ORLANDO, Florida (Reuters) - Boy band mogul Lou Pearlman, who launched Backstreet Boys and ‘N Sync, was sentenced to 25 years in prison on Wednesday for swindling investors and major U.S. banks out of more than $300 million.
But U.S. District Judge G. Kendall Sharp gave Pearlman the chance to cut his prison time by offering a one-month reprieve for every $1 million in cash he helps a bankruptcy trustee recover for his victims.
Theoretically, Pearlman could cancel his entire 300-month sentence by repaying the $300 million debt.
His lawyer, Fletcher Peacock, said in a written plea that 25 years amounted to a “sentence to death in prison” for the 53-year-old impresario who lived a jet-set life of mansions and luxury cars before the fraud scheme collapsed.
In an audacious two-decade scam, Pearlman admitted in his plea agreement to enticing individuals and banks to invest millions of dollars in two companies which existed only on paper -- Transcontinental Airlines Travel Services Inc and Transcontinental Airlines Inc.
He won investors’ confidence with fake financial statements created by a fictitious accounting firm.
During sentencing, Sharp held up a book with letters from Pearlman’s victims, saying they included “his family, his close friends and people in their 70s and 80s who have lost their life savings.”
“So the sympathy factor doesn’t run high with the court,” the judge said.
Pearlman pleaded guilty in March to four counts: two of conspiracy involving bank and investor fraud, one of money laundering and one of making false claims in a bankruptcy.
Sharp noted Pearlman’s cooperation with the trustee to date had resulted only in the seizure of his mansion, cars including a Rolls Royce and other assets. Those recovered assets will not count toward the incentive plan to cut his sentence.
Sharp scheduled a hearing for the third week in July to determine the exact amount of restitution owed to victims, which is still being calculated.
He called the banks “negligent” for lending millions of dollars to fake companies without asking the obvious question: “Why there weren’t any Transcontinental planes flying around?”
The judge said he was concerned about small investors like Juanita Reynolds of St. Petersburg Beach, Florida, who cried while telling of her nearly 90-year-old husband’s reaction to the swindle.
“Tears ran down his face and he said he’d lost all his self-confidence and he died seven months later,” she said.
Other victims expressed anger at state regulators who ignored red flags about the scheme and at their need to work through what was supposed to be their retirement years.
When Pearlman comes out of prison, “he should be turned over to us,” said investor James Taylor.
Pearlman unsuccessfully sought a delay in his sentencing to allow time to launch his latest creation, European pop band US 5, in the United States and Asia.
In court documents, he argued he was developing US 5 at the time of his arrest and said the bankruptcy trustee for his companies agreed he had potential to earn “significant profits” on the band that could be used to pay restitution.
Outside the court, trustee Soneet Kapila said he had hired a music business consultant to help him evaluate the US 5 prospects and that he would be meeting with Pearlman to hear “whatever ideas he may have to utilize.”
“I think the only fair thing to say is we need to explore that potential,” Kapila said.
Editing by Jim Loney and John O'Callaghan