Pearlman's memorabilia from the boy band era was auctioned off last year in a bankruptcy sale.

Even as the groups played to sold-out crowds, Pearlman was soliciting investors for his schemes. To make them seem legitimate, Pearlman acknowledges he and others created a fictitious airline company, a fake German bank and South Florida accounting firm.

But the root of his scam, a company known as Transcontinental Airlines Travel Services, was born in 1981 — the same year that 'N Sync heart throb Justin Timberlake was born.

For more than 20 years, Pearlman and others sold Transcontinental shares, duping investors into believing that the company was worth millions.

Rather, the plea agreement states Transcontinental "existed only on paper." And after 1999, it ceased to exist at all — Delaware officials voided its incorporation in 1999, according to the plea agreement.

That didn't stop Pearlman from wooing investors, which included major banks such as Bank of America, Washington Mutual, Mercantile Bank and others. Pearlman also touted an Employee Investment Savings Account, which he promised would yield higher returns than traditional investments.

None of it was true, according to the plea agreement. "Neither of those investments were legitimate," the document states. "Instead, they were 'Ponzi' schemes by which money raised from later investors would be used to pay off earlier investors."

Prosecutors say Pearlman accepted $118 million in investments into the employee savings account between January 2003 and December 2006. He returned roughly $43 million to investors, but distributed more than $38 million to himself and an entity called Pearlman Enterprises.

Pearlman created an elaborate network of fake finances. Those included hiring an answering service to pose as a South Florida accounting firm, Cohen & Siegel, which endorsed Transcontinental's finances. Pearlman also admits in the agreement to providing fake tax returns to banks, and creating a fake branch of a bank in Germany to try to lend credibility.

Pearlman fled the United States in early 2007 and was later captured after he was deported from Indonesia. At the time, he was apparently trying to create a seal and other documents to make the German bank appear legitimate, the plea agreement states.

He was also keeping close tabs on bankruptcy proceedings that were under way in Florida. According to the plea agreement, Pearlman entered false claims and manufactured documents to try to divert or unlock money that had been frozen.

Pearlman has been in an Orlando jail since being returned to Florida in July 2007.

____________________________

Lou Pearlman - Boy band mogul pleads guilty 

3/7/08

ORLANDO, Fla. - For years, Lou Pearlman wowed banks and investors with slick talk and a lavish lifestyle. But when the one-time architect of the Backstreet Boys and 'N Sync set his hand on a courtroom Bible, he set the act aside. Pearlman pleaded guilty Thursday to federal charges of conspiracy, money laundering and making false statements during a bankruptcy proceeding. The plea was the result of a lengthy federal probe alleging he bilked investors and banks out of more than $300 million. 

Pearlman's Transcontinental Airlines Inc. didn't have 41 airplanes, as he represented to investors. He had two, he said in court.

And he didn't have a German investment partner with a $50 million line of bailout capital, he acknowledged. In fact, that guy was also trying to get money out of him.

"I'm accepting full responsibility," Pearlman said in a roughly 50-minute change of plea hearing.

He will be sentenced May 21, and faces up to 25 years in prison and a $1 million fine.

Pearlman also pledged to help prosecutors locate coconspirators and any remaining assets, but couldn't explain to U.S. District Judge G. Kendall Sharp where the money went.

"In different investments," he said. "Aircraft, living expenses, working capital."

Pearlman acknowledged setting up a fake accounting firm to create business documents and tax returns for himself and his companies. He also admitted using the signature of a deceased former associate, Harry Milner, to push off anyone seeking repayment. Milner hadn't worked with Pearlman since 1989, the mogul acknowledged, and died in 2003.

Pearlman defrauded individual investors in two ways: by selling "stock" in largely asset-less companies for more than 20 years, even after at least one lost its incorporation.

He also invited outsiders to pay into an employee investment savings program. It promised high yields, but operated like a typical Ponzi scheme. All the money was funneled into one account that Pearlman used to bankroll other ventures.

____________________________