Kari Keller received her MBA Music Management from William Paterson University in May, 2015. She completed her BS in business administration: marketing & music business from Albright College in Reading, PA in 2013. Kari is currently working at Live Nation NYC and has interned as a student associate in the bookings/marketing department at Madison Square Garden and with Columbia Records as their touring/events intern.
Pop, Planes, and Ponzi: The Rise and Fall of Boy Band Manager Lou Pearlman
By Kari Keller
Rewind to the 90s and the boy band craze: platinum albums released virtually every year, massively successful arena tours, merchandise galore, and millions of screaming tween girls. Until the recent appearance of One Direction there was nothing like it. If you were one of said screaming tween girls during these years, like me, than you probably thought this was the greatest time of your life. If you were one of said people involved with these world-dominating groups, then you also probably thought this was the greatest time of your life.
Who was it behind the faces of arguably the biggest boy bands ever, the Backstreet Boys and *NSYNC? A man with a big plan named Lou Pearlman. One of the greatest schemers in the history of our economy, Lou Pearlman successfully administrated and ripped off some of the biggest acts and also investors during this time period as well as overstepped his bounds as both a business professional and a talent manager.
The Man Behind the Bands
When looking at Lou Pearlman, the term “music mogul” doesn’t readily come to mind. An overweight, bespectacled man known as Fat Louie growing up and later as Big Poppa to those in his closest circles, Pearlman didn’t radiate a celebrity aura. But he was a big man who talked bigger and had the charm and tact to make people believe him. Harboring a fascination for blimps and other aircraft growing up, naturally Pearlman’s first forays into big business revolved around these subjects.
Thus came about blimp company Airship International and later Trans Continental Airlines which were started with the help of interested investors whom Pearlman lured in (more on this topic later). When he turned his attention to the music business in 1992, Pearlman was already 37 years old as well as a millionaire C.E.O. (Burrough).
The sudden transition apparently came about when Pearlman, always looking for new ways to make income, had one of his chartered jets used by boy band New Kids on the Block and got wind of how much money they were raking in.
He placed an ad in the Orlando Sentinel announcing an audition for teenage boys to try out for a part in a new boy band and soon was receiving calls from excited parents and their aspiring children. Who was his first client? None other than A.J. McLean, the very first member of the Backstreet Boys who, with the help of managers Jeanne Tanzy Williams and Sybil Hall, began working with Pearlman to complete the group (Burrough).
Four talented members later and a complete group now in place, the Backstreet Boys began their rise to fame. At first largely ignored by US radio stations and audiences, the band found their niche in Europe and it wasn’t long until their first album was a hit worldwide. “Through it all, Pearlman remained a smiling father figure to the boys, paying for everything, the tours, housing, clothes. He preached that they were all a ‘family’ and urged the boys to call him ‘Big Poppa’” (Burrough).
But why stop there when he could have more? Pearlman continued to form new groups including Backstreet Boys’ rival *NSYNC and other less popular bands such as LFO, Take5, and girl group Innosense. Although none of his successive groups brought him the same claim to fame, the success of his first two was staggering as can be seen in the comparative chart on the following page found in Peoples’s Billboard article:
Unfortunately, as in many situations, more money brings about more problems. In Pearlman’s, Backstreet Boys’, and *NSYNC’s cases this was no exception.
Big Problems for Big Poppa
With the massive success of both the Backstreet Boys and *NSYNC, Pearlman was naturally living the high life. Buying mansions, Rolls Royce cars to fill his driveways, and treating practically every client and friend he had to meals out, he was certainly making the most of his wealth (Burrough).
Meanwhile, the bands that had yet to see such money coming their way began to raise concerns. Brian Littrell of the Backstreet Boys remembers “‘The numbers weren’t adding up. My parents had questions. You’re a young kid that’s working and you sold 14 million albums in your career before anybody ever knew who you were in the United States. You were selling out arenas and your CDs wouldn’t stay on the shelves, yet I had like $80,000 in my bank account after, like, five years’” (Thompson).
Littrell claims that while he confronted Pearlman about the matter several times he never received a clear answer or was simply told that Pearlman would fix it. As the statute of limitations neared, Littrell realized he had to take action and filed an open-ended lawsuit against Pearlman which would allow the other band members to participate if they so wished.
