a lavish lifestyle while he cheated people, thus there is righteous rancor rampant. With all the subplots and twists to the Pearlman drama, I am not surprised that a movie is being made and a book written about him. They could almost make a TV soap opera out of his antics and chicanery. I'll even contribute a Pearlman portrait to the expose saga:

Canceling civilized rules,

Out to make investors his tools,

Regarding them as utter fools.

Rogue breaker of trust,

Unfeeling and unjust,

Pearlman's brazen greed

Telegraphs his evil creed.

Robert B. Fleming, St. Petersburg

Help wanted: savvy money manager

The State Board of Administration is inviting bids for the job of managing its money market funds. It's all part of the strategy to rebuild confidence in the SBA's Local Government Investment Pool, which barely survived a run on the fund last month. Companies that apply for the job must have at least five years experience running a AAAm-rated prime institutional money market fund with at least $10-billion in assets under management. The company also will need to show at least five years of returns for its money funds. The main objective is to find a manager for the local government fund, which now has about $9.8-billion in its high-quality "A fund" and about $2-billion in its troubled "B fund." However, the state says it also will consider adding on contracts to manage other SBA-managed funds. These include the cash assets in the Florida Retirement System (about $1-billion), the Hurricane CAT Fund (about $8-billion), the Citizens Property Insurance fund (about $5-billion) and another money market fund (about $500-million.) Taking all that on will require a big company because the SBA says it wants its funds to be less than 20 percent of the assets the company is managing.    

Will an auction bring a buyer for Lou's mansion?

Conventional marketing hasn't produced a buyer for Lou Pearlman's Windermere property, so bankruptcy trustee Soneet Kapila and the first mortgage holder, Bank of America, want to try an auction instead. They have asked the judge for permission to hire Fisher Auction Co. as auctioneer. The bankruptcy estate will advance up to $25,000 toward marketing expenses for the auction. If the property sells, those expenses will be the first money reimbursed. In addition, the trustee will get 2 or 3 percent of the purchase price (depending on whether there is a procuring broker involved). A contract to sell the mansion for $7.1-million fell through because the buyer did not obtain financing. The first mortgage on the property is in the neighborhood of $5.3-million. There also is a second mortgage, although it is secured only by vacant land next door to Lou's house.

Kapila said no date has been set for the auction, but it would most likely be in late February.

Yes, Lou Pearlman is still in jail

Someone seems to be getting sick amusement out of posting comments suggesting that Lou Pearlman has or soon will be released from a jail. Lou will not be released without a court hearing and a ruling by the judge. If you ever want to check on whether he is still in the Orange County Jail, click here.

Update: Lou's next appearance before a judge, a "status conference" has been postponed to Jan. 30.

Happy Holidays from Hollywood

Producer Laura Dunn says that her profits from the Lou Pearlman movie she plans to make will all go to the investors who were burned by his schemes. Here's what she said in an email to me:

"I have been planning all along to donate 100% of MY profit from the movie to the individual investors. I wanted to wait to share this information until we were further along in production, but after reading the article I thought that this would be a good time to share this information. I want to give hope back to some of these people. I was never intending to cash in on this project as this is not who I am. I have been very fortunate in my life and can only hope that this movie is a great success so we may be able to help the "individual investors" out. Please let everyone know that there is hope."

Of course there have to be profits before there is anything to share, but it's certainly a generous gesture and in keeping with the holiday spirit.

And may I add my good wishes to all of you for a Merry Christmas!

Lou Pearlman one year later

In today's Times I offer a look back and a look forward in the Lou Pearlman saga. So much information has come out in bits and pieces and much of it has been published only here on the blog, not in the newspaper, that I thought it was a good time to sum things up.

Here's my summary of what happens next:

Pearlman's trial is set for March, but likely will be postponed. He also could work out a plea agreement with prosecutors.

More indictments are expected for Pearlman, some of his close associates and possibly some agents who sold the scam investments.

The search continues for assets that might be used to repay creditors.

Lawsuits will be pursued against some of the people and companies that received money Pearlman took from investors and banks.

New tax law offers relief for mortgage debt forgiveness

Homeowners whose mortgage lenders forgive some of their debt got a big tax break from the new 'Mortgage Forgiveness Debt Relief Act" Congress just passed.  Under the old law, debt forgiveness is considered taxable income--pretty painful stuff when the reason your debt was forgiven is because you're broke. Now forgiveness of debt or resetting of terms will not be taxable if the debt was incurred in the acquisition, construction or substantial improvement of a principal residence. A cash-out refinancing is not eligible to the extent that it exceeds the original acquisition amount.

