Boy Band Mogul Lou Pearlman's Prison Interview: My Ponzi Scheme Was Smarter Than Madoff’s

The 'N Sync and Backstreet Boys impresario tells THR he wishes he hadn't stolen a half a billion dollars from 1,700 investors and claims his fellow inmates never hassle him about the molestation accusations: "They realize that none of that can be true."

This story first appeared in the Jan. 31 issue of The Hollywood Reporter magazine.

"Well, Bernie, I mean, he didn't have anything that really made money," says Lou Pearlman by phone about Wall Street pariah Bernie Madoff, sounding level-headed and upbeat in his first prison interview since his 2009 incarceration in Texas at the low-security Federal Correctional Institution Texarkana. Pearlman, who launched Justin Timberlake's recording career with 1990s pop sensation 'N Sync and is serving a 25-year prison sentence for masterminding a half-billion-dollar Ponzi scheme, wants to make it clear he's not the same type of criminal. (Madoff is serving a 150-year sentence for a Ponzi scheme worth $18 billion, the costliest in U.S. history.)

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"He didn't have any real way to make money," repeats Pearlman, "but I had the music. Backstreet Boys each made well over $50 million apiece. I, of course, got my piece, and it was very nice and very substantial." But in fact a knowledgeable source confirms that the band members never received more than $300,000 each while the former head of Trans Continental Records walked away with tens of millions. Furthermore, to fuel his extravagant Orlando-based entertainment empire, Pearlman persuaded trusting investors -- what one former employee calls the "South Florida retiree yarmulke gang" -- to sink their life savings into a fleet of charter airplanes that turned out to exist only in brochures.

Pearlman continues talking about Madoff: "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."

How did he plan to "make it all right" to his 1,700 victims, whose combined losses have been estimated as high as $500 million? By bottling boy-band magic again -- if only Pearlman was given the freedom to conduct business in prison. "I think I could have," he says. "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."

Since authorities caught up with him at a Bali resort in June 2007 (following a yearlong independent investigation that led to an FBI raid on his house and offices in February of that year), Pearlman, now 59, has clung tenaciously to the notion that he can conquer the charts once more. Five days before his May 2008 sentencing, Pearlman, who will be 74 when he gets out, issued a formal request to be permitted to develop bands while behind bars; all he would require was a telephone and an Internet connection two days a week. Prosecutors objected strongly, as did Judge G. Kendall Sharp, who instead ordered Pearlman to 300 months in jail -- one month per $1 million he admitted to stealing -- with the stipulation that his sentence could be reduced one month per $1 million he repaid.

Four years have been knocked off Pearlman's release date, now projected for 2029, but those were for good behavior. "My sentence has not changed at the moment" from repayment of funds, he says. "But it's ongoing, and monies have been recovered -- close to $40 million, I believe." According to Soneet Kapila, the Chapter 11 trustee appointed to Pearlman's case, that is not far from the truth: Recovered funds total in the high $30 millions, of which about 4 percent has been returned to victims. "But this has nothing to do with him," he emphasizes. "It's recoveries made by my efforts combined with the professionals I hired. It's not like he wrote me a check."

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When not pining for his former life, Pearlman says he "walks the track, Monday through Friday, if the weather is nice. I'm also taking a blood thinner, which helps me with my stroke situation." Pearlman suffered a stroke in 2010; prison staff got him to a hospital in time to save his life. He claims to have lost 75 pounds from walking, down to 250 after maxing out at 325. "If I would have kept on going with my lovely steaks and onion rings and fries, I'd probably be dead right now from a heart attack," says the former mogul, who at the height of his excess eschewed booze and drugs in favor of artery-clogging comfort food. "It was definitely a wake-up call," he adds. "I also help out on a separate unit where we have movies show when they come out on DVD. I also did the little Christmas choir. I helped organize that for two years."

Pearlman generally gets along with fellow prisoners, a majority of whom he characterizes as white-collar criminals and corrupt public officials. He says the inmates with whom he has the best rapport are "the intelligent ones," while he makes sure to keep his distance from "drug dealers and crazies."

Internet access is limited to emailing contacts on a preapproved list. He is permitted use of an MP3 player and may download published music. So yes, he is well aware of record-breaking pop juggernaut One Direction and boasts, "I know if I was out there, we'd give One Direction a run for their money." He reminisces about his "friendly rivalry" in the '90s with that band's puppeteer, Simon Cowell. (Responds a spokesperson for Cowell: "Simon hardly knows him. They were only ever introduced once, and there wasn't any kind of friendly rivalry.")