Littrell says that the members were afraid and thought that Pearlman would fire Littrell but at that point in time BSB had already gotten so big that it was too late for Pearlman to react negatively (Thompson). The rest of the members eventually joined in and as a united front went after Pearlman for their monies. What they and their attorneys discovered amidst the litigation research was shocking. Pearlman had registered himself to be paid as sixth member of the band (Burrough). Not only had he been receiving income as the group’s manager but he had also been double dipping into the Boys’ hard-earned royalties.
This was only the beginning for the Backstreet Boys.
In 2005 the band filed yet another lawsuit against Pearlman for “…reimbursement of legal settlements the group paid to former member Sam “Phoenix Stone” Licata and former managers Sybil Hall and Jeanne Tanzy Williams” (Billboard). In the beginnings of the group Licata had been an initial option member when McLean was first chosen to join the band, however, Licata was never actually added into the roster.
While Licata and Hall remained close with Pearlman as co-investors in the band for a time, Pearlman apparently didn’t honor their involvement, rights to financially share in the bands successes, and later departure. According to the Boys’ attorneys, “Pearlman induced BSB to sign agreements dissolving a corporation, effectively cutting out Hall, Williams and Licata from participating in future revenues…As a result, Pearlman put the group’s assets at risk from legal claims made by the departing parties” (Billboard).
While it seemed Pearlman may have pressured the band into signing the agreements, how much the band really knew remains unclear. What is clear is that Pearlman was again trying to skew the situation in his favor and the money into his pockets.
What started as a spark had turned into a flame and “In the wake of the Backstreet lawsuit, Pearlman’s [other various] bands began to realize how much of their income was flowing to Big Poppa. One by one they sued or disbanded” (Burrough). *NSYNC was no exception. While it seems they tried to escape extreme litigation against Pearlman by getting out of their recording contract with him, they managed to land themselves in even hotter water. In October of 1999, “…the five-member group ditched its contract with Pearlman’s company and signed a multi-album recording contract with Jive” (Lieberman).
Clearly unhappy and likely incensed by their actions, Pearlman slapped the band members with a $150 million breach-of-contract lawsuit in which he stated that the band should no longer be able to use the *NSYNC name or release recordings. Rather than quail from Pearlman’s demands, *NSYNC fired back asserting that: “Pearlman is an unscrupulous, greedy and sophisticated businessman who posed as an unselfish, loving father figure and took advantage of our trust” (Lieberman).
As both sides prepared their defenses it quickly became clear that as in the case of the Backstreet Boys, Pearlman had once again registered himself as a sixth member of the band. *NSYNC insisted that they were misled in their contractual signings and they had not received their full profits from the success of their albums. A statement from their camp read: “Trans Continental’s conduct with regard to ‘N Sync is the most glaring, overt and callous example of artist exploitation that the music industry has seen in a long time” (Boehlert).
While it’s clear both parties were able to come to an agreement as a settlement was made, details were unreleased as both parties had signed a confidentiality agreement (Lieberman). In general it seems the bands got cash and their respective freedoms, while Pearlman retained a portion of future revenues from their endeavors (Burrough). Such confidentiality agreements are not uncommon in the legal arena, however, when certain allegations about Pearlman were later brought up one begins to wonder what all these bands were supposed to keep quiet about.
With Pearlman in the midst of litigation, revealing that he hadn’t acted completely kosher in his dealings with his bands, other allegations began to leak out. Were Pearlman’s motives for starting boy bands simply about the money? Were his intentions something more sinister and child predator related? The question had been raised but it was answered with mixed results. A.J. McLean’s mother Denise remembers thinking “‘As a mother, you kind of put two and two together…Yet there was always that fine line where you sat back and went, O.K., is this a guy who always wanted to be a father or an uncle? Is this all innocent? Or is it more? I kind of thought that there might have been some strange things going on. But you just didn’t know’” (Borrough).
Nick Carter’s mother was much more adamant claiming that Pearlman’s financial scandals were the least of his injustices but that she couldn’t speak further on the topic because she didn’t want to threaten her relationship with her son or jeopardize their careers in any way (Burrough). It turns out that Pearlman may have been intentionