The man who was responsible for creating the business empire which managed the careers of ‘N Sync, the Backstreet Boys and O-Town is singing a different tune these days.

Lou Pearlman was arrested last week at the Westin Hotel in Bali and turned over to U.S. law enforcement officials. He was flown to Guam to appear before a judge on one felony count of bank fraud. He was expected to be returned to Florida where more charges likely await, including possible tax evasion charges.

Pearlman is believed to have bilked about 1,000 investors of more than $300 million, as well as an additional $150 million from banks. He claimed that he would invest the money at a profit to the investors. Records indicate that Pearlman likely pocketed the money.

This isn’t the first time that Pearlman has been accused of mismanaging funds; he was sued by the Backstreet Boys and ‘N Sync regarding his control over their finances. This may, however, be the biggest accusation he’s faced in his plummeting career.

After suits by the boy bands he managed, Pearlman’s fortunes in the music world took a dive. He then offered investments in one of his companies to private investors. It appears, however, that the investment plan was bogus. Clients received quarterly reports audited by the accounting firm of Cohen & Siegel. Cohen & Siegel, however, was fake.

In November 2006, suspicion began to mount into Pearlman’s activities when Frankie Vasquez Jr. committed suicide. Vasquez had been one of Pearlman’s most trusted partners. A few months later, one of Pearlman’s entities – one that Vasquez had been involved with – filed for bankruptcy even as the investigation around Pearlman’s finances grew.

Pearlman has asked for a public defender but has refused to disclose his finances. Attorneys familiar with the case have theorized that he is hesitant to expose his finances because any disclosed assets could be subject to seizure for purposes of satisfying any judgments against him; additionally, his failure to disclosure could lead to a perjury charge.

I think that’s the least of his worries. To secure funding for these alleged business activities, Pearlman offered fake tax returns for the years 2003 and 2004 allegedly prepared by the nonexistent Cohen & Siegel. He never actually filed those returns, a matter that has piqued the interest of the IRS. Charges have not yet been filed by the IRS but it doesn’t take a psychic to see that it’s coming.

In the meantime, music fans all over the world may well be wondering:

Show me a reason, give me a sign
Tell me the way we, fall out of line*

Cause to most of us, it makes no sense how a man with a private Gulfstream jet, Rolls Royce Phantom and a $12 million Florida home could end up with nothing but a bad reputation.

* and kudos to anyone who got both Backstreet Boys references – not that I was a fan or anything…

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Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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