Soneet Kapila goes after John Regna and Stuart Harrington for fraudulent transfers

Lou Pearlman bankruptcy trustee Soneet Kapila has filed two major fraud and asset recovery cases against two people who helped Pearlman obtain money from banks.

The bigger case in terms of money is against Stuart Harrington, who is accused of arranging bank loans for Pearlman and, at least some of the time, claiming to the banks that he was chief financial officer for Pearlman and his various companies. During the two years leading up to the bankruptcy filings, Pearlman and his companies transferred at least $1.3-million to Harrington and $1.8-million to North American Capital Markets. If you go back four years, the numbers are larger. 

The case against Regna and his company, World Entertainment Associates of America, accuses him of taking Pearlman's personal property--even loading up the jet skis behind Lou's house and taking them away after Kapila had put them up for auction. The lawsuit references $416,000 in Pearlman-related funds turned over to Regna, $60,000 given to a law firm for his benefit and $50,000 in two-year transfers to World Entertainment.

"While Pearlman was out of this jurisdiction, he was in constant contact with Regna by telephone and electronic mail prusuant to which he provided direction to Regna about payments to third parties and the marshalling of Pearlman's personal belongings," the suit says.

Of course, Kapila wants it all back.

Judge sends Lou Pearlman off to prison; orders restitution without interest

U.S. District Judge G. Kendall Sharp ordered Lou Pearlman off to federal prison Wednesday, but declined to add interest to the restitution order against him. The judge said he's only ordering repayment of principal now and will hold open the question of interest until after the principal is paid. Don't hold your breath waiting for that to happen.

Chief Assistant U.S. Attorney Roger Handberg had asked for $424.4-million in restitution, including the interest posted to investors' accounts. Defense lawyer Fletcher Peacock filed this objection, saying interest should not be included. The principal amounts listed in Handberg's order were $139.8-million for EISA investors, $103.9-million for stock inestors and $126.7-million for banks. Remember that the judge previously ordered that investors would be paid ahead of banks--to the extent anyone gets paid. Here's the official note regarding today's proceedings and the report from the Orlando Sentinel and the one from WFTV. More reports: Reuters, Associated Press.

I did not attend today's hearing. However, one of our MoneyTalk readers who wishes to remain anonymous reported that 34 people were in the audience and that Lou appeared wearing a 5X shirt. Here's some of what else was reported to me:

Lou was fidgeting during the whole thing and was constantly rubbing his eyes. I couldn't tell if he was crying. The judge then asked the prosecutor how much money was recovered since sentencing. The prosecutor said 'zero.' The judge said all they have gotten from Lou is a smirk and they should worry about the principal first and he would rule on interest after the principal was paid. The prosecutor then defended Lou and said that he has been helpful in locating money in his various businesses and overseas and has been meeting with the bankruptcy people. The judge then agreed to remove the people from the list who made money. The judge then sent Lou to the federal prison instead of the Orange County Jail.

As Lou left, he looked back with no expression.

Where in the world was Lou Pearlman?

With help from FBI agent Scott Skinner, the Times put together a really cool map showing Pearlman's 2007 route from Orlando to Orlando, traveling around the world. He may also have taken some trips that we left out, but here's the basic route of his adventure: Orlando to New York to Dublin to Frankfurt to Berlin to Frankfurt to Madrid to Panama City (Panama) to Madrid to Frankfurt to Singapore to Nusa Dua (Bali) to Hong Kong to Nusa Dua to Guam to Los Angeles to Oklahoma City to Orlando--circumnavigating the world.

One of the fun things about doing this story was holding Lou's passport in my hands and looking over all the stamps. Here's a story that tells a little about his trip.

Kudos to the fearsome foursome

 

While it may seem to investors that the case took forever, the investigation and prosecution of Lou Pearlman was actually a study in efficency.  And while the judge was the one who handed down the 25-year prison term, it would never have happened without the work of the four people pictured here. They are, from left to right, Scott Skinner, FBI agent; Annette Waldon, IRS  agent; Roger Handberg, chief assistant U.S. attorney in Orlando and Danielle Brooks, former investigator for the Florida Office of Financial Regulation. Here's more about the challenges they faced in bringing Lou to justice.

You can read more about the background of the case here.

Here's the proposed restitution order in Lou Pearlman case

Chief assistant U.S. Attorney Roger Handberg is asking Judge Sharp to award $424.4-million in restitution, including interest owed as of the last statements victims received. This filing makes the argument that interest should be included in the restitution. Presumably Lou's lawyer will argue that interest should not be included. Here's the difference: For EISA investors it's $193.8-million with interest, $137.1-million without; for stock investors it's $103.9-million with interest, $33.4-million without. In addition, there's $126.7-million owed to banks (no breakdown given regarding interest). The judge is expected to make his decision at Wednesday's hearing. So far, of course, he has not been sympathetic to Pearlman's arguments.

Here is the proposed order.

Here are the restitution names and amounts: EISA investors, stock investors and banks

Rolls dealer says he shouldn't have to give back Lou's deposit

Bankruptcy trustee Soneet Kapila has filed a motion demanding that Ultimate Motor Works give back a $25,000 deposit that Lou Pearlman made on a new Rolls as well as a 1984 Rolls that Ultimate had in the shop. In this filing, Ultimate asks the bankruptcy judge to deny Kapila's motion. He says deposits on new Rolls-Royces are nonrefundable because only a limited number of cars are manufactured each year. When Pearlman did not take delivery of the 2007/2008 vehicle, he forfeited his deposit, the company claims.

