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Caleb Newquist: Kissimmee, Florida. It's the early 1990s, and teenagers are being brought in droves into a hot blimp hangar to audition for something secret. There's no label behind it. No one they recognize. Just a man running the room, sitting, listening, watching and taking notes and a promise that he's putting together a new boy band group, the biggest the world has ever seen.

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Caleb Newquist: This is Oh My Fraud, a true crime podcast where money doesn't stay, stay, stay. It goes bye bye bye. I'm Caleb Newquist. Hey there. How's it going? What's new? [00:01:00] Anything to report? Uh, as for me personally, the the newest thing, uh, apropos of nothing on this show, is that I've been playing tennis a lot of tennis, actually, and, uh, it's pretty fun. And I'm actually in a league which I've never done before. I only really started playing tennis like 18 months ago. And, uh, you know, I played sports when I was younger. So, you know, I've got some of the hand-eye coordination, some [00:01:30] of the necessary skills, I suppose, to hold my own in tennis. And in fact, my first my first league match, uh, I played a doubles match and I actually won. Um, I had lots of double faults though. Like I haven't figured out serving to the point where I just do it, you know? Anyway, not the point. The point is that we won, and that was fun. It's fun to win. Although I tell myself that I don't really. I'm not too concerned about winning. I'd [00:02:00] rather just be able to play well. I just want to be able to play well. Right. And then, you know, if I win or lose, then whatever. Uh, but winning is still fun. And then my most recent match was just a few days ago. I was I had a different partner, which is I'm not going to talk about my partners. Um, they were both, you know, good players.

Caleb Newquist: That's all I'll say about that. Uh, but this past week, um, the league match and we just got smoked. God, we got beat bad. It was so bad. [00:02:30] And I, you know, it was just kind of, it was very humbling. I don't know why I, I haven't had a humbling moment in a while. And there's something about getting your ass kicked in tennis. Uh, that was very humbling where you're just like, okay, let's, uh, we're gonna have to keep working at this. We just can't just show up and, uh, and, and do it. But anyway, that that's what's new. That's what's new for me. I don't know what's new for you. Hopefully something fun. Hopefully nothing too [00:03:00] disruptive. You know, I've got another story from the mailbag that is worth sharing or you know, I just felt like sharing. Emma, a listener, forwarded a story with the title Former Huntsville pastor sentenced to five years in prison for embezzlement. And this is from February of this year. So this is a pretty recent story. The former pastor, 42 year old Adrian Darrell Davis, he got 60 months in prison after [00:03:30] he pleaded guilty in October 2025 to wire fraud and filing a false tax return. He embezzled more than $430,000 from his church. And, uh, you know, he he he he used 30,000 of that to buy an Audi A7. Uh, must have been used because I don't think those a7's cost $30,000. I think they're much more than that.

Caleb Newquist: I don't know, I'm not a car person, but [00:04:00] stands to reason. Um, he also used 45000 to purchase a 2016 GMC Yukon. Okay. Um, I mean, that seems like a lot for a ten year old vehicle, but what do I know? I don't, I don't know, but I mean, it's just, you know, it's just an older car and you're spending, you know, almost 50 grand. Okay. Anyway, uh, he also made 41 payments on his American Express card for about $117,000. And some of the [00:04:30] things within that 117 included almost $5,000 at Louis Vuitton, $5,300 at Flight Club, which I guess is a shoe store in New York City. I don't know New York listeners anything about flight club, excuse me, flight club. But, um, you know, that's a lot to spend at a shoe store. That's not DSW shit, that's for sure. Um, anyway, and I love that the article, it actually, it says this because it has to be said, [00:05:00] but it's also it's kind of a hilarious sentence to read. None of these payments or purchases were authorized or approved by the church. And no kidding. Uh, thanks for sending that in, Emma. That's a good first chuckle. The, uh, you know, the, um, I have mixed feelings about the, uh, the stories that, uh, have an element of, uh, of, of, of faith or a, or a clergy involved in some fraud. Because, uh, on [00:05:30] the one hand, they are sometimes funny and other times, you know, some, some, some decent people believed in this person and man, they were wrong.

