What Was Lou Pearlman’s Ponzi Scheme?

ABC’s ’20/20: The Hitman From Pop to Prison’ takes us into the life of Lou Pearlman, who’s attained equal amounts of fame and infamy throughout his life. He is best known for revolutionizing the music landscape in the 90s by launching two great boy bands, the Backstreet Boys and NSYNC. However, what many people didn’t realize until much later, is that Lou also launched a Ponzi scheme, which would go on to become one of the longest-running scams in the US. The disgraced mogul took money worth nearly $300 million from various investors. But, how did Lou’s Ponzi scheme work?

Lou Pearlman’s Ponzi Scheme, Explained:

Lou Pearlman started with a blimp business in the early 1980s that failed to take off. Then, he started chartering airplane flights, which is when he met New Kids on the Block. Captivated by their success, Lou was determined to make his own boy band to rival New Kids on the Block. He first helped launch the Backstreet Boys and fell back on his tested formula to help create NSYNC. He proved to be a worldwide success, and investors were willing to share in the wealth he created.

He attracted many retirees, using his success with the bands, and convinced them to invest their hard-earned money into his other businesses, which were all housed within the corporation named TransContinental. Lou claimed his empire included an airline, a film and music studio, talent and travel agencies, restaurants, and real estate. He launched an investment scheme called “employee investment savings account.” He promised securities and high returns on the investments.

However, all the companies were fictitious, and to sell the lie, Pearlman created a fake airline company, a fake German bank, and a fake Florida accounting firm. While Lou convinced people to invest, he continued taking enormous loans from around 30 banks, totaling nearly $190 million. He used the money to plug whatever hole needed to be plugged, paying investors who immediately required money.

He came under investigation in 2006. The investigators found that TransContinental Airlines had no crafts, employees, or revenue. They also uncovered a fake accounting firm called Cohen and Siegel, created to lend credibility to other fake companies owned by Lou. He’d send false financial statements from this accounting firm, convincing investors they were making money. This is a classic characteristic of a Ponzi scheme. Lou was ultimately apprehended in Indonesia and faced the consequences of his actions in the US.

Due to the massive Ponzi scheme, he pulled off, Lou has often been compared to the infamous Bernie Madoff. However, he’s stated it is an unfair comparison because “He was just a scamster. I don’t think it was right, what he did. But I had my way to make it all right. I just didn’t have my chance to do it.”

So, how did Lou plan on making it right with all his victims? Well, he wanted to fall back on the magic of making a new boy band, to pay off the investors. Lou said, “I think I could have. If I was given a chance to put another band together, that would have paid everybody back. But I never had that opportunity, and that’s what was very upsetting.”

Read More: How Did Lou Pearlman Die?