Ultimate says Pearlman brought the 1984 Rols in for repairs Jan. 8, 2007, but didn't pick up the vehicle when it was ready 10 days later. Repairs were $3,089 and the vehicle has been incurring $30 a day storage charges. Kapila rejected a deal to sell the car for $6,500. Now the lien for repairs and storage exceeds the value of the car, the company said. 

Coming Sunday: The Pearlman investigation

This weekend the Times will be offering an inside look at the Lou Pearlman investigation, including comments from my interviews with the three primary investigators -Danielle Brooks, Scott Skinner and Annette Waldon - and the prosecutor, Roger Handberg. It will be in print Sunday, but I'll post a link earlier when it's online. We've also put together a map showing Lou's round-the-world jaunt in 2007.

A couple of updates on Lou Pearlman and credit cards

The Chicago Tribune, which has MB Financial and investor David Mathis as hometown victims, is catching up with the Pearlman story with this report.

Also, last week I wrote about proposals to rein in credit card abuses. Here are some comments that Tampa Bay residents sent to the Federal Reserve about the issues. You can submit your own comment here. If you want to read more about the Federal Reserve proposal, go here.

New bills in the bankruptcy court add up to more than $5-million

Lawyers and accountants working on the Lou Pearlman and Trans Continental bankruptcy cases have submitted bills for more than $5-million, including $4.6-million filed yesterday. It covers more than a year's worth of work for some of them, but it's more than the entire $4-million or so that trustee Soneet Kapila has recovered to date. Pearlman has admitted stealing $300-million from banks and investors and been sentenced to 25 years in prison.

"I'm going to propose to the court that we hold back a substantial reserve of cash in the estate and then the balance used to pay the fees on a pro rata basis," Kapila said. "We're not going to pay the entire $5-million."

Kapila said waiting so long (the bankruptcy case started in March 2007) was a conscious decision. "We wanted to make sure that we had done enough work to demonstrate that the work wasn't wasted, it was necessary and we were able to show some results." The bills do not include anything for his own time, he said. As a trustee, he could, with court approval, receive up to 3% of the assets recovered. He said the accountants and lawyers working on the case should be paid something now because they are incurring major epenses for salaries and overhead. "It's a major financing burden to everyone who's working on the case."

Kapila and his team are still working on asset recovery, currently focused on litigation. Lawsuits have been and will be filed against people who received money from Pearlman and his companies. Pearlman himself is also expected to assist in recovery. However, Kapila said his efforts to set up a meeting with Pearlman since the sentencing have not been successful. 

Here's a rundown on the new bills: Akerman Senterfitt, $1.9-million; Kapila & Co., $1-million; Genovese Battista, $707,589; Schultz & Braun (Germany), $519,082; J.H. Cohn, $231,959; Pachulski Stang, $181,461. The banks that launched the bankruptcy case previously filed this request for $539,593 in fees (which has not been paid).

A hearing on the fees will be July 16 (the same day as the restitution hearing).

I have posted a lengthy comment from Lawrence Rifken, chairman of the unsecured creditors' committee.

Friday's St. Petersburg Times story.

Here's help acing job interviews

Monty Montgomery, who was one of Lou Pearlman's scam victims, has a soft spot in his heart for job seekers. He has put together a detailed 60-page workbook designed to help people prepare for and ace job interviews. He calls it "How to Pass Job Interviews: 7 Essential Skills You Can Use Step-byStep to Succeed at One of Life's Toughest Challenges." He will email it to you for free as an attachment if you send him an email (PassInterviews@yahoo.com). This would be a great workbook to use with a class or support group of job seekers who could encourage each other.

It's the first of several publications Monty plans to offer through a Web site on the "ABCDs of Life".

Best wishes to Monty on this new endeavor.

Criminal investigation shifting focus

Lou Pearlman has been sentenced to 25 years in prison and will be relocating sometime this summer to the new residence the Bureau of Prisons selects for him. Some posters on this blog have expressed the opinion that the criminal investigation is about to wrap up. That is wrong.

"Now we can focus on the others," Roger Handberg told me this week. Often, all co-conspirators will be tried in one large trial. Handberg, chief assistant U.S. attorney in Orlando, said Pearlman's case was handled first so it wouldn't be delayed by issues concerning the other defendants. He said it's too early to say whether Pearlman will be called upon to testify in any of the other cases. Many Pearlman associates, including sales agents, are under scrutiny. In fact, there's an FBI office in suburban Orlando containing open boxes of files with the names of sales agents on them. Does that mean all the agents will face charges? No. But it does mean that it's way too early to include that anybody's off the hook just because no charges have been filed.

Here's how the restitution order will work

According to Roger Handberg, victims' names and the amount of resitution Lou is to be ordered to pay each of them will be part of the restitution order Judge Sharp will be asked to sign July 16. It is not certain whether this list will be available before the hearing, but I will post it when it is available. Roger said it will not include any personal information about the victims.

Restitution amounts are being determined by reconciling victim statements with the records Trans Continental maintained. Check your EISA statement for cash in and cash out amounts. Restitution will be cash in minus cash out. Some investors (mainly long-time investors) will not be eligible for resitution because over the years they have received more from the program than they put in. Here are a few examples, based on my understanding of how it will work:

You invested $100,000 and over the years, your account grew to $125,000 because of interest, which you did not withdraw. Your account balance was $125,000. Your restitution amount: $100,000.

You invested $100,000 and over the years, you received $25,000 in interest, which was paid out to you. Your account balance was $100,000. Your restitution amount: $75,000.

You invested $100,000, but withdrew $25,000 a few years ago. Then your account grew back to $100,000 with interest. Your restitution amount: $75,000.