Caleb Newquist: Mhm. You know, talking about being humbled. Anyway, if you got a story idea, if you want me to just talk about a story, or if you got feedback for the show or anything else, you can email us at oh, my fraud@cpe.com. All right, that's enough [00:06:00] business. It's time for some fraud. Louis J. Pearlman was born in 1954 in flushing, Queens. His father and a dry cleaning business. Lou was an overweight, lonely only child known around the building as Fat Louis. There wasn't much about his upbringing that pointed [00:06:30] to what he would become, except maybe a couple of things that would matter later. The first thing was his cousin was Art Garfunkel. Yes, of Simon and Garfunkel. He was Lou's first cousin. Uh, Garfunkel would perform Yiddish songs at family gatherings when Lou was growing up. And, you know, having a famous cousin in the music business probably leaves [00:07:00] an impression. Lou would spend the rest of his life dropping the name Art Garfunkel. Because sure you would. And, uh, maybe getting away with it more than he should have. Now, the second thing that, uh, matters, uh, that that was formative in Lou Perlman's youth was blimps. Yes, blimps. I am not kidding. Lou Pearlman had a genuine lifelong [00:07:30] obsession with blimps. His apartment at Mitchell Gardens was right across from Flushing Airport. And as a kid, he and his best friend, Alan Gross, would watch the Goodyear blimp drift overhead for hours. Gross later said Lu had been lying to him since approximately the moment they met, but that the blimp thing, the blimp thing was real.

Caleb Newquist: So yeah, [00:08:00] I don't know. Lu went to Flushing High School and then Queens College and at Queens. He studied accounting. And just hang on to that for later because we'll come back to it. After graduating, Lu took a class project. He had written about a helicopter taxi service and actually turned it into a business. He convinced a group of Wall Street investors to fund a helicopter that he could lease around New York. And [00:08:30] it worked. At least you know well enough. And then he scaled it into something else. And that something else was blimps. In the late 1970s, Lu befriended a German airship manufacturer named Theodore Woolen Kemper. I'm not going to attempt the German accent, am I? Maybe. I am probably Wulan Kemper using Verlangsamt as name and falsely implying a formal partnership. [00:09:00] Liu raised enough money to build his first blimp. He landed Jordache jeans as a sponsor. Boy, that's a blast from the past. The plan was for the blimp painted gold with the Jordache logo to fly into Manhattan as a promotional event. Unfortunately, on its maiden voyage from Lakehurst, new Jersey, the gold paint overheated and the blimp lost control and crashed into a nearby garbage [00:09:30] dump. Liu sued Jordache. Jordache sued Liu. The lawsuit dragged on for seven years. Liu somehow eventually won $2.5 million in damages. He used that money to start a new company, Airship International.

Caleb Newquist: He took it public? Yes, he took it public in 1985, in what multiple sources later described [00:10:00] as a pump and dump penny stock scheme. Now, if you're not familiar with a pump and dump, that's where a trader or a group of traders artificially inflate a small company's stock price. In this case, it allowed Lou to sell shares at a profit, while the company reported almost no real revenue. And just for fun, the ticker symbol again not making this up [00:10:30] was BNP blimp. Of course. Why wouldn't it be? What else would it be? Airship international landed. Legitimate clients. Mcdonald's. Metlife. Seaworld. At its peak, Lew had a small fleet of blimps, a 600 zero square foot home in Orlando, and was flying private. He relocated the company to Florida in 1991 and looked [00:11:00] in virtually every way, like a successful businessman. And then his blimp started crashing. Three of his aircraft went down in relatively short succession. The company stock, which had been pumped up to $6 a share, crash, landed at $0.03. Airship international shut down. But here's where it gets interesting. I know in the Netflix documentary [00:11:30] Dirty Pop, it includes a former associate of Pearlman's who flatly claims that the blimp crashes weren't accidents that lose, stage them to collect insurance payouts and use that money to fund his next venture. Now that's never been proven. What is known that Lou collected insurance money on multiple crashed blimps and that money went somewhere. His [00:12:00] childhood friend, Alan Gross, said that after one of the earlier crashes, when Lou filed for the insurance payout, he felt genuinely betrayed.

