Federal authorities allege the creator of the Backstreet Boys and 'N Sync secured nearly $20 million (15 million EUR) in personal and business loans with fake documents from a made-up accounting firm.
Lou Pearlman was found in Indonesia and expelled from the country Thursday. Authorities there handed him to the FBI, who took Pearlman to the U.S. territory of Guam to appear before a federal judge on a bank fraud charge. He was held over on Friday for another hearing next week.
In a criminal complaint filed in March and unsealed after Pearlman's arrest, an FBI investigator said Pearlman used an accounting firm named "Cohen & Siegel" to prepare documents for lenders and investors. Authorities said the firm appears to be nonexistent, and was created by Pearlman or his associates.
Similar allegations have been raised in a lawsuit and a lengthy state complaint accusing him of operating a long-running, multimillion-dollar scam.
The firm was tied to a Coral Gables address and telephone number. However, there were allegedly no accountants at that location, only an answering service with a dedicated line. Workers there answered the phone "Cohen & Siegel," and sent all bills and correspondence addressed to them to Pearlman, according to the complaint.
Integra Bank officials told investigators they relied on the Cohen & Siegel documents as a "clean opinion" in approving and monitoring four loans: two in 2004 for $19 million (14.27 million EUR) to Pearlman's Trans Continental Airlines and two in 2006 to him totaling just under $1 million (0.75 million EUR). The documents included two airline company tax returns from 2003 and 2004 prepared by Cohen & Siegel that were never filed, the complaint said.
Investigators did not find any licensed, state-registered accountants for the firm.
Before he disappeared or faced criminal charges, Pearlman told The Associated Press in a lengthy October 2006 interview that Cohen & Siegel was based in Germany and had only a small presence in Florida. At that time, the allegations were part of a lawsuit filed by the estate of a deceased Pearlman investor.
Pearlman denied paying the Coral Gables answering service, despite cleared checks in the court record and a deposition from an answering service employee to the contrary.
"I don't pay anything. I don't know what they're talking about," Pearlman said. "And even if I did, what does that have to do with anything, anyway?"
An FBI attache in Germany could find no proof the accounting firm ever existed there, according to the complaint.
Federal authorities also allege Pearlman promised lenders payments from a large account in "German Savings," an entity that also does not exist. Banks told federal authorities the payments never arrived.
Pearlman refused to answer questions Friday about his financial assets to determine if he would be granted a public defender. U.S. Chief District Judge Frances Tydincgo-Gatewood then halted the proceedings until Monday, and Pearlman was being held at the federal detention area of the Guam prison.
"We expect that he will be returned to Florida," said Steve Cole, a spokesman for the U.S. Attorney's Office in Tampa.
Pearlman had been sought for months, and was finally found at a hotel on the resort island of Bali, the FBI said Thursday.
Officials hope Pearlman's arrest will help clarify his puzzling financial picture. They still do not know how deep the debt goes or how many assets are left. So far, few have been discovered.
Besides boy bands and airplane charters, Pearlman was also involved in talent scouting, restaurant and other ventures.
Pearlman stopped paying bank loans months before he allegedly went into hiding, and lost control of several companies in February when a judge appointed a receiver to take over.
He faces several lawsuits from individual investors and two involuntary bankruptcy proceedings. He hadn't responded to court subpoenas and doesn't have an attorney in either of the bankruptcy cases.
The state receiver says it appears Pearlman has defrauded more than 1,000 investors out of more than $315 million (236.6 million EUR) in a long-running Ponzi scheme. Banks, including Integra, are also hounding Pearlman and his many companies for more than $120 million (90 million EUR), according to bankruptcy court documents.