Other features of the law include the extension of AMT (alternative minimum tax) exemptions. Basically that means if you weren't affected by the AMT last year, you probably won't be this year. In addition, there is a tax break on home sales for recent widows and extension of the mortgage insurance deduction. You can read more details on all this here.   

The downside: Tax return processing and refunds are likely to be delayed while IRS computers are reprogrammed for the changes. And once again, paper tax forms will be incorrect. If you're affected by any of the changes, you should file later and do it electronically.

Is TypePad's spam filter picking on you?

TypePad recently installed a more aggressive spam filter, which means some posts go to a spam box instead of being published. Please do not take this personally; it has even happened to me. I am able to rescue some of them from spam, but that means publication ends up being delayed. I am told the situation will improve over time. In the meantime, my apologies for the inconvenience.

The money is slowly trickling in

Bankruptcy trustee Soneet Kapila's collection efforts have now produced about $1.5-million, according to reports filed today with the bankruptcy court. The largest amount is in the Lou Pearlman individual bankruptcy. About a third of the total came from the two auctions. Kapila also has been successful in claiming refunds on deposits that Pearlman put down on property that was never purchased. The $1.5-million total does not include the recent $1.6-million settlement related to the Nassau property. It has been approved by the court, but Kapila hast yet to receive the money.

Collection and analysis of bank records is continuing, but we're now moving into a more difficult stage--the pursuit of lawsuits claiming fraudulent transactions and continued foreign investigations.

Kapila still has not requested that he be paid anything other reimbursement for travel and similar out-of-pocket expenses. "We have held back applying for frees until we demonstrate some results," he said. "I'm paying all our staff people and the lawyers are paying their staff people. We're still out of pocket." 

Help for those struggling to make ends meet

I've recently heard from some older homeowners, including some of Lou Pearlman's victims, who are struggling financially and wonder where to go to get help. One of the best programs for low-income people who are 65 and older is SSI, or Supplemental Security Income. One note is that to qualify you cannot have more than $3,000 in countable assets for a couple ($2,000 for a single person), not including your home or car. If you have more than that in the bank, you may be able to qualify by using your money to pay down your mortgage or other debt.

For homeowners, a little-known source of help is homestead property tax deferral. Call your local tax collector's office for information in your community. Social service organizations in the area where you live can you refer you to helping organizations. In the Tampa Bay area, call 211 for information and referral or click here.

SBA's relationship with Lehman Brothers draws more fire

Bloomberg has a long and very interesting story today about the State Board of Administration's relationship with Lehman Brothers. Among other things, it suggests Lehman Brothers was dumping bad investments on the state because other, more sophisticated investors, wouldn't buy it. It also notes that former Florida Gov. Jeb Bush, a former SBA trustee, was hired as a consultant to Lehman before some of the sales took place. Perhaps even more disturbing is the way that the state took on more and more risk related to the housing market last summer even as its woes were the subject of big headlines.

Update:

Here's the purchase info on SBA holdings.

Focus your giving to make it more meaningful

This time of year lots of kind-hearted people find themselves in a quandary. The mail brings appeals from one seemingly-worthy charity after another. You want to be generous, but you can't afford to give to everybody. What's a person to do?

I recommend the top-down approach. Select one or two areas of concern that are closest to your heart, such as religion, education, the arts or social services to the needy. Throw out all appeals unrelated to your choice. Learn something about the organizations that are related to your choice by visiting them in person or researching them on the Internet (Guidstar is a good source). Then pick. Larger gifts to a few organizations are more meaningful than small gifts to many. Or, as an alternative, make one large gift and a few small ones. Remember that whatever you do helps make the world a better place and none of us can solve the world's problems alone.

Here are some strategies Times readers follow for their giving.

How has the demise of Lou Pearlman's empire affected you?

Monday will be the one-year anniversary of the Times' publication of my first story about Lou Pearlman's investment scam. It was the first time anything had been published about investors having difficulty getting their money out; in fact some investors defended the EISA program in comments posted on the Times Web site. But as we know now, it was just the beginning of a long nightmare for investors. I'm working on a story to recap the case and bring readers up to date with what's gone on and would like to publish some comments from investors. You can, of course, post anonymously on the blog, but I would like some comments that I can consider for publication in the newspaper. That means I need your real name and the city where you live. If you like, you can email comments to me rather than posting them here.

I have written so many posts and readers have written so many comments that the "Trans Continental News" category now has difficulty loading on people's computers. In recognition of that problem and the one-year anniversary of this case, I am moving the discussion to a new category: Lou Pearlman 2008. The posts in the Trans Continental category will continue to be open for comment, but no new posts will be placed in this category. If you have bookmarked the Trans Continental page, please change it to the main Money Talk page. Thanks!