Caleb Newquist: He had believed in the business, and it was around that time that he started to pull away. So by the early 1990s, Lou Pearlman had a failed blimp company, a pile of insurance money, of dubious origin, and a new idea. The idea came from an airplane. In [00:12:30] the late 1980s, Lou started another business, a private charter aviation company, flying musicians on leased planes. He called it Trans Continental Airlines. One of his clients changed everything. That client was New Kids on the block. Now, at the time, the new kids were the biggest act on earth. And Lou, who was billing them for the plane, started doing the math. He [00:13:00] later described that moment to ABC news, quote, I just didn't know who they were. I was questioning, how could these kids afford an airplane? I was told these kids did 200 million in record sales and 800 million in touring and merchandizing. I was like, I'm in the wrong business. So who got into the business? In [00:13:30] 1992, Lou placed an ad in a local newsletter called The Blue Sheet, which listed auditions and opportunities for aspiring performers in the Orlando area calling for teenage male vocalists. He also placed an ad in the Orlando Sentinel. The pitch was simple he was forming a group of teenage boys who could sing. Aj McLean was 14 years old. He saw [00:14:00] the ad, convinced his mom to drive him over and walked into Lou Pearlman's living room with a song and choreography prepared.

Caleb Newquist: Lou signed him on the spot. The open casting calls then moved to the blimp hangar in Kissimmee, a cavernous, sweltering space where hundreds of young performers auditioned while Lou watched and took notes. Howie Dorough auditioned, soon to be known as Howie D, and we're going to refer to him as Howie D [00:14:30] because we're not really sure whether or not that's how you say his last name. We just don't want to embarrass ourselves that much more. I'm sure there is a Backstreet Boys fan. Actually, most of the fans probably even know him just as Howie Dee. Anyway, not the point. Moving on. Other members. Nick Carter. He came in. Lou signed him instead of letting him join the Mickey Mouse Club. Kevin Richardson. He had moved to Orlando from [00:15:00] Kentucky and was working as Aladdin at Disney World. He auditioned and then he called his cousin, Brian Littrell back in Kentucky. And Brian flew down the next day, and on April 20th, 1993, the final five member lineup was set. Lou named them after an outdoor flea market near International Drive in Orlando. Backstreet market, a popular teen hangout [00:15:30] and so AJ, Howie D, Nick, Kevin, Brian were. Now say it with me, the Backstreet Boys. What came next was essentially a boot camp. Lou gave the guys choreographers, vocal coaches, tutors. He rented them a band house, paid for their dinners, flew them places. For many of these teenagers. Remember, AJ McLean was 14, [00:16:00] several from modest backgrounds, none with any real industry experience.

Caleb Newquist: Lou became something like a surrogate father figure. They called him Big Poppa. He had every gadget, every toy, very nice office, and he dropped all the right names and they were back in the hangar every single day, hours of rehearsal, in the heat. The blimp hangar had no air conditioning, and the Florida sun turned [00:16:30] it into an oven by midday, A cappella runs from the top choreography until it was automatic harmonies drilled until they were muscle memory. Weeks turned into months. The routine didn't change. Work in the hangar. Eat at Lou's expense. Sleep in the band house Lou was paying for. Come back. Do it again. For teenagers with nowhere else to go and no other way in, the dependance was complete and total. Lou wasn't just their manager. He was their landlord, [00:17:00] their meal ticket, and their only connection to everything they were trying to reach. Walking away from it all wasn't really an option. Their first performance was at SeaWorld Orlando in May 1993. Grad night. Over 3000 high school seniors and the girls lost their minds. Of course, but they couldn't get a record deal in the United States. Mercury records nearly signed them, but John Mellencamp. Yes. [00:17:30] Yes. John Mellencamp, that John Mellencamp, he threatened to leave the label if they got into the boy band business. So that fell through. That's that seems exactly right, actually. That's what John Mellencamp would do while. While chain smoking, of course. Anyway, the Backstreet Boys, they broke in Europe first.

Caleb Newquist: Germany, Sweden, UK, selling out arenas before most Americans had even heard of them. Then [00:18:00] they came home and eventually signed with Jive Records in 1994, after two executives spotted them performing at a high school in Cleveland, Ohio. It was 1997 when the Backstreet Boys exploded in the United States. Their self titled album debut went platinum. Then multi-platinum, then diamond. In 1999, they released millennium and [00:18:30] it sold over a million copies in its first week, a record at that time. By the end of the year, it had sold over 9 million copies in the United States alone. Worldwide, more than 30 million. The Backstreet Boys eventually became the best selling boy band in history. Over 130 million records sold gold, platinum, and diamond certifications in 45 countries. For a brief and remarkable period, they were the biggest act on earth. While [00:19:00] Lou was watching all this happen, he did something that tells you a lot about who he was instead of just enjoying the success. Instead of managing one of the biggest acts on earth and collecting the very substantial fees that come with that, he immediately started building competition for them. That's right before the Backstreet Boys had even fully broken in America, [00:19:30] Lou was already assembling a second group. His logic, which he actually said out loud to a journalist, was, quote, where there's McDonald's, there's Burger King, where there's Coke, there's Pepsi, where there's Backstreet Boys, there's going to be someone else. Why not us? So Lou assembled N'Sync.