You invested $100,000 and over the years you have received interest payments and checks of $100,000 or more, but your account still showed a balance of $25,000. Your restitution amount: 0.

Keep in mind that just because the judge orders restitution does not mean that anyone will receive a dime.

What's that restitution hearing about?

Victims recently received notices from the U.S. attorney's office regarding a restitution hearing set for July 16 at 9 a.m. Here's the scoop: When Pearlman was sentenced, prosecutors said they had not yet had time to compile the total amount that Pearlman's victims had lost. Judge Sharp's response was to defer the restitution part of the sentence until July 16 and to keep Pearlman in the Orange County Jail until then. I expect that the amount of restitution ordered will be the investments or loans minus any interest payments received. The U.S. attorney's office will compile the list and Lou and his lawyer will have the opportunity to look it over and challenge anything they think is inaccurate. Then on the 16th, the judge will enter the restitution order. I doubt that the hearing will be particularly interesting, but I could be wrong.

Unfortunately, the judge ordering restitution doesn't make any more money available to actually pay it.

Lou Pearlman bling sells for $17,750

Yesterday's auction of Lou Pearlman's watches and other jewelry brought $17,750. However, bankruptcy trustee Soneet Kapila chose to pull many of the personalized items from the auction. He said that after looking over the crowd of bidders, he decided the Lou Pearlman memorabilia would bring more on eBay. Expect to see some of those items listed in the future. The most expensive item sold Monday was a diamond-studded Rolex Oyster watch, which brought $7,200. Here's the complete list.  Note that auctioneer Harry Stampler, who conducted the auction at Church Street Station a year ago was one of the winning bidders.

Lou's good stuff will be up for auction June 16

Lou Pearlman's fancy watch collection, gold and diamond rings and necklaces will be auctioned off June 16 in Fort Lauderdale by bankruptcy trustee Soneet Kapila himself. Here's the list of items  (see Exhbit A at the end of the filing). The goodies include Tag Heuer, Poljot, Cartier and real and fake Rolex watches. There are cuff links and rings with the initials LJP, a couple of Orlando Predators World Champions rings and an Airship International ring with an engraving of a blimp. The bankruptcy judge gave his stamp of approval to the auction today. If you'd like to attend, the auction will be at 9 a.m. June 16 in Room 411 of the federal courthouse at 299 E. Broward Blvd., Fort Lauderdale.

Some other items--the deadline for filing an objection to discharging Lou's debts has again been extended. The judge also approved the settlement involving condos at Sand Pearl resort. Kapila is continuing a legal fight with Ultimate Motor Works over a 1984 Rolls and a $25,000 deposit Lou put down on a new Rolls. However, he has given up trying to sell a condo at Enclave at Orlando. He says he's had it on the market for a year and hasn't gotten any offers. In addition to a $53,504 mortage, the property is burndened by liens for unpaid homeowners association assessments and taxes.

Keystone fights back and other news

Keystone Consulting Services (Shaun Keck) is fighting Soneet Kapila's suit claiming it received $635,470 in  fraudulently transfers from Lou Pearlman and his companies during the two year's before the bankruptcy filing. Here is Keystone's motion to dismiss the suit.

*Another group of creditors, those represented by lawyer Donald Gaffney, has filed a claim, asking for fees and expenses, in this case $125,449. The banks previously asked for their legal fees and expenses to be paid.

*Tyler Gray, who has a book on the Lou Pearlman scam coming out in November, has a new gig. He moved from Radar magazine to Blender magazine, which focuses on music and celebrities. Here's a blog item with Tyler's photo.

*And here's some Village Voice commentary on Lou. 

Pearlman proceeds now up to $4-million

The latest report from Lou Pearlman bankruptcy trustee Soneet Kapila is that $4-million has been collected, of which $3.6-million remains unspent. However, Kapila and his attorneys have yet to submit any bills for their work. Since the work has been substantial, I'm sure the bills will be too.

Kapila declined to offer any insight into what kind of resolution there might be of the conflict between bankruptcy law and the judge's order in the criminal case, which put investors ahead of banks for repayment. In response to my inquiry, Kapila said: "I am trying to work on multiple fronts to seek asset recovery. My efforts include working as closely with the government as possible on this and other issues, without us stepping on one another’s toes, and I am not a liberty to disclose such discussions. This seems to have worked pretty well so far."

CNBC Show will put the spotlight on Lou Pearlman scam for "American Greed"

Kurtis Productions was in Orlando and the Tampa Bay area for most of the past week filming for a segment on Lou Pearlman's investment scam for the CNBC television series American Greed. The one-hour special will cover Lou's life from the early years in Queens to now. The program, which is narrated by Stacy Keach (shown below right) is expected to air sometime next year.

I did an interview with the crew Saturday. It was quite an interesting experience--very different from live TV work, which is what I've done in the past. We spent several hours together and I'm sure they'll be spending hours more editing it, all to get a few minutes for the show.                       

Here's a list of the current season's programming for American Greed and here's what they did last season.  You can catch the show on Wednesday nights at 9 p.m. If you'd just like to see a snippet of what the program is like, here's a YouTube clip.

Photo credits: Kurtis Productions

Band promoter replaces Tammie and Dave on Lou Pearlman's visitor list

Richard Namey Sr. and his son Richard Namey Jr. have been Lou Pearlman's most frequent visitors in the last month with another visit scheduled for today. Pearlman's old friends, Tammie Hilton and Dave Hedrick, haven't been to see him since April 11.

