By popular request: Here's the fake plane

Some of you have said you'd like to see the fake photo that Lou Pearlman alledgedly used to add credibility to his avaiation business. Here it is, courtesy of Alan Gross. Alan says he built the model of the plane, which was then photographed at the airport to make it look like a real plane. You don't see the tail because someone's had is holding it. Alan says he had nothing to do with the photograph and did not know that Lou was going to use his model in such a devious way.

[Photo credit: courtesy of Alan Gross]

Soneet Kapila goes after Michael Crudele

This was a long time coming, but today Lou Pearlman bankruptcy trustee Soneet Kapila sued Michael Crudele, a key figure in the EISA sales program, for recovery of fraudulent transfers. Judge Arthur Briskman signed a temporary restraining order, which prohibits Crudele and his company, Aegis Consulting, from taking any action regarding any assets transferred from Pearlman and his companies or that are the "proceeds or products" of those transfers without Kapila's authorization or court approval. He's also supposed to account to the trustee for what he's done with the property. The order is based on this emergency motion and supporting documents such as this and this.

Kapila says Crudele and his company, Aegis, got $7.5-million in the four years prior to the bankruptcy filing. Trans Continental Airlines even bought Florida Prepaid College Plans for Crudele's three children for $30,872. Also note the generous donations of $67,000 to Bell Shoals Baptist Church in 2004 and 2005. Soneet wants Crudele to give the money back. (If you read it, you'll note he makes two sets of claims, one for transfers over four years and one for transfers over two years in case the judge doesn't go along with the four years.) Who knows how much of the money has been spent. But Soneet did track down a Crudele account for $175,000 with Gries Investment Fund I LLC and there's $23,232 left in Prepaid College money. The exhibits at the back of the suit lists the transfers.    

Kapila says Crudele contracted with sales agents to market the EISA program and distributed the fraudulent sales materials. "All material inquiries from investors about the operation of the EISA priogram and/or the investment and withdrawal of investor funds in the EISA program were directed to defendant Crudele."

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!

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.

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.

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

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.

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]

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.