Posts on the Trans Continental Airlines scam have a new home

This is the new home for posts on the Trans Continental Airlines investment scam. Earlier posts can be found here.

Judge says Soneet Kapila has rights to some documents

Judge Arthur Briskman ruled today that bankruptcy trustee Soneet Kapila has the right to waive attorney-client privilege for the Lou Pearlman entities he represents. If he does that, then lawyer Robert Leventhal and the law firms Leventhal and Slaughter and GrayRobinson have to turn over the documents Kapila requests, Briskman said.

However, this wasn't the ruling Kapila was hoping to get. The judge said that when the documents apply to Lou Pearlman personally or as a joint client with the Pearlman entities, then "the balancing test" will be used to determine who controls the attorney-client privilege. As the judge explains on page 11, this means "the specific facts of a case are evaluated and balanced, including the risk of harm to the debtor versus the benefit to the estate." He notes that the information Kapila is seeking might affect the criminal charges pending against Pearlman.

Also Thursday the judge ruled Kapila can use Pearlman's Citibank reward points to help pay expenses in the case and approved the deal to sell Pearlman's small stake in the Orlando Predators back to the team. He also approved this motion (related stipulation) to settle with the developers of the Atlantis condo development. The bankruptcy estate would get back $1.6-million of the $2.3-million that Pearlman had put down on five condos. The creditors' committee filed this objection, asking for more time to evaluate the deal, but apparently did not convince the judge.

Getting to the bottom of what's going on at the SBA

As someone who often has been frustrated trying to get information out of the State Board of Administration, I am pleased to see CFO Alex Sink digging for answers and pledging to improve communications. The other two SBA trustees--Gov. Charlie Crist and Atty. Gen Bill McCollum--are looking to her for leadership, and so far at least, she's stepped up to the plate. The run on the state and local government investment pool required drastic action. We don't know yet how well the restructuring will work out, but at least it gives the SBA some breathing room. Appointing Bob Milligan as interim executive director also brings some stability to a volatile situation.

I know that a lot of people are assuming the worst about what went on at the SBA. This story from Forbes claims (without any attribution) that Lehman Brothers sold the state the majority of the defaulted debt. It then raises the question of former Gov. Jeb Bush's possible involvement since Bush was hired in August as a consultant to Lehman Brothers. When he was governor, Bush was one of the trustees responsibile for the SBA. I have tried without success to get the SBA to either confirm or deny the Lehman Brothers connection. (They claim they're working on putting information together about the purchase of the investments.) Apparently Sink also has had some difficulty getting the information, because she includes the question among those she wants investigated by the SBA audit committee. The committee started its work yesterday and among other things, indicated it wants to look at communications from brokers about the investments.

It's important to understand how the state came to take on these risks. Bush may or may not have had anything to do with the purchase of the investments even if Lehman Brothers was the brokerage involved. However, innuendo flourishes in the absence of facts. Let's get some facts on the table.    

SEC shuts down Orlando pyramid scheme

If you've never invested in "Wealth Pools International" or "Recruit for Wealth," consider yourself fortunate.  The SEC says the companies were part of an Orlando-based pyramid scheme that claimed 70,000 victims in 64 countries and raised $132-million this year alone.

The SEC froze the companies' assets this week and charged them and Robert Lane with sale of unregistered securities. The SEC says the scheme involved the sale of English and Spanish language tutorial DVDs, but the profits came from recruiting new investors. "The defendants enticed investors to purchase thousands of DVDs by falsely promising them that they would earn income for life with no further effort." Hispanics in Orlando and Puerto Rico were the primary target.

A point of interest: The federal judge who ordered the assets frozen appointed Denise Dell-Powell as receiver for the two companies. She also happens to be bankruptcy trustee Soneet Kapila's attorney.

Capital gains taxes go to zero next year for some people

In today's column I wrote about the long-anticipated zero capital gains tax, which kicks in Jan. 1. It will apply to dividends and capital gains income of people who are in the 10% or 15% tax bracket before counting the gain. If the gain takes you over the bracket, only the excess is taxed.

This is an opportunity worth exploring by anyone who might qualify. Even if you don't actually want to get rid of a stock or fund, you can sell it and buy it back, resetting your tax basis to the new, higher amount. (Wash sale rules apply only to sales at a loss.) However, increasing your income can have important implications that need to be considered before your sell. One is the potential for higher tax on your Social Security benefits and for a higher Medicare premium. My column points out other planning considerations.

