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Boy band mogul Lou Pearlman to plead guilty in fraud

Lou Pearlman, the music mogul who launched the Backstreet Boys and ‘N Sync, has agreed to plead guilty and make restitution to victims swindled out of an estimated $300 million in phony bank and investment schemes, U.S. prosecutors said on Tuesday. Pearlman admitted in a plea agreement that for 20 years he enticed people and banks to invest millions of dollars in two companies that existed only on paper: Transcontinental Airlines Travel Services Inc. and Transcontinental Airlines Inc.

Pearlman is scheduled to enter his plea on Thursday in a U.S. court in Orlando. The charges carry a maximum of 25 years in prison and a $1 million fine.

As part of the deal, Pearlman agreed to help the government identify assets to make restitution, forfeit a 2004 Cadillac, a 2005 Chrysler, a 2004 Rolls Royce Phantom, a 2006 Cadillac limousine and two bank checks totaling $97,000.

Pearlman will plead guilty to two counts of conspiracy, one of money laundering and one of making a false claim in a bankruptcy, according to the deal. Prosecutors said the case involved three different conspiracies and fraud schemes.

One was a “Ponzi” scheme in which money raised from investors was used to pay earlier investors. The second was a bank fraud in which Pearlman got loans based on fake financial statements and income tax returns prepared by a fictitious accounting firm and the third was a bankruptcy fraud scheme.

Prosecutors counted at least 250 individual victims who lost $200 million, plus 10 financial institutions that lost $100 million, according to the plea deal.

The schemes were sustained by a fictitious international accounting firm, Cohen & Siegel, created by Pearlman in 1995, with nothing more than a dedicated telephone line at a Coral Gables, Florida, answering service, the plea deal said.

Pearlman, who guided the career of teen idols ‘N Sync and the Backstreet Boys in the 1990s, also created a fictitious “German Savings Banks” and company officers, according to the agreement.

Among the banks identified as loaning money or providing a line of credit to Pearlman or his companies are Integra Bank N.A.; Bank of America; American Bank of St. Paul; First International Bank & Trust; MB Financial Bank N.A.; Northside Community Bank; Mercantile; Washington Mutual; First National Bank & Trust; and HSBC Bank.