The Nameys have been talking to Lou about promoting a rock band, BITEBOY. The younger Namey is BITEBOY's lead singer. Of course whether any such deal is possible will depend on what federal prison officials will allow. Here's a TV news clip about BITEBOY's interest in Lou.

Lou's also had a couple of recent visits from Jeremy Homan. Here's the full list of everyone who's made an appointment to see him. If the status says "completed," that means the visit actually took place.

Court documents related to Lou Pearlman's sentencing

Judge Sharp's sentence

$200-million judgment Note that it says investors are to be paid before banks (institutions) in distributing assets

Lou's statement and the judge's comments

Fletcher Peacock's filing This gives the reasons he thought Lou deserved less than the maximum sentence.

Here's news coverage of Lou Pearlman's sentencing

News coverage: St. Petersburg Times, Orlando Sentinel (includes video of Roger Handberg), New York Times, Associated Press, Reuters, Bloomberg News, New York Post

Comments from victims: St. Petersburg Times, Orlando Sentinel

Times special report, including Livin' Large video

Notes from today's Lou Pearlman sentencing

The courtroom was jam packed. I counted 130 people inside (including all the lawyers) and I'm told there were 30 or so people outside. It's a shame it could not have been in a larger courtroom. Lou seemed to be completely emotionless. I never saw him look at the audience. Some of the speakers got emotional and obviously they were very nervous standing up before the judge in that impressive courtroom--ironically not that far from Church Street Station.

The judge definitely added to his no-nonsense reputation. "The sympathy factor doesn't run very high with the court," he said after Fletcher Peacock gave his speech about why Lou deserved a lesser sentence. He also was very hard on the banks: "They were negligent. They didn't do their due diligence...It's confusing to me why nobody noticed that there weren't any Transcontintal Airline planes flying around."   He said the only reason he approved the plea agreement (instead of requiring a longer sentence) was Lou's age.

The judge said he was signing a $200-million charging order, which I believe is based on this motion. In addition, there will be an order to pay restitution. Because prosecutors haven't calculated the amount, there will be a separate hearing on that matter, set for July 16. My understanding is that they will go through claims and add up principal investments minus any money investors received. According to Fletcher Peacock, investors received about $103-million. While this restitution calculation is going on, Lou will remain in the Orange County Jail. Then he will report to the Federal Bureau of Prisons, on or before Aug. 15. Fletcher wants Lou sent to Coleman, but the judge said the bureau doesn't pay a lot of attention to requests from the court.

Federal judge sentences Lou Pearlman to 25 years in prison

Lou Pearlman got the maximum sentence of 25 years in prison this morning for carrying out one of the largest investment frauds in Florida history. But in federal court in Orlando, U.S. District Judge G. Kendall Sharp added one caveat: For each $1-million the former music mogul returns to victims, he'll take one month off the sentence.

Pearlman, who achieved fame promoting *NSYNC, the Backstreet Boys and other boy bands, has admitted stealing more than $300-million from banks and investors, many of them retirees who trusted him with their life savings. The grand total could be $500-million or more, based on claims filed in bankruptcy court.

During the sentencing hearing, Pearlman said, "I'm truly sorry and I apologize for what has happened." His lawyer, Fletcher Peacock, said Pearlman never intended to steal the money. "He always thought he could pay people back."

Margie Colucci, 49, of Seminole lost $200,000 to Pearlman's fraud scheme and said she didn't expect to get any money returned. But she was pleased with the judge's ruling. "It was very creative on his part," she said.

Pearlman's entertainment empire once included television shows, a record company, recording studio, restaurants and the Church Street Station complex in downtown Orlando. Everything began falling apart in late 2006 as he ran out of money to keep his Ponzi scheme afloat. He fled the country in January and was arrested last June in Indonesia, where he was traveling under the name A. Icognito Johnson. In March he pleaded guilty to four counts of conspiracy to defraud banks and investors, money laundering and submitting a false claim in bankruptcy court.

For more on Lou Pearlman, see the Times' special report.

Creditors' committee asks for maximum sentence

The creditors' committee for the Lou Pearlman bankruptcy sent Judge Kendall Sharp this letter asking the judge to give Pearlman the maximum setence, 25-years, saying it could be revisted in a year with a downward adjustment IF he has given his "unqualified cooperation" in the effort to recover assets and creditors have received "significant tangible benefits" as a result. In other words, no big money recovered, no reduction in sentence.

The committee says that although Pearlman has been talking to bankruptcy trustee Soneet Kapila, so far he hasn't indentified any valuable assets that Kapila didn't already know about. "Mr. Pearlman is entitled to no mercy or credit for belated cooperation that yields no tangible benefits to his victims."

Among the reasons the letter cites for giving Pearlman the maximum sentence are the tremendous number of victims and amount of money involved, the duration of the fraud, the extent of the harm caused to the victims, the calculated nature of the artifices used in the fraud and the lack of remorse. "He is present for sentencing only because he was apprehended and returned to the U.S. to stand trial for the huge financial mess and thousands of ruined lives he attempted to leave in his wake."

Are you going to Lou Pearlman's sentencing?

The sentencing is scheduled for 9 a.m. Wednesday in Courtroom 6C of the new federal courthouse building at 401 West Central Boulevard, Orlando 32801. I recommend getting there 20 to 30 minutes early to ensure a good seat. Please say hello if you see me there. Also, if you speak at the sentencing, I would especially appreciate it if you would check in with me to be sure I have your name spelled correctly!