Soneet Kapila wants your help

Bankruptcy trustee Soneet Kapila is asking investors to help with his search for Lou Pearlman's assets. If you're willing to help out, please fill out this questionnaire and send it back to him with copies of the fronts and backs of your cancelled checks, wires transfers and other info you think might be helpful. His primary interest is collecting information on the bank accounts where the money went. Even though you may already have sent this in with your bankruptcy proof of claim, he says it would be helpful to send it directly to him.

NY lawsuit still in state of confusion

I've uploaded a few documents for those of you who are still trying to make some sense out of the New York lawsuit. It doesn't seem likely to me that anything positive can come out of this for investors.

one, two , three, four

Florida pension fund has some of the suspect investments

There's been lots of news lately about bad investments in the State Board of Administration's Local Government Investment Pool. About $1-billion of those same investments are in the public pension fund (Florida Retirement System), which the SBA also manages. These investments are a concern, but in my opinion they are not something for FRS participants to worry about for two major reasons: 1. The pension fund is a long-term fund and doesn't face the kind of withdrawal demands that a money market fund faces and 2. These investments are a very tiny (half of 1%) part of the pension fund's assets. Here is a report about SBA assets  for those of you who want to know more. (Note: if you add in the items referenced in the footnotes, the pension fund's total holdings of these investments are about $1-billion).

Will Tammie and Dave talk?

Bankruptcy trustee Soneet Kapila filed documents in court this week saying he plans to question Lou Pearlman's girlfriend, Tammie Hilton, his frequent jail visitor, David Hedrick, and three other people--Ben Owen, Barry Irving and Robert Devine. He also has issued subpoenas ordering them to hand over any correspondence or documents they've got related to Lou. Here is what he's ordered Tammie to produce. (See p. 11)

Update: Tammie's examination has been rescheduled for Jan. 7.

Coleman Stipanovich resigned today as executive director of the SBA; Board approves restructuring of troubled fund

Coleman Stipanovich, executive director of the State Board of Administration, resigned this morning in the midst of a crisis that damaged the credibility of the manager of the state pension funds and other public funds. Access to the SBA's $14-billion Local Government Investment Pool has been frozen since Thursday as a result of a run on the fund.

Stipanovich's resignation came at the end of this mornings SBA meeting, at wich the board approved a plan for restructuring the investment pool, allowing participants access to part of their money as soon as Thursday morning. The board adopted a plan to create "A" and "B" funds, as described in this BlackRock report. The board also appointed BlackRock Inc. as interim manager of the investment pool for 90 days while a search for a permanent manager takes place. The fund had been managed in-house by an SBA employee. It ran into serious problems with $867-million of securities that defaulted or had to be restructured and another $1.2-billion that are considered "under stress" due to credit issues.

An advisory committee of local government investors will continue to work with BlackRock. Here is the investors' advisory committee report.

Wednesday story on Stipanovich. Wednesday story on fund actions.

Withdrawal restrictions on state fund likely to continue

Local governments aren't likely to get full access to their money in a $14-billion state-run investment pool any time soon. BlackRock Inc., a consultant hired to advise the State Board of Administration, says it will recommend that the fund be split into two parts. The largest share-86%-would be in an "A" fund containing top-quality investments that would allow limited withdrawals, possibly with redemption fees for those who withdrew large amounts. Another 14% (about $2-billion)  would be in a "B" fund holding the troubled securities, with no withdrawals on demand. Instead,  investors would have to wait for the securities to mature to get their money--and contend with the possibility that they might never get it. BlackRock consultants said they ruled out the possibility of the pension fund rescuing the Local Government Investment Pool by purchasing the troubled assets.

An advisory committee of local government officials said it wants the state to guarantee that investors will receive 100 percent of their money back. It supports the two-fund scnario but opposes redemption fees.

State names BlackRock adviser for troubled fund

BlackRock Inc. will be giving the Florida State Board of Administration advice on what to do about its Local Government Investment Pool. The pool is in a bind because about 11% of its assets are in defaulted and downgraded debt. The pool was frozen last week after a run on deposits. BlackRock will determine the fair value of the questionable securities in the portfolio and will recommend what to do with them. It also will do an overall evaluation of the portfolio. BlackRock will get a $125,000 fee. The board said it also considered JPMorgan, Goldman Sachs and Barclays for the job.

An advisory committee of depositors in the local government pool will have a conference call today at 4 p.m. Click here to listen in live.

Here is a copy of the state's agreement with BlackRock.

Pearlman behind on Clearwater Beach condo fees

Here's a shocker: Lou Pearlman hasn't been paying the monthly maintenance and dock fees ($926 a month) on his condo at Belle Harbor on Clearwater Beach. he's $7,408 behind (including late fees) and the condo association wants to put a lien on the property and foreclose. The bankruptcy court has to give permission for that to happen.

[Times photo]