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.

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.

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

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.

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.   

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.

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.

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.  

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]

The next auction will be on eBay

Bankruptcy trustee Soneet Kapila is planning another auction of Lou Pearlman's possessions, only this time it will be on eBay. Instead of having people buy the stuff at bankruptcy auctions and resell it on eBay, Kapila's staff will put the stuff up on eBay themselves. It's mostly US5 and Backstreet Boys memorabilia and fancy jewelry. There's a Rolex watch and a couple of imitations as well as three diamond-studded rings (two gold, one platinum) with "LJP 75" on one side and "Trans Continental 19" on the other. Perhaps the numbers signifiy a date--1975--marking Lou's entry into the aviation biz. The platinum model has 170 full-cut diamonds.

Kapila described the items as "turnovers we took from some people who had dealings" with Pearlman and said a decision was made to keep them out of the general auction. He said no dates have been set for the eBay sales.

Story in today's Times with various updates on the case. (Blog readers got all this news first.)

German criminal prosecution stalls

German prosecutors have decided not to pursue a criminal case against Lou Pearlman and Mitchell Louis van Balen of German Invest & Finanzberatung GmbH. Bankruptcy trustee Soneet Kapila filed a "criminal suspicion of fraud" last summer with the hope of getting subpoena power to aid in the search for assets. "The way I understand it is the prosecutor said in simple terms we need to have more evidence in our complaint for him to continue investigating," Kapila said. "That doesn't mean we've given up on it and it doesn't mean we can't go back in if we are able to gather more evidenciary support."

The German publication Der Spiegel recently published this story about the Pearlman case. If any of you can read German, let us know if it has anything interesting to say.

New York case gets stranger by the minute

The New York lawsuit, in which a group of Trans Continental investors is suing the state of Florida, Gov. Charlie Crist and a host of other parties, appears to be in serious jeopardy. The New York lawyer, Ed Fagan has filed this rather bizarre motion  asking the court to stop everything until "certain issues" can be resolved by a magistrate judge and to make some documents in the case secret. Fagan made his dispute with Tampa lawyers Jim Lowy and Fred Lowe public two weeks ago. When I wrote about it then, Lowy said he expected them to work out their differences. However, in the latest filing, Fagan claims "Mr. Lowy and his actions have prevented me from being able to do my job" and that he has "tried in vain to resolve these issues with Mr. Lowy." He says he is trying to make his own arrangements with "certain plaintiffs," but that some issues can only be resolved by the court. The judge granted his request to assign the matter to a magistrate judge.

Chamberlain will have to submit some documents to judge for review

Judge Arthur Briskman says former Pearlman lawyer Rene Chamberlain will have to hand over some of the documents she claimed were protected by attorney-client privilege. Notes from today's hearing show that he ruled that the documents listed as A and B in this motion will have to be given to him for review in secret. Presumably if he decides they are not protected, they then would be given to Soneet Kapila. However, the judge ruled that Chamberlain does not have to reveal account information that she redacted from some documents.

Here's more of what's going on in the bankruptcy court

A California condo developer is bankruptcy trustee Soneet Kapila's latest target in his attempt to round up Lou Pearlman's assets. Kapila filed this motion attempting to rescind Pearlman's agreements to buy three condos at Marina Pointe in Marina Del Rey, Calif. and reclaim $880,000 in deposits.

Kapila is asking the court to approve a settlement with Me, Myself & Eye related to an agreement with Trans Continental Television Productions to produce a 13-episode reality TV show, Big in America II. The show is supposed to be about the activities of US5. What I gather is that TCTP was supposed to put up 267,000 euros to help finance the production. Since it didn't have the money, it signed over the rights to proceeds from US5 merchandise due from a third party, Universal Music. These rights were valued at about 50,000 euros. Under the agreement, TCTP and Me, Myself & Eye are going to share the money from Universal and Me, Myself & Eye's bankruptcy claim will be reduced by any money it gets from Universal.

Financial results are available for the Pearlman and Trans Continental Airlines bankruptcies, as well as the other TC entities. They show $712,898 in receipts to date for LJP's personal bankruptcy and $222,830 for the TCA bankruptcy.