This information is from the court's Web site:
The public entrance is at the corner of Division Street and West Central Boulevard. All individuals entering the building are required to proceed through a metal detector and have any bags, packages, purses, etc. examined through an X-ray machine. Electronic devices, including photographic/broadcasting equipment, are prohibited in the Federal Courthouse pursuant to Local Rule 4.11. Firearms, knives, pocket knives, chemical sprays and other weapons not specified are also prohibited.
If traveling east on I-4, take the Amelia St exit (83B), turn left on Amelia to Hughey, and turn left on Hughey. Turn right on Bob Snow Lane (blinking light) to the entrance of Church St. Parking Garage.
If traveling west on I-4, take the Colonial Drive (Hwy 50) exit (84) and proceed straight ahead on Hughey. Turn right on Bob Snow Lane (blinking light) to the entrance of Church St. Parking Garage.

Metered parking is available under I-4 across from the federal building

Don't look for Lou to be wheeling and dealing from his jail cell

That's not what bankruptcy trustee Soneet Kapila has in mind, he said today. "This is not about Lou Pearlman being put in charge of managing a business. This is about him helping us make a success out of a music band or any other entertainment products." Kapila said he envisions Lou providing Kapila's entertainment consultant, Barbara Bolan, with information and ideas for achieving success. "That doesn't mean he needs to be given a phone or a desk or an office. If he needs to contact a person, we will contact the person."

Kapila said he thinks it is worth talking to Lou about his ideas to see if there is potential to make money for the bankruptcy estate.  "It may turn out that it can't be done, but without talking about it, we may never know that."

Judge Sharp rejects Lou's bid to delay sentencing

U.S. District Judge G. Kendall Sharp this morning denied Lou Pearlman's motion to delay sentencing. That means the sentencing is still on for 9 a.m. May 21.

Pearlman requested the delay Friday, saying he wanted time to work with bankruptcy trustee Soneet Kapila as a consultant to "monetize" the entertainment assets in the bankruptcy estate for the benefit of the victims. Among other things, Pearlman wanted to have access to telephone and internet two days a week.

Prosecutors strongly objected to allowing Pearlman to conduct business in jail, saying "he should be treated in the same manner as any other prisoner." Among the concerns raised: that Pearlman would use his telephone and Internet access to conduct another fraudulent scheme.

The judge said "anything the defendant has requested in his motion can be accomplished without continuing the sentencing," but did not elaborate. You can be sure that the jail is not going to give Lou telephone and Internet access without an order from the judge.

Both sides still trying to delay sentencing

Will Lou Pearlman be sentenced Wednesday as scheduled? That's an open question at this point. Unfortunately, for those trying to make travel plans, I haven't a clue as to what the judge will do.

Lou's latest request for a delay claims that he can put together a business plan to promote US5 and other artists to "potentially reap large profits for Transcontinental Records, and in turn, the victims." In order to do this, Lou wants to have access to a telephone and an internet connection two days a week. Then, it says, he should be able to come up wtih a detailed plan by May 30 and they should all have a good idea of the plan's success by July 15.

Left unsaid here: Who would put up the money to finance Lou's proposed venture. Promotion costs a fortune.

Although prosecutors also would like a delay in sentencing, they don't like the idea of Pearlman helping Soneet Kapila manage and promote Trans Continental's assets. Prosecutors previously requested a delay in the restitution portion of the sentencing for up to 90 days. Basically they said they're trying to put together a spreadsheet of what victims are owed.

In other news, bankruptcy trustee Soneet Kapila has worked out this proposed deal to reclaim $455,000 of the $610,000 that Lou put down as deposits on condos in the Sandpearl development on Clearwater Beach. Also, creditors represented by Fred Lowe and Jim Lowy have agreed with Pearlman to postpone questioninguntil after he is sentenced.

Creditors get OK to question Pearlman

Judge Arthur Briskman approved the request from Fred Lowe and Jim Lowy to question Lou Pearlman on behalf of creditors. According to the judge's order, what's known as a "Rule 2004 examination" has been approved for this Thursday and Friday, between 9 a.m. and  5 p.m. at the federal courthouse. However, it appears that a deal has been worked out to postpone the examination until after the sentencing.

Lowe and Lowy and/or their clients will have to pay any costs involved. They hope to get information that will help them in pursuing cases against others. Note: these exams are not open to the public.

Creditors want to question Pearlman before sentencing

Jim Lowy and Frederick Lowe are asking the bankruptcy judge to authorize them to question Lou Pearlman before the sentencing. They say that after the sentencing, he won't have any incentive to cooperate, but the U.S. attorney's office is blocking them from interviewing Pearlman.

Michael Crudele was unaware of any fraud, his lawyer says

"Michael is adamant that he was unaware this was a fraud," his Tampa attorney, James Felman, said today. "He has taken no steps to hide any of his assets and never would."

Crudele, who handled marketing for Lou Pearlman's Ponzi scheme, has been cooperating with bankruptcy trustee Soneet Kapila and will continue to do so, Felman said. He said Crudele has agreed to the continuation of a restraining order preventing him from disposing of certain assets, although it is more narrow than the one Kapila requested last week based on this motion.

Felman says the transfers Kapila cites in his motion came from Crudele's Trans Continental accounts, primarily money he had invested in Trans Continental stock. He said Crudele set up EISA accounts for his children, which were used to purchase Florida Prepaid College Funds. "He put hundreds of thousands back into the company and made no effort to withdraw it," Felman said. He said that when the company collapsed, Crudele's account was supposed to be worth $2.8-million.