Caleb Newquist: Chris Kirkpatrick had been working at Universal Studios Florida, and came to Lou with the idea of putting [00:20:00] a group together. Lou funded it. The lineup became Kirkpatrick, Joey Fatone, Justin Timberlake, JC Chasez, and Lance bass. Same boot camp, same blimp hangar. Same vocal coaches, same choreographers. Same promise of something huge. Massive in sync was given a secret code name inside Transcontinentals internal records. [00:20:30] B5 Lou explicitly did not want the Backstreet Boys to know he was developing a competing group. He played both sides, telling Backstreet Boys that NSync was nothing, just some project Chris was messing around with while telling N'Sync that Backstreet Boys didn't even know they existed. Lance Bass remembered Lou goading each group about the other. He'd tell NSync, can you believe the Backstreet Boys? Can you believe what they're doing now? This [00:21:00] is ridiculous. Then he'd go to the Backstreet Boys and say the same thing in reverse. Can you believe what these NSync boys are doing? Lou is manufacturing a rivalry between two groups he controlled, using each group's anxiety about the other to keep them working harder, touring more, generating more money. It was extremely calculated and it worked. N'sync broke through in 1998 after stepping in for the Backstreet Boys at a Disney [00:21:30] concert special. They became the second biggest boy band on earth by the late 1990s. Lou Pearlman had created the two most commercially successful pop acts of the decade, and he. Lou Pearlman, was collecting one sixth of everything. Both of them made.

Music Playing: Tell Me you Care back seat confessions. We can go there.

Caleb Newquist: Now for those that weren't around back [00:22:00] then. The late 1990s were the peak of the recorded music industry. In 1999, global recorded music revenue hit roughly $40 billion. Cd sales alone accounted for more than 13 billion in the United States. Uh. Tower Records, the largest record store chain in the world, was doing over $1 billion a year in revenue and operating nearly 200 stores across [00:22:30] 15 countries. Me being from the middle of Nebraska, there was no Tower Records, but I did go to a Hastings Music, uh, very regularly to purchase CDs. That's what I remember. And when I was in college around this time, I remember it very well. Anyway, if you wanted music, you would pay between 15 and $19 for a CD. There was no Napster, no streaming. You know, the industry had never been bigger, and there was really [00:23:00] no sense that it was about to change. Nsync's No Strings Attached sold a million copies in a single day. That's a record that stood for 15 years. The Backstreet Boys Millennium album sold more than 30 million copies worldwide. These weren't just popular records, they were a product of a machine that had figured out exactly how to manufacture desire the right look, the right sound, the right amount of [00:23:30] access, the right amount of mystery and sell it to teenagers at scale. And yet, the people actually making the music were in many cases, seen almost none of that money. The music industry had always taken enormous percentages from artists who were young and inexperienced and in no position to negotiate. Labels recouped recording costs before artists saw a single cent merchandise deals were [00:24:00] structured, so the people whose faces were on the t shirts got the smallest cut. This is how the industry worked, and Lou took that system and pushed it further than almost anyone before him.

Music Playing: We can make it sweet. We can make it right.