Lou's mansion is quite a mess

The latest bankruptcy court filing includes these photos of damage to Lou Pearlman's Windermere home. Soneet Kapila says in this filing that the damage was done by contractors and subcontractors under the direction of the would-be purchaser, Dr. John Choi. The $7.1-million sale of the property did not close because Choi did not obtain financing. Now Kapila wants the court to hold Choi's $175,000 deposit until he can determine how much it will cost to repair the damage.

Expense tally to date: $187,198

Bankruptcy trustee Soneet Kapila filed a request this week for reimbursement of expenses for his firm and the various other law and accounting firms that are working on the Lou Pearlman- Trans Continental Airlines bankruptcy case. The grand total to date is $187,198. Travel expenses appear to be the largest category (lots of $190 hotel rooms in Orlando). The numbers do not include any professional fees. So far none of the professionals have asked to be paid for their work, although I am sure they will be asking at some point. Here are the documents for those who care to read them: Motion for reimbursement, attachments, more attachments.

The Rene Chamberlain saga continues

Here's a big surprise: Rene Chamberlain did not turn over all the documents that bankruptcy trustee Soneet Kapila says she should have. He objects to her removing account information from documents and claiming attorney client privilege for items such as letters from other attorneys to Lou Pearlman. Another hearing on the matter is set for Monday.

Here are the documents: Letter from Chamberlain's attorney, Kapila's latest motion.

Also, here's another story about former 'NSync member Lance Bass.

Backstreet Boys: Just call them Unbreakable

The boy band that made Lou Pearlman famous is aiming for a big comeback with the release Oct. 30 of a new album, Unbreakable,the group's first album in two years. The first single from the album, "Inconsolable," was released last month. Last I checked it was #26 on Billboard's "hot adult contemporary" chart. While Kevin Richardson has dropped out of the group, this album features remaining Backstreet Boys Nick Carter, Howie Dorough, Brian Litrell and AJ McLean. The boys' publicists say they've sold more than 75-million albums worldwide. Here's some interesting background on the group and Kevin's departure.

[Newscom.com photo]

Lou Pearlman dreams of TV shows and freedom

Sitting in jail for the last four months hasn't been a complete waste of time for Lou Pearlman. He came up with an idea for a new reality TV show while dreaming of getting out of jail. My story in today's Times offers some insight into Lou's life behind bars based on conversations Lou has had in recent weeks with his childhood friend, Alan Gross. Lou's TV show concept: "Second Chance," which would be hosted by a celebrity who's been to jail (like Paris Hilton) and feature losing contestants on other shows such as "American Idol." Lou is convinced, by the way, that he's going to get out on bond.

I recently visited Alan, who still lives in Mitchell Gardens apartments, where he and Lou grew up together in Flushing, N.Y. It was fascinating to see the treasure trove of documentation he has of that era and the time he and Lou spent together in the blimp business--he has reams of papers, photos and video recordings. Here's my story on Lou's earlier years and a slide show I narrated featuring many of Alan's photos. Alan and Lou parted ways in the late 80s and had numerous business disagreements. However, they stayed on friendly terms and Alan went to Lou's 50th birthday bash.

Also, here's a New York Times story about former 'NSync member Lance Bass.

To see all the blog posts on Lou Pearlman, click on "Trans Continental News" under "categories" on the left-hand side of the blog.

What's going on with the NY lawsuit?

The lawyers representing Trans Continental investors in the lawsuit filed in federal court in New York have had a falling out. New York lawyer Ed Fagan sent a lengthy email Wednesday to investor plaintiffs, complaining about Florida attorneys Jim Lowy and Fred Lowe. (One of the recipients shared it with me.) An excerpt: "One of the things that troubled me most was the repeated attempts by Jim Lowy and Fred Lowe to justify 'losing' this case or trying to tell me that nobody should ever expect to recover any monies form the case and that no one can ever win the case. If they truly believed that the case was a loser - then why solicit people, why promise them you are going to fight for them..."