More Alan Gross correspondence

Since there seems to be a lot of interest in Alan's old correspondence with the Securities and Exchange Commission, I'm posting these two responses from the SEC at his request. One is a form letter to him and the other is a letter to an attorney who apparently contacted the SEC on Alan's behalf. I think Alan does deserve credit for standing up for what he thought was right and contacting the SEC. By the way, when I visited Alan, he played his tape of Lou's old phone call for me, so I can verify its existence.

One, Two 

Kapila can have some of Chamberlain's documents

Bankruptcy judge Arthur Briskman has ruled several of the documents former Lou Pearlman lawyer Rene Chamberlain turned over are not protected by attorney-client pivilege. In this ruling he says the documents have been or will be given to trustee Soneet Kapila. Sadly, for all of you who would like to read them, they have not been made part of the court file.

Another fraudulent transfer suit; this one is vs Keystone Consulting

Lou Pearlman bankrutpcy trustee Soneet Kapila filed this suit against Keystone Consulting Associates of Florida, seeking to recover $635,470 he says was fraudulently transferred from Lou Pearlman and his companies during the two years before the bankruptcy filing. Kapila says Keystone had a contract to be paid $10,000 to provide consulting services to the Trans Continental companies, but did not provide any services. Shaun Keck of Tampa is the only officer of Keystone listed in state records, but he is not named in Kapila's action.

Here's the letter Alan Gross sent to Lou Pearlman

Since there has been some interest in this, I thought I'd post this copy Alan Gross sent me of the letter he wrote to Lou Pearlman last December. He said he did not receive a response.

Update: Here also is a copy Alan provided me of a letter he sent to the Securities and Exchange Commission in 1995.

page one, page two   

Wachovia agrees to pay restitution to victims of its telemarketing customers

Interesting news today from the Office of the Comptroller of the Currency: Wachovia Bank will pay $144-million to settle charges that it allowed telemarketers to use its accounts to help them take millions of dollars from elderly people across the country. The federal Office of the Comptroller of the Currency said Friday that  Wachovia failed to act against the telemarketers even after the victims and their banks complained they were being defrauded.

The government said the telemarketers, including one based in Largo, obtained bank account information from their victims while selling vouchers for discount travel and products or offering free gifts or free trial memberships. The information was then used to draft money out of the victims’ accounts and deposit it in the Wachovia accounts of the telemarketers and payment processors. One of the companies was FTN Promotions of Largo, subject of this FTC lawsuit last year. I think it's interesting that Wachovia was not accused of any fraud but of failing to have the systems in place to adequately respond to the complaints of fraud and then do something about them. Wachovia, incidentally, says it no longer allows pure telemarketing companies to have accounts.

Banks want to be reimbursed $539,593 from Pearlman bankruptcy estate

The five banks that filed the petition to force Lou Pearlman into bankruptcy are asking the court to reimburse their fees and expenses to the tune of $539,593. Their motion says they deserve to have these costs treated as administrative claims (which get paid before any pre-bankruptcy debt) because they provided "substantive assistance" and "substantial benefit" to all creditors defrauded by Pearlman.

They note that claims in the Pearlman bankruptcy alone have now passed $588-million. Soneet Kapila also has filed financial statements for February, including this one for the main Lou Pearlman bankruptcy. It shows $2.9-million collected to date in the Pearlman bankruptcy. 

Judge rejects sentencing delay

U.S. District Judge Kendall Sharp denied a request from Lou Pearlman's defense lawyer to postpone sentencing until August. In this order, the judge said "in light of the time remaining for the parties to prepare for sentencing, this Court sees no compelling reason to grant a continuance." That means the sentencing is still on for May 21 unless he changes his mind. Defense lawyer Fletcher Peacock said both the U.S. attorney's office and the U.S. probation office joined in his request. He said they've all been "inundated" working on a crack cocaine sentencing underway.

Pearlman faces up to 25 years in prison after pleading guilty to stealing more than $300-million from banks and investors.

Who gets the liquor license Pearlman sold at the 11th hour?

Jack Pennel filed this motion in bankruptcy court, trying to gain clear title to a liquor license that the Lou Pearlman-owned Downtown Exchange Lounge sold Dec. 29, 2006 as the Trans Continental ponzi scheme was collapsing. He claims the license was sold to Inno-Cepts Exchange, operator of the Pearl Restaurant. Inno-Cepts then alledgedly used the license as collateral to borrow $350,000 from a Robert Zlatkiss. Pennel had guaranteed the loan and ended up with the liquor license, but the state wouldn't allow him to transfer it because of the bankruptcy proceeding.

Why prosecutors strike plea bargains

The Orlando Sentinel has an interesting piece today explaining the reasoning behind plea agreements, both from the prosecutor's and the defense lawyer's points of view.

Say goodbye to the mansion

Bankruptcy Judge Arthur Briskman this morning approved trustee Soneet Kapila's motion to abandon any interest in Lou Pearlman's Windermere mansion. This allows Bank of America to go ahead and foreclose. It's a shame for investors that this scam unraveled when the real estate market was in the dumps. I'm sure the property could have been sold for a nice gain a few years ago.

The judge also approved Kapila's motions to sell the 2004 Rolls Royce Phantom and 2006 Cadillac limo, which the feds seized last year. The vehicles will go to Bache Auto Sales on consignment; estimates are that the Rolls will sell for $195,000 and the limo for $50,000. Click on the link for more details.

Here's the memo from the hearing. Note that Rene Chamberlain was in attendance as attorney for Pearlman. The judge gave her another 14 days to file her response to the last order, and continued the whole issue to May 8.