Caleb Newquist: When Lou drew up the contracts for the Backstreet Boys and later for N'Sync. He inserted a clause making himself an equal member of each band, not [00:24:30] just their manager. A sixth member entitled to one sixth of everything the band earned. On top of his management and production fees, he was collecting as manager, label and Phantom band member. He didn't sing, he didn't perform. He didn't tour. He just collected. Brian Littrell eventually hired a lawyer to figure out why the group had made almost nothing, despite years of platinum [00:25:00] records and sold out arenas. The answer was from 1993 to 1997, Pearlman and Transcontinental had taken roughly $10 million in revenue. The five members of the Backstreet Boys combined had received $300,000. That's $12,000 per member per year. And that's not very much money when you're selling millions of [00:25:30] records and selling out arenas. Nsync's version of this reckoning was arguably even more visceral after their debut had sold 10 million copies. The band sat down with Pearlman expecting a life changing payday. Chris Kirkpatrick described the moment quote, I'm thinking I'm the king of the castle at this point. When the checks came out, each member received $10,000. That's kind of like hilarious. [00:26:00] Like, I just can't imagine them sitting there and being like, this is it. This is it. Like just 10,000 bucks. Probably sold out Madison Square Garden three nights in a row. Weird. Justin Timberlake later put it a little more bluntly. He described his experience with Pearlman as being, quote, monetarily raped by a Svengali.

Caleb Newquist: Lance Bass later told 2020, quote, we [00:26:30] never even flew on a transcontinental airplane. We would fly to different places over in Europe, and we'd always be on Delta flights in coach. And I always thought it was weird that someone who was in the airline industry couldn't help us out a little bit, getting to places. It was weird because there was no airline. The thing about Lou Pearlman [00:27:00] and the boy bands is that as outrageous as the exploitation was, and it was outrageous. The bands were actually the legitimate part of this business. The fraud had been running since the mid 1980s before the Backstreet Boys existed, before NSync existed, before anyone outside of Florida's penny stock world knew who Lou Pearlman was. And it all started with the airline. Transcontinental Airlines was a complete [00:27:30] fiction. Lou claimed it had 49 aircraft and revenues of $78 million. In reality, it had no planes, no employees, and no revenue. The entire company existed on paper. When investors asked about the fleet, Lou showed him a brochure. That brochure showed a gleaming jet on a runway, the transcontinental logo on the tail. Everything looked real. When [00:28:00] investigators later examined the photograph closely, they discovered it was a toy plane, a model that had been sitting on Lou Pearlman's dresser. Someone had held it up in front of a runway, photographed it from the right angle, and cropped out the hand.

Caleb Newquist: The entire airline, the flagship asset of a $300 million investment scheme, was a prop someone was just holding outside the frame. Using that [00:28:30] fiction as a foundation, Liu sold something he called the Employee Investment Savings Account. The Isa, marketed as a safe, government backed program tied to transcontinental airlines. The name was chosen very carefully because Isa is very similar to ERISA, and that is the federal law protecting employee retirement plans. Close enough to feel familiar anyway. Close enough to just assume that it's safe. [00:29:00] The promised return was about 8% annually, and some versions promise more to seal the deal. Liu told investors the program was FDIC insured, that it was backed by AIG, that Lloyd's of London had certified it. He had documents, fake documents showing all of these endorsements, FDIC letterhead, forged AIG paperwork. The Lloyds backing was [00:29:30] fiction. Lloyd's actually sent him a cease and desist letter in 1999, demanding he stop using their name, but Lou kept using it anyway. The whole pitch itself was staged. Lou would arrange for investors, friends, employees, retirees, anyone he could get in front of to be flown to Orlando on private jets. A limousine would pick them up at the airport and drive them to Transcontinentals offices, which were genuinely impressive. So the building was real, [00:30:00] the staff looked busy, and then if the timing worked out, Lou would walk them backstage at a Backstreet Boys or NSync rehearsal.

Caleb Newquist: Chris Kirkpatrick of N'Sync recalled that Lu would introduce these visitors as lose friends and tell the band to schmooze them up. The boys had no idea what was happening. They were performing for investors. Their fame, their talent, their real stardom was being used as collateral for a fraud that they knew nothing [00:30:30] about. Former Backstreet Boys manager Johnny Wright described the pitch he would send a private jet to pick you up. Then when you landed in Orlando, he would send his private limo to get you. You drove to his office, which was quite impressive. Then you walked through the door and he's on the phone with Barry Gordy or whoever. Oh, yeah. We'll close that deal. Don't worry about it. The message was obvious. This guy is connected. This guy is successful. This [00:31:00] guy does not need your money. You are being let in on something. Don't be the person who asked too many questions. You've just flown on a private jet. You've been picked up by a limo. You're walking through an impressive office building with staff moving around and phones ringing. Now you're standing backstage while one of the biggest acts on earth is warming up 30ft away. The entire experience was engineered to make you feel chosen, like you had been let in on something exclusive and real. And so by the time you sit down across from [00:31:30] Lou Pearlman to discuss the details, asking to independently verify the accounting firm would have felt kind of paranoid.