Jim Lowy's response when I asked him about the email: "I wouldn't spend the last 4 to 6 months of my life living, breathing, working on this case if I thought it didn't have any value or prospects." He called Fagan's email "unprofessional" and "not true" and said he'll be sending an email of his own to clients. Lowy said he thinks Fagan has done an excellent job so far in the New York case and that he expects them to work out their differences. They're still waiting on a ruling from the judge on the state of Florida's motion to dismiss the case. If the judge decides the case doesn't belong in New York, they'll refile in Florida, Lowy said.

Stay tuned.

 

Here's the order on Rene Chamberlain

Here is Bankruptcy Judge Arthur Briskman's order compelling Rene Chamberlain to turn over her laptop computer, disks and documents related to Lou Pearlman and his companies. It details trustee Soneet Kapila's attempts to get the information from her, going back to April. It also outlines how the computer information is to be copied and kept confidential by a company called Litigex. Kapila will have to foot the bill, although the order notes that he has the right to seek reimbursement from Chamberlain. A judge would have to rule on that should she contest his request. 

National Enquirer has more to say about Lou

The latest issue (Oct. 22) of the National Enquirer says Jane Carter was so worried that Lou Pearlman had molested her son that she took Nick to a therapist. However, ex-husband Bob claims the therapist decided that Lou had never touched Nick. The Enquirer did uncover photographic evidence that Lou had once given Backstreet Boy A.J. McLean a piggyback ride (both fully clothed.)

Judge orders Chamberlain to produce documents

Bankruptcy Judge Arthur Briskman ordered Lou Pearlman's former lawyer Rene Chamberlain (that's her in the picture) to turn over documents and computer discs related to Trans Continental Airines by Oct. 22, according to this report on today's hearing. If a hearing is needed to resolve disputes, it will be Oct. 29. There's no written order yet, but when there is one, I'll post it. No sanctions for Ms. Chamberlain at this time, but the judge is threatening them if she doesn't comply with his order.

Orlando Sentinel report.

WFTV Report

[Photo taken from Trans Continental video]

Tyler Gray's working on "The Hit Charade"

That's the working title of Tyler Gray's planned book on Lou Pearlman, according to this item in the New York Post. He has a book deal with HarperCollins.

Lou Pearlman denies Vanity Fair allegations

Lou Pearlman says there was nothing inappropriate about his relationship with the boys in his bands, according to Radar Online. Tyler Gray says he reached out to Pearlman through a close friend. "We are all good friends and had a normal friendship with no inappropriate activity," Pearlman reportedly said. He also denied that he is gay: "I don't think there is anything wrong [with having one's] own sexual preference, but no, I've never dated nor have I been interested in men sexually." He also says the story about jumping into the bed with a towel around him couldn't be true because no towel is big enough.

By the way, Tyler Gray says he is writing a book about Pearlman for HarperCollins. He promises it will be an "investigative/true crime book," not an "authorized biography," as Page Six reported.

Can you identify Trans Continental employees

I'm looking for people who can help me identify photographs of Trans Continental employees. If you might be willing to help me match names with faces, please send me an email. Thanks.

Huffington Post puts spotlight on Lou's political contributions

The Huffington Post, a well-known political blog, tied the sexual predator report in Vanity Fair to Lou Pearlman's Republican campaign contributions.  Only federal campaign contributions are mentioned--those to the campaign of congressman Ric Kelly and to national Republican campaign committees. Read more about the Huffington Post here.

Here's an earlier Orlando Sentinel blog post on this topic.

Some updates on the legal scene

Singer Aaron Carter has been released from his contracts with rights to his works still to be decided.

Bankruptcy trustee Soneet Kapila wants to abandon any interest in Lou Pearlman's condo at Mosaic at Millenium. He says there's no equity in the property.

Assistant U.S. Attorney Daniel Eckhart has been appointed to assist in prosecution of the criminal case against Pearlman.

Pearlman mansion back on the market

  A deal is not a real deal until it's done. The sale of Lou Pearlman's Windermere mansion (reported here) for $7.1-million has fallen through. Orlando plastic surgeon John Choi had agreed to buy the property but failed to close. He could end up forfeiting his $175,000 deposit. The house is back on the market, still listed with Sotheby's International.