Lou Pearlman sentencing likely delayed until August

Lou Pearlman's defense lawyer, Fletcher Peacock, filed this motion asking that the sentencing, now set for May 21, be postponed until August or later. This is not a surprise, as Peacock indicated at the hearing on Pearlman's plea agreement that the May date probably would not allow enough time. U.S. Assistant Attorney Roger Hanberg and U.S. Probation Officer David Salce, who has been assigned to the case, and Pearlman himself all agree to the delay, according to the filing. I don't think the judge will object.

"Adequate review and preparation for sentencing cannot be accomplished by May 21," Fletcher's motion says.

The delay also will allow time for prosecutors and bankruptcy trustee Soneet Kapila to have a better grip on just how much help Pearlman is going to be in terms of pursuing assets.

'Ooops, I don't really have those documents,' says Rene

Former Pearlman lawyer Rene Chamberlain says she doesn't actually have the documents the court ordered her to produce. Therefore, she is striking them from her list of items for which she claims protection by  attorney-client privilege. Here is the latest exciting installment of the very strange case of Ms. Chamberlain and her documents.

In other news, bankruptcy trustee Soneet Kapila has formally filed to abandon any interest in Lou Pearlman's Windermere mansion since he hasn't been able to sell it and it's a burden to the bankruptcy estate to keep it up. Bank of America, which holds the mortgage, will get the property by foreclosure.

Rene Chamberlain's attorney wants to quit

Alan Perlman filed this request for his law firm, Ordono & Yoss of Fort Lauderdale, to be allowed to withdraw as Rene Chamberlain's attorney in the Lou Pearlman bankruptcy case. He cites "irreconcilable differences."

By the way, the transcript of Lou Pearlman's plea hearing is now in his court file, but is not available electronically. That means if you happen to be in the Orlando area, it should be available for your reading pleasure in the clerk's office at the federal courthouse.

Forfeiture motion filed in Pearlman case

Part of Lou Pearlman's plea agreement with the government is a $200-million forfeiture judgment. This motion from the U.S. attorney's office, asks the judge to enter the judgment on the record, to become final at his sentencing. It explains (on p. 3) that even though the amount of the losses is more than $300-million, the judgment was set at $200-million as part of the plea agreement. Also it explains (on p. 5) that judgments are used when the defendant no longer has the actual stolen money or traceable property in his possession or the government cannot locate them. "Here, because the United States could not locate specific property constituting or derived from proceeds, directly or indirectly, traceable to the fraudulent schemes, that is the actual funds obtained, the United States seeks a forfeiture money judgment."

Sentencing is set for 9 a.m. Wednesday, May 21, although it could be delayed.

Chamberlain gets extension of time to turn over documents

Bankruptcy Judge Arthur Briskman has given Rene Chamberlain until April 7 to submit documents in the Lou Pearlman bankruptcy. She previously asked the judge to reconsider a turnover order, saying she hadn't been properly served.

Not much activity in bankruptcy court filings right now.

It's still early to claim Pearlman fraud deduction on your taxes

Victims of the Lou Pearlman investment scam are understandably anxious to claim a tax loss. There's no question that you can claim a capital loss of the $3,000-a-year variety on your 2007 return. However, the requirements for a larger Section 165 fraud loss are much more stringent and I don't think they have been met yet. Pearlman's guilty plea helps establish that the loss was fraud, but the amount of the loss is yet to be ascertained. Trustee Soneet Kapila repeatedly has declined to estimate what kind of recovery investors might receive, saying that's premature. He has several legal actions pending, including one against HSBC  for more than $5-million. Relying on someone else for an estimate of the recovery is going out on thin ice. Some people have told me they have tried it, but the success of that strategy can't be judged until the return has been audited, which it is extremely like to be at some point down the road. (Note: The fact that you receive a refund when you file a return is not an indication of whether the return will or will not be audited.)

Jeff Coleman and Tim Kelleher at Investment Fraud Recovery Network in Clearwater say they are setting up files for Pearlman victims interested in pursuing a 165 recovery, but consider it too early in the process to file a return claiming the loss. Another Tampa Bay firm in this field of work, J.K. Harris 165 Services, is taking the position that it's reasonable to take the loss in 2007. "They go on a reasonable person's standard," said Alan Gavel, who is part of an investor group in the process of buying the company. The company, by the way, is no longer affiliated with J.K. Harris & Co., but will continue to use the name.

Here is a very interesting article that outlines the difficulty of proving a 165 claim to the IRS. Note, for example, that people who made their investment directly with Lou Pearlman are in a better legal position than those who purchased through an agent.

Lou apparently hasn't said much yet about his assets

Bankruptcy trustee Soneet Kapila says in this new filing (see page four) that he's still trying to determine if Lou Pearlman is going to comply with the terms of his plea agreement and cooperate in the identification, location and recovery of assets. Kapila also is asking for another extension of time to file objections to the discharge of debts in the bankruptcy case. The new deadline would be July 15 if I'm calculating correctly. Fraud is a reason to object to the discharge of a debt in bankruptcy, but I'm not sure what the real significance is since the restitution order already cannot be discharged.

In other news, Judge Kendall Sharp has given the OK for Fletcher Peacock to continue as Pearlman's defense lawyer even though he is no longer a federal public defender.

Soneet Kapila's eBay auctions had better results this go-round. The big winner: an Underwood watch case for showing off three of your fancy watches. It went for $510. I don't really get why anyone would want it (a drawer is good enough for my Timex), but obviously quite a few people did. He also got $110 for a bracelet.