The imprisoned pop impresario says his former musical charges have tried to visit: "The Backstreet Boys were planning on coming here to film me for their new movie. We were going to interact, but unfortunately the warden didn't approve it." Pearlman managed to catch 'N Sync performing during a Timberlake tribute on August's MTV Video Music Awards. "It was really nice, very touching," he says. "Justin, he matured, and some of the other guys just got a little older," says Pearlman with a laugh. "Brings back great memories."

One of those "older guys" is Lance Bass. Bass was only 16 in 1995 when he was summoned to Orlando by Lynn Harless, mother of Justin Timberlake (who shared Bass' vocal coach). Now 34 and host of the SiriusXM talk show Dirty Pop With Lance Bass, Bass vividly recalls being picked up at the Orlando airport by a cornflower blue Rolls-Royce, in the back of which sat the plump 41-year-old mogul and a 14-year-old Timberlake. "I immediately just really fell in love with Lou," says Bass. "He was such a nice guy and fun to talk to. He immediately became family -- he was our 'Papa Lou.' "

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The fun-loving Pearlman had a knack for charming anyone who toured his Orlando hit factory, a 200,000-square-foot complex where every spare inch of wall was covered in framed gold records (most of them forgeries containing blank CDs one could buy at Staples) and well-muscled boys strolled the halls, earnestly practicing dance moves and harmonies. Pearlman welcomed them into his house, a 16,000-square-foot, $12 million manse that was a stone's throw from estates belonging to Shaquille O'Neal and Tiger Woods. Like a postpubescent Neverland Ranch, the house was appointed to appeal to a late-teen boy, with a life-size Star Wars Stormtrooper standing guard in the foyer and a pimped-out game room as the residence's focal point.

Rumors ran rampant of Pearlman's predilection for the buff, blond boys in his entourage, even as he dated nurse-turned-girlfriend Tammie Hilton, never consummating the relationship in 10 years ("He was very religious," Hilton has said). Bass remembers being warned to keep his distance. "We would hear things, for sure," he says. "He would always have young boy limo drivers for Trans Continental Records; those limo drivers would always be put into different boy bands. Then I'd hear rumors that he would molest the boys before they would even get into the groups. I don't know how much of that is true, but to me, where there's smoke, there's fire."

The members of 'N Sync would crack one another up by imitating Pearlman's habit of manhandling them. "He'd always grab our arms and feel our muscles and go: 'Hey boys, you workin' out? Yeahhhh!' " says Bass, affecting Pearlman's playfully gruff intonation. But he says Pearlman never crossed that line with him, adding that he felt sympathy for a man with whom he suspected he shared a deep secret. "Even as a young guy, I assumed that Lou probably was gay," says Bass. "It didn't really bother me. I knew then that I was gay, so I kind of related to him in a way."

The allegations were the focus of the 2007 Vanity Fair exposé "Mad About the Boys," which relied on innuendo and hearsay but contained no first-person accounts of sexual misconduct. A high-ranking former Trans Continental staffer (who asked to remain anonymous to avoid being drawn into any legal disputes) recalls an incident from 2000 involving Ikaika Kahoano, a finalist on Pearlman's hit ABC reality show Making the Band. "Lou picked him as the 'chosen one' to live in the house," recounts the source. "He said: 'I'll be like a father to you -- me and you against the world. We have a secret. I'll take care of you. You'll be my guy.' " Over time Kahoano grew visibly uncomfortable in Pearlman's presence and "completely freaked out," the source says, whenever the label head tried to touch him. Kahoano's brother flew in from Hawaii soon after and never left his side, a fact that didn't make it to air. Kahoano, who declined comment for this story, abruptly quit the show, and the band O-Town, midseason.

Today, Pearlman flatly dismisses the rumors. "You know, the accusations that came out in that article, none of it was substantiated," he says. "Nobody who I've made a success has ever accused me of anything negative like that. The Vanity Fair piece interviewed only people that had a grudge." He adds that fellow inmates have come to know the real Pearlman through the years and never hassle him about the molestation charges: "They realize that none of that can be true."

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It has been a bizarre odyssey for a seemingly mild-mannered guy born in Flushing, N.Y., in 1954, the only child of a Jewish dry-cleaner owner named Hy and his homemaker wife. Pearlman grew into a socially awkward and pudgy adolescent, taking great pains to leverage his one claim to fame: His first cousin was Art Garfunkel. The curly-haired half of folk singing sensation Simon & Garfunkel attended Pearlman's bar mitzvah in June 1967, giving him his first taste of music stardom. (Pearlman says Art's 23-year-old son, James Garfunkel, was among the few relatives to stand by him through his legal difficulties and that he occasionally is visited by him in prison. Art and James Garfunkel declined comment for this article.)