Naturally the collapse of the transaction is not great news at a time when the real estate market is suffering. The lenders at Bank of America have to be particularly disappointed since they were due to collect $5.3-million-plus to satisfy the first mortgage on the property.

Also off, this deal engineered by Soneet Kapila to split the proceeds from the sale of two condos at sale of the Signature at MGM Grand. Kapila said the deal was cancelled because the sale fell through.

In other news, the hearing related to sanctions against Rene Chamberlain, which was to have been Oct. 4, has been postponed to Oct. 15 because she has hired an attorney. Also, the federal court in New York heard arguments today regarding the state of Florida's motion to dismiss the lawsuit Jim Lowy filed on behalf of investors. Jim said the judge did not rule on the motion yet.

Orlando Sentinel story.

{Times photo by Phelan Ebenhack]

Mad about the Boys

In addition to writing about Lou Pearlman's sex life, Bryan Burrough has done an impressive job telling the story of Pearlman's business life. The 11-page piece in the November issue of Vanity Fair tells about the rise and fall of Airship International, Pearlman's association with Theodor Wullenkemper, the seduction of Dr. Joseph Chow (who lent Pearlman more than $14-million) and Dr. Steven Sarin (whose family invested $12-million), the EISA scam, the boy bands, the phony accounting firm and more.

One interesting passage tells how Julian Benscher discovered Pearlman was a fraud when he flew to Germany to meet with Wullenkemper, the supposed 82 percent owner of Trans Continental Airlines. Wullenkemper told him he had nothing to do with the company. Upon further investigation, Benscher found that Pearlman only owned three planes, all of which belonged to Planet Airways. Trans Continental Airlines existed only on paper.

Burrough writes: "The mind-boggling thing is that not one of Pearlman's new banks discovered that the emperor had no clothes. Not one realized that his largest asset by far, Trans Con Air, didn't exist. Not one realized that his financial statements and tax returns were a tissue of lies."

The November issue of Vanity Fair is available on newsstands in New York and Los Angeles Wednesday and nationally Oct. 9.

Former associates claim Lou Pearlman was a sexual predator

Today's New York Post says Lou Pearlman preyed on teenage boys who sang in his boy bands or aspired to make it in the music world. The information is attributed to writer Bryan Burrough, who has been researching Pearlman's world for an article in Vanity Fair. He quotes young artists Steve Mooney, Phoenix Stone (Backstreet Boys), Rich Cronin (LFO), Tim Christofore (Take 5) as well as Jane Carter, mother of Nick Carter.

Note: The new Vanity Fair containing Bryan Burrough's story is out today. As soon as I can obtain a copy, I'll be posting about it.

Update: Pearlman segments are scheduled TONIGHT on Inside Edition (featuring Steve Mooney) and E (featuring Bryan Burrough.)

When it comes to investment fraud, crime keeps paying

When regulators crack down on fraudsters, what do they do? Ignore them, in many cases, according to this interesting recent article in Investment News. One of the cases mentioned is that of Steve Rodd, who was barred from the securities industry by the SEC for selling a pay phone scam and ended up selling Lou Pearlman's Trans Continental Investment scam through Churchill Financial Inc. But he has plenty of company. One of the problems cited by Investment News and my own stories has been the lack of communication among various regulators. Rodd might have been banned from the securities industry, but he remained licensed to sell insurance. The more attention this problem gets, the better.

Pearl Steakhouse getting new life

The Pearl Steakhouse, where Lou Pearlman often held court, is being revived as a tapas restaurant with a new name and new look. Today's Times has the story of Ceviche Orlando at Church Street Station.

In case you've been wondering what the creditors' committee has been up to

You probably can keep wondering. Here's a new order clarifying the requirement for the committee to provide creditors with access to information. Basically, the committee does not have to provide it if the information could be considered confidential. The definition of confidential seems to include practically anything about Lou Pearlman's or Trans Continental's assets or financial condition that hasn't already been made public if it comes from Soneet Kapila or if it was "prepared by or on behalf of" the creditors' committee. There is a procedure outlined for creditors to ask for information and, if turned down, to file a motion to compel the creditors' committee to release the information.

