Taxpayers Could Foot Legal Bills in Lou Pearlman Case

By Pedro Ruz Gutierrez | Scott Powers and Sara K. Clarke | Sentinel Staff Writers
Posted June 16, 2007

Though suspected of stealing millions from investors and lenders, Lou Pearlman could end up having taxpayers foot his legal bills as he defends himself against a charge of bank fraud.

The question of whether the boy-band mogul should get a public defender -- while refusing to disclose his finances to a federal judge -- was the highlight of the nine-minute court appearance early Friday that followed his deportation from Bali and arrest in Guam.

Public defenders are reserved for society's indigent, but high-profile defendants accused in white-collar crimes, including fraud and money laundering, often resort to taxpayer-funded representation when money runs out.

"That happens with some frequency," said Federal Public Defender R. Fletcher Peacock, whose office would represent the music producer if Pearlman is granted a public-funded lawyer. "It's not unheard of, even after that, to have the court appoint the counsel."

Pearlman, 52, has requested a public defender in bankruptcy proceedings resulting from the collapse of his business empire, which once included the singing groups 'N Sync and Backstreet Boys. No decision has been made.

A judge in Guam will consider the latest question during a hearing Monday.

Before he disappeared from Orlando in January, Pearlman was facing claims from investors, bankers and lawyers trying to recover more than $130 million in loans to Pearlman and his companies and more than $317 million that state investigators say he collected as part of an investment-savings program.

Rick Jancha, a former senior federal prosecutor whose law firm once represented Pearlman in a dispute with former boy-band members, said he sympathizes with Pearlman's reluctance to expose his finances.

"His position is understandable from the standpoint that any assets disclosed could be subject to seizure and failure to disclosure could be considered a false statement" that could lead to a perjury charge, Jancha said.

As for his receiving a public defender, "Mr. Pearlman is still presumed innocent at this point and entitled to counsel, as is every defendant."

The fraud charge that landed Pearlman in jail in Guam alleges that he used a fictitious accounting firm, inflated financial statements, nonexistent IRS returns and false claims to secure $19 million in loans from Integra Bank of Indiana in 2004.

"On numerous occasions, Pearlman and others acting on his behalf and with his authorization have provided federally insured financial institutions and others with documents that purportedly were prepared by an accounting firm known as Cohen & Siegel," Orlando-based FBI Special Agent Scott Skinner wrote in an affidavit filed with the charge.

Among the documents offered to Integra were financial statements of Pearlman's Trans Continental Airlines, supposedly offered by Cohen & Siegel. Pearlman also gave the bank what he said were his own IRS tax returns for the years 2003 and 2004, also supposedly prepared by Cohen & Siegel, according to Skinner.

"Based on investigation that has been conducted to date, it appears that Cohen & Siegel has been fabricated and that there is no such accounting firm," Skinner wrote.

IRS agents stated those tax returns were never filed, according to the affidavit.

Skinner also wrote that when Pearlman fell behind on his loan payments late last year, he faxed the bank a statement supposedly from German Investment Und Finanzberatung GmbH, showing that the German company had just wired him $3.8 million to enable him to make his payment.

No wire transfer was made, Skinner alleged. He said the German company was real, but the statements attributed to it were not.

Skinner's statement raised questions of whether Pearlman associates could have been involved in wrongdoing. Federal officials on Friday said others besides Pearlman remain under scrutiny.

"The investigation is ongoing, and we are looking at anyone who might have engaged in criminal conduct," said Assistant U.S. Attorney Carolyn Adams, who heads the prosecutors' office in Orlando.

One of those mentioned in Skinner's affidavit was Robert Fischetti, a former top assistant to Pearlman.

Jancha, who represents Fischetti, said his client "has always been available to address these issues." He said he hoped Pearlman's return to Orlando "would remove the cloud from his head and all the speculation."

Except for the IRS statements, the allegations regarding Cohen & Siegel and German Savings surfaced in a civil lawsuit that Integra Bank filed against Pearlman and Trans Continental Airlines in U.S. District Court in Orlando on Jan. 24.

Prosecutors filed the charge against Pearlman in March, but it remained sealed until his arrest. That happened because a German tourist spotted Pearlman in the Indonesian resort and e-mailed an editor at the St. Petersburg Times, who passed the tip along to the FBI this week. The tourist was staying at the same hotel as Pearlman at the Westin Resort at Nusa Dua, Bali.

"It seemed like it might be true, and I wanted to pass it along," said Times Personal Financial Editor Helen Huntley, who has covered Pearlman's financial problems. She disclosed her newspaper's role in an online blog.