Pearlman got his entrepreneurial start in the late 1970s, after graduating from Queens College with a degree in accounting, by founding a helicopter taxi service in New York City. He later moved into blimp leasing. After the maiden voyage of the newly minted Airship International crashed in New Jersey in 1980, Pearlman aligned himself with a shady penny-stock operation, not unlike the one depicted in The Wolf of Wall Street. An initial public offering in 1985 for Airship International (ticker symbol: BLMP) raised $3 million in a widely suspected "pump and dump" scheme. By 1989, he was traveling in a private jet and had relocated to temperate Orlando.

All the while, Pearlman quietly was convincing would-be investors to get in on the ground floor of a flourishing fleet of planes. In reality, the jumbo jet pictured in the Trans Continental Airlines brochure was a toy airplane that once adorned his dresser. Trans Continental would become the cornerstone of Pearlman's Ponzi scheme of 84 businesses of varying degrees of legitimacy, in which investors contributed to the company's Employee Investment Savings Accounts (EISA) program. Every dollar went directly into his deepening pockets.

After a string of blimp accidents in the early '90s, Pearlman soured on the airship business, remembering the time he chartered a plane in the late 1980s for money-minting New Kids on the Block. He placed a classified ad for teen male vocalists in the Orlando Sentinel in 1992 and fondly recalls "the days when we had the auditioning process, when we put it all together, trying to get a record deal."

Backstreet Boys were not an overnight hit, but Pearlman proceeded to sink millions into the group. Success came with the 1997 hit "Quit Playing Games (With My Heart)," which helped fuel album sales of ultimately 14 million copies. Through it all, he continued to push his phony EISA program, giving him a never-ending source of capital to blow on his show business endeavors.

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"I wished I wasn't involved in the airline business to begin with," says Pearlman. "Because it's very capital-intensive and caused a lot of headaches for me." Asked how he could have lied to his elderly victims, many of whom angrily testified at his sentencing hearing, Pearlman turns to metaphor: "When things build up over time, it's kind of like the dam that keeps springing holes in it and you just gotta keep plugging the holes, and you don't realize that you need a new dam."

Might he actually have a shot at a comeback? When music executives were informally polled about whether Pearlman has a genuine ear and eye for talent, all but one said no. But Bass reasons: "I don't think it's far-fetched at all. Of course, why not? He obviously has the attention -- you're writing a story about him. All it takes is a talented group and boom, they could blow up."

The problem, which Bass knows all too well, is that Pearlman has a well-documented track record of robbing his artists blind. He was sued for fraud by all but one of his groups, whose members objected to signing ridiculously lopsided contracts. (All the lawsuits were either won by the plaintiffs or settled out of court.) One of his final signings, a dancer named Sean van der Wilt, whom Pearlman approached backstage in 2001 at a Chippendales Male Revue (where he was a part-owner), reveals how he'd regularly find mysterious expenditures slipped onto his artist's ledger, otherwise known as the recoup. "He would go out to dinners with business people and put it on my recoup!" says van der Wilt.

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Bass still bristles when he thinks back to the band's early days, when his only compensation was a $35-a-day per diem: "After three years of doing this, having a No. 1 album, being the biggest band in the world, we weren't seeing any paychecks." He describes a pivotal moment in late 1998 when the group was finally going to receive their first payment. "We were all trying to guess what it would be, because we knew how much merch and how many records and how many tours we sold out." The band expected something in the six figures; instead, the check read $25,000, which Bass promptly tore up. 'N Sync broke free from Trans Continental's clutches the following year, taking advantage of a contractual loophole to sign with Jive Records.

"The sad thing is, Lou could have had it all," sighs Bass. "He could have had the new Motown in Orlando. But that's where greed comes in. He was just a really greedy person."

Despite nearly six years behind bars, Pearlman insists he is doing fine. "I'm feeling good. I'm OK," he says. With 15 years left, he clings to his boy-band dreams to keep sane, along with the promise of finding the next 14-year-old Justin Timberlake outside the walls of FCI Texarkana.

Asked what he hopes this piece might relay to the world he left behind, Pearlman considers for a moment, then replies: "You know, that I deeply regret what happened. And I'll be back."