Caleb Newquist: Kind of rude. Like you didn't trust him. Because Lou had answers. He had audited financial statements. All of it. And those financials came from a firm called Cohen and Siegal. Cohen and Siegal was an accounting firm. Lou's accounting firm. The [00:32:00] firm whose statements backed up every claim he made to investors and banks And Cohen and Segal did not exist. When investigators traced it, they found a phone number that routed to an answering service in Coral Gables, Florida. Messages were forwarded to a machine that picked up and said, It's Lou Pearlman. Transcontinental was paying the answering service bills out of its own office. The [00:32:30] independent auditor was Lou. His victims were paying for the fake accountant being used to defraud them. The name itself is kind of this dark joke. Cohen and Siegel, Mickey Cohen and Bugsy Siegel, two of the most notorious Jewish gangsters in American history. Lou had named his fake accounting firm after famous criminals, and no one noticed for 20 years. [00:33:00] For lenders who wanted more, who pushed back, who wanted to actually meet the accountants. Lou went all out to make sure his elaborate scheme held up. He flew them to Germany. He put Cohen and Siegel signs on a building in Kouvola. He had people ready to pose as partners. They supplied reference letters claimed to have 100 employees. One German address was used for both the fake accounting firm and the fake bank, German Savings or German [00:33:30] Invest und Beratung, which Lou claimed held tens of millions in transcontinental reserves.

Caleb Newquist: When Florida regulators tried to verify the bank, they traced the address to a remote answering service, one that was again being paid for by Transcontinentals own investors. When investigators finally began looking into the company, what they found was almost absurd. The [00:34:00] prosecutor, Roger Handberg later said, quote, With Cohen and Siegel, time and time again, we were finding that there wasn't any kernel of truth to anything whatsoever. It actually became easier for us to think and just assume everything is fraudulent. The FBI agent who filed the criminal complaint wrote, quote, based on the investigation that has been conducted to date, it appears that Cohen and Siegel has been fabricated and that there is no such accounting firm. And [00:34:30] yet it worked for 20 years. It had worked. Liu had over 1800 investors. He convinced major banks, lenders with compliance departments and credit committees like Bank of America, Washington Mutual, Integra Bank to extend tens of millions in loans. All backed by Cohen and Siegel's fake financials. One bank Integra approved [00:35:00] $19 million in loans to transcontinental airlines based on what it called a clean opinion from Cohen and Siegel. The audit that gave them comfort had been produced by a guy's answering machine. The victims were not unsophisticated in every case, but some maybe were. The scheme specifically targeted South Florida retirees, elderly folks who had worked their entire lives and were looking for a safe place to put their savings.

Caleb Newquist: One former employee described Lew's investor [00:35:30] base to The Hollywood Reporter as, quote, the South Florida retiree yarmulke gang. Jean Madigan lost nearly $200,000. She called her salesman when she started getting nervous, and he told her something was happening but couldn't talk about it. Later, she said she believed they had already started shredding documents. A retired couple put in $300,000 everything they had. The wife later said she didn't want to wake up the next morning because she didn't know where her [00:36:00] next dollar would come from. This all worked because the documents were good enough, because Lou Pearlman knew exactly what those documents were supposed to look like. Because the boy bands were real. Their fame was real. The platinum records were real. And all of that reality made it very hard to imagine that the man behind it was running a complete fiction in parallel. That's the architecture of the fraud. A real business on top, a [00:36:30] fake one underneath. Use the real one to make the fake one invisible. And yet Lou, years later in prison, found a way to frame it all as bad timing. In his first prison interview with The Hollywood Reporter, he compared himself favorably to Bernie Madoff. Quote. Well, Bernie, I mean, he didn't have anything that really made money. Lou said, I don't think it was right what he did, but I had my way to make it all right.