New financial report shows $2.9-million collected

Bankruptcy trustee Soneet Kapila has filed new financial reports, including this one on the main Lou Pearlman bankruptcy. It shows $2.9-million collected to date. The single largest chunk ($1.6-million) came from the sale of the residences at Atlantis. There are separate reports for each of the other bankruptcy cases inolving much smaller dollar numbers, but the total collected would now be more than $3-million. So far $367,028 has been spent in the main case, but Kapila and his lawyers have not yet asked for payment of any professional fees. 

Rene Chamberlain objecting again to document handover

Turns out former Pearlman lawyer Rene Chamberlain isn't handing over documents without further fighting. Her lawyer filed this motion asking the judge to reconsider the order to hand over documents. He says the order wasn't properly served.

Fletcher Peacock wants to continue as Lou's attorney

Fletcher Peacock filed this motion asking to be appointed one of Lou Pearlman's criminal defense attorneys along with the federal public defender's office. Peacock has left his office as federal public defender and is now in private practice. He says "a productive attorney-client relationship has been established" and prosecutors have no objection to the appointment.

Soneet Kapila gives up on trying to sell Windermere estate

Bank of America will be allowed to foreclose on Lou Pearlman's Windermere mansion. Bankruptcy trustee Soneet Kapila wasn't able to sell the property, his lawyer, Denise Dell-Powell, said Thursday. Pearlman owes the bank about $5.8-million, including the mortgage, accrued interest, back taxes, etc. The best bid at Saturday's auction was $3.75-million, which was rejected as too low. Attempts to negotiate a sale with another buyer fell through.

[Fisher Auctions photo]

Lawyers ordered to hand over Pearlman documents

Judge Arthur Briskman today approved the latest attempt by Soneet Kapila to force former Lou Pearlman lawyers Robert Leventhal, GrayRobinson and Leventhal & Slaughter to turn over documents. He said attorney-client privilege had been waived and the "balancing test" came out in favor of the trustee. Former Pearlman lawyer Rene Chamberlain also will have to turn over more documents since the judge approved this plan for Kapila's lawyers to review her emails. Here are the court's notes on today's hearing.

Lou's stuff sells on eBay for Dave Hedrick

It looks like Dave Hedrick had a pretty good haul with his recent listing of Lou Pearlman-related items on eBay. The highest-priced item was the MTV Moonman Spaceman music video award presented to the Backstreet Boys, which went for $9,200. The Mikhail Gorbachev award came in second, although Dave must have been disappointed. He told me that someone once offered him a quarter million dollars for it. I wanted Lou's PhD diploma from Century University, but $80 was more than I was willing to pay. I don't know how all these copies of Longshot, the movie, could go unsold, but apparently eBay buyers are more discriminating than I thought. Did anybody on the blog buy anything?

In case you were looking for Steve Rodd...

he has a new address, filed with the bankruptcy court.

Harry Milner III speaks out

Harry Milner III wrote this letter to the St. Petersburg Times about Lou Pearlman's misuse of his father's name. Thanks for filling us in, Harry!

  Obviously forgetting the email sent to him, Lou Pearlman used my dead father’s name on forged documents. I emailed Pearlman’s website in early 2004 that my father had died. I received an answer that the message was passed on to Lou.
  My family knew Lou since the 1970’s.  Lou met my brother who worked on the Goodyear blimp crew.
Lou was infatuated with blimps and a friendship formed. My father, being a salesman all his life, was interested in Lou’s idea of an airline company. Transcontinental Airlines was formed and he was named finance officer. When several failed attempts were made to lease aircraft to major airlines, the company was dissolved, or so we thought!
  As my father, Harry Milner, went in a new direction,Lou Pearlman devised his scheme. That is when he began his EISA ponzi scheme. For several years ,1989-2007, it shows he forged my father’s name on financial documents for Transcontinental Airlines. He used these documents to put off investors and to obtain fraudulent loans from banks.  He has admitted this in court.
  In the 1980’s, Harry Milner met up with Lou again after Pearlman had formed Airship International,a blimp company. Harry Milner formed a deal with Pearlman to sell his blimp advertising. He met with Budweiser while living in the St.Louis area. They were very interested, but said the advertising budget had been set for the year. The next year the deal was done, and thus became the Budweiser blimp!
The $300,000 commission was never paid to Mr.Milner on the $3 million+ deal. The commissions through the years would have made him a millionaire.This was a legitimate company as far as I know.
Obviously, he planned to frame my father for his crimes, if caught. It is obvious he either didn’t read an important email or disregarded it. It may have cost him several years of his life in prison.
  The arrogance and ignorance of a pathological liar is what got him caught.
  I guess Good wil triumph over Evil in the end. We’ll just have to wait for the sentencing to see if that’s true.

Harry Milner III, Edgewater, Florida

No deal on Lou's house

Lou Pearlman's Windermere mansion went on the auction block today, but the best bid wasn't good enough. The high bid was $3.75-million (plus a 6% buyer's premium). Auctioneer Lamar Fisher said another, substantially higher,  offer is pending. He said bankruptcy trustee Soneet Kapila is negotiating with the would-be buyer, who did not attend the auction. Bank of America has a mortgage of about $5.3-million on the property. 

Details about the house and the auction are at Fisher Auction. The bankrtupcy court document regarding the auction is here.

Sunday update: Orlando Sentinel story on the auction.

[Credit: Fisher Auction]

Restitution, the $200-million judgment and more

There seems to be a lot of confusion over the issue of restitution through the plea agreement, so I thought I'd try to offer some explanations:

1. The court is ordering Lou to make restitution to all victims. However, if he doesn't have the money, there is nothing the court can do about it. He does not have to pay this before his sentencing and his prison term will not be extended for failure to make restitution.

2.  The list of assets for forfeiture includes a $200-million money ju