The saga of the Backstreet Boys

This article offers one version (circa 2002) of the saga of the Backstreet Boys and their rivalry with *NSync as Lou Pearlman proteges.

Everything's coming up Rolls Royces

Bankruptcy trustee Soneet Kapila is going after Ultimate Motor Works of Longwood, which won't give back the deposit it took from Lou Pearlman for a new Rolls Royce or a 1984 Rolls belonging to Pearlman that it has been keeping in storage. Kapila says he doesn't know how much money Pearlman put down. In her deposition, Rene Chamberlain tossed around several numbers from $17,000 to $25,000. She didn't have any success getting the money back either.

The 1984 Rolls was damaged in a car accident. Ultimate Motor Works estimated repair costs at $10,285 and also wants $2,793 in storage fee going back to Jan. 18. An auto wholesaler contacted by Ultimate Motor Works offered to buy the car "as is" for $6,500. Kapila has turned down the offer and is demanding the car back. He says storage fees before the March 1 bankruptcy filing are the same as any other debts Pearlman incurred and will only be paid by the bankruptcy process. Kapila wants the court to order the company to hand over the 1984 Rolls, the deposit on the new Rolls and all documents relating to both vehicles.

Also-The emergency hearing on Kapila's complaints against Chamberlain is scheduled for Oct. 4.

[Photo from Times files]

Soneet's after another Pearlman lawyer

Bankruptcy trustee Soneet Kapila filed this motion and supporting documents to compel Orlando lawyer Robert Leventhal and his law firm, Leventhal and Salughter, to turn over documents. He also wants them sanctioned for failing to do so.

Update:

Orlando Sentinel story 9/24

Pearlman tells reporter he has no regrets

"I'm proud of everything I've done," he said. "I've had a great, great time. I've just enjoyed all of the people throughout my career. We were the pioneers of a new regime. We brought a lot of joy to the world."

That gem of a quote is from Tyler Gray's jailhouse interview with Lou Pearlman last July and published in the October issue of Radar magazine (not yet available online). Gray concludes that "it's clear Pearlman fancies himself a king in exile, convinced that virtually no amount of wrongdoing can overshadow the contributions he has made to music."

 

US5 could be singing for Soneet

Bankruptcy trustee Soneet Kapila has worked out a deal with a German company that might result in the payment of 20,000 Euro (almost $28,000) from US5's fall 2007 tour. Wizard Promotions, which is managing the tour of Germany and Poland on behalf of another German company, Triple-M, agreed to put the money in escrow pending a court judgment. Transcontinental Records has a co-production agreement with Triple M, which Soneet says entitles the bankruptcy estate to share in the proceeds. However, Triple M says the co-production agreement doesn't exist. A German law firm has been pursuing the case on the trustee's behalf and this deal allows the tour to continue in the meantime. It does not impact any other claims Soneet might have to proceeds from the sale of CDs, DVDs or other merchandise or to proceeds from other US5 tours. So sing on!

(US5 publicity photo)   

August financials filed today

For those who are keeping track, here are the financials filed today in the two primary bankruptcies: Lou Pearlman, Trans Continental Airlines.

Of course they aren't nearly as much fun to read as the transcript of Rene Chamberlain's examination/deposition in the post below. If you are a regular MoneyTalk blog visitor, I think you'll find the examination fascinating reading for a couple of reasons. One is seeing the names of people you have come to know. I got a particular kick out of the fact that Rene said she learned she was supposed to show up for her exam through the MoneyTalk blog. There also are references to the litigation against Frank Torelli and Les Henderson and mentions of others who frequently post or are mentioned on this blog. The other reason this is interesting is that the questions being asked offer some insight into the investigation itself. So cozy up to your computer or print it out and enjoy some bedtime reading.

Soneet Kapila wants Rene Chamberlain to go to jail

Lou Pearlman/Trans Continental bankruptcy trustee Soneet Kapila wants the bankruptcy judge to send former Trans Con lawyer Rene Chamberlain to jail for contempt of court. He is requesting an emergency hearing on this motion to compel her to answer his questions. He also wants to inspect unopened mail  she claims is protected by at