Caleb Newquist: I just didn't have my chance to do it. Now, [00:37:00] there is one more part of this story that needs to be acknowledged. In a 2007 investigation, Vanity Fair reported allegations from multiple former performers that Pearlman engaged in inappropriate and abusive behavior. Pearlman denied the allegations, and he was never criminally charged in connection with them. Those claims sit alongside everything else serious, disturbing and separate from the financial fraud that ultimately brought [00:37:30] him down for 20 years. Lou Pearlman kept all the plates spinning early. Investors who wanted money back got paid with money from new investors. Classic Ponzi scheme. Classic questions got answered with documents. Auditors who got too close got charmed or redirected. The scheme lasted in part because Lou was genuinely good with people. Warm and attentive, always making you feel like the most [00:38:00] important person in the room. His publicist once said he could talk about anything the weather, nuclear physics, anything at all with equal enthusiasm. That gift, more than any document, was his real protection. The first real cracks came from the bands. In 1998, Brian Littrell of Backstreet Boys hired a lawyer after growing suspicious about why the group had made almost nothing, despite being one of the best selling acts on earth. The [00:38:30] lawyer found the sixth member clause and the Backstreet Boys sued. Within a year, the other members joined. In 1999, NSync sued, and when Pearlman countersued, claiming that he owned the N'Sync name.

Caleb Newquist: Rca's parent company, BMG, piled on with $150 million lawsuit. The groups eventually freed themselves, but it did cost them. Backstreet boys and N'Sync collectively paid [00:39:00] around $64 million in settlements to escape their contracts with Pearlman. Nsync's next album was called No Strings Attached, and that wasn't a coincidence. Aaron Carter sued, LFO, sued, O-Town, sued naturel, sued. Almost every act Lou had ever worked with, sued him in federal court, and almost all of them either won or settled Lou Patum, which meant he had to keep [00:39:30] the Ponzi scheme going, which meant finding new investors, which meant maintaining the fiction of trans Continental Airlines, Cohen and Siegel and German savings. Even as the scrutiny kept building. At one point during the height of the lawsuits, Backstreet Boys and NSync, two groups that had been kept separate and pitted against each other for years, played a charity basketball game, and afterward they all went to McDonald's. Oh, isn't that nice? [00:40:00] It was probably the first time many of them had ever sat in the same room, and they compared notes. And what they found was that both groups had been paid almost nothing. Both groups had the sixth member clause. Both groups had been told the other group was the problem. Both groups had been managed by the same man using the same playbook. The rivalry Lou had manufactured to keep them productive and distracted had been built [00:40:30] entirely on lies. But the final unraveling didn't come from the bands.

Caleb Newquist: It came from Lou's own lawyer, Cheney. Mason had represented Lou through multiple band lawsuits. He was good at his job and had earned significant fees for it. When the settlements were finalized, Lu refused to pay him the amount Mason claimed he was owed ran into the millions and [00:41:00] that was the wrong guy to stiff. That was the wrong guy to screw over. Mason filed his own lawsuit and as he dug into the financials, he contacted the FBI and what investigators found confirmed everything. The airline didn't exist. The accounting firm didn't exist. The bank didn't exist. Even the artwork and memorabilia filling Lou's mansion, which trustees had hoped to auction off to repay victims. They turned out to [00:41:30] be almost entirely fake counterfeits. The man was running a fraud inside of a fraud. In December 2006, the Florida Office of Financial Regulation filed a formal complaint against Perlman and his companies around the same time. One of Liu's longtime friends and investors, Frankie Vazquez Jr. Confronted him at a dinner about what was happening. Vazquez [00:42:00] had invested his own money and convinced his mother, a retired school teacher, to invest as well. And whatever happened at that dinner? Vazquez died by suicide shortly afterward. In February 2007, Florida regulators publicly announced that the transcontinental savings program was a fraud. The state took possession of the company. Liu's businesses were forced into bankruptcy, but as regulators moved in, [00:42:30] Liu fled. He had been spotted in Orlando in late January, then in Germany in early February, where he appeared on television giving an interview.

Caleb Newquist: While technically a fugitive seemingly unbothered by everything that was happening then Russia, Belarus, Israel, Spain, Panama, Brazil. A Florida attorney received a letter from him postmarked from Bali. The [00:43:00] FBI tracked him across multiple continents. He was traveling on a false passport, staying in hotels under assumed names. At one point, he checked into a hotel in Bali as a incognito Johnson, which is either just brazen or a sign that by the end, Lu had kind of lost the thread entirely. Then, in mid 2007, a German couple on vacation recognized [00:43:30] Lou Pearlman relaxing on a beach at the Westin Resort and Nusa Dua Bali. They emailed the tip to an editor at the Saint Petersburg Times who passed it to the FBI and the FBI arrested Liu on June 17th, 2007. In 2008, Liu pleaded guilty to conspiracy, money laundering and making false statements during bankruptcy proceedings. At sentencing, judge G. Kendall Sharp pointed to the victim's family members, [00:44:00] close friends, people in their 70s and 80s who had lost their life savings. He sentenced Liu to 25 years in federal prison. He also offered him a deal. One month off his sentence for every million dollars he helped recover. At the hearing, Liu tried to negotiate. He asked the judge to let him use the phone and internet two days a week, so he could continue managing his remaining band and earn back the money.

Caleb Newquist: The judge declined. Victims [00:44:30] eventually recovered about $0.04 on the dollar. Some died before receiving anything. Pat and Connie Caesar, one of the couples who invested their life savings, died without ever seeing a cent of restitution in 2014. Liu told The Hollywood Reporter I'll be back. He wasn't. Liu died in federal custody on August 19th, 2016, at the Federal Correctional Institution in Miami. The [00:45:00] cause of death was an infection of the inner lining of his heart. He was only 62. No one claimed his body. Art Garfunkel was asked to claim it. He refused. So Liu was eventually buried in a family plot in New York. There's no headstone marking where he is. Five people attended the funeral. Lance Bass, when he heard the news, said, quote, I was so confused on exactly how to feel. You loved him. You hated him. [00:45:30] And it pissed me off that he passed away. Artist he ripped off still credit him with discovering them. Lou Pearlman really did have an eye for talent. The investors he defrauded lost their life savings and their last chance at recovery died with him. Okay. So, uh, did we learn anything? Sure. Um, remember that detail I mentioned earlier that [00:46:00] Lou Pearlman had studied accounting? He knew how to make stuff look right. He knew how audits worked. He knew what a clean opinion meant to people. And that knowledge that didn't make him a better businessman.

Caleb Newquist: It made him a more effective fraudster. Cohen and Siegel didn't produce statements that looked fake. They produced statements that looked right because they were designed by someone who knew what right was supposed to look like, and nobody bothered to verify it. [00:46:30] Not the FDIC, not the AIG backing, not the Lloyd's guarantee. Even after Lloyd's sent a cease and desist in 1999. Not the accounting firm. Not the bank, not the fleet of 49 aircraft, not the $78 million in revenue. The FBI's lead agent later said that when they saw the names like FDIC, AIG or Lloyd's on Perlman's documents, it was a red flag, not because the documents looked fake, but because legitimate protections [00:47:00] don't need to be sold that hard. Real FDIC coverage doesn't show up in a pitch. Real insurance doesn't come in a brochure. When the safety of an investment is a conspicuous selling point made over and over, that's maybe something you should pay attention to. The glamor was the mechanism the private jets, the limousines, the backstage access, the platinum records. All of it was designed to make due diligence feel unnecessary. To [00:47:30] make questions feel almost rude. By the time you were sitting across from Liu in that office with a global pop act rehearsing down the hall, asking to verify the accounting firm was kind of seemed paranoid, but it wasn't. Verify the verifier before you trust the financials. Confirm that the accountant is real.

Caleb Newquist: Before you trust the insurance. Maybe call the insurer before you invest in an [00:48:00] airline. Ask to see a plane, not a photograph, a real plane. The hand holding the toy was always in the frame. For 20 years, nobody looked. Another lesson read your contracts. Especially with the AI. These days, there's no excuse. Just read the contracts. Backstreet boys and NSync. They weren't just mismanaged. They had signed away a sixth of everything they had earned. Not because it was hidden, [00:48:30] because no one caught it. If the stakes are real, don't rely on the person across the table to explain it to you. Have someone on your side check it out too. All right, that's it for this episode. And remember, if you're ever on the run from the FBI and the alias you come up with is Incognito Johnson. Uh, you might be running out of good ideas. If you have questions, comments, or suggestions for stories, drop me a line at omnifrog@cpe.com. [00:49:00] This episode of Oh My Fraud was written and produced by Zach Frank and me, Caleb Newquist. Oh My fraud is created, written, produced and hosted by me, Caleb Newquist. Zach Frank is our co producer, audio engineer and music supervisor. Laura Hobbs designed our logo. Rate review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, that's where you earn some CPE. Join us next time for more adverse swindlers and scams from stories that will make you say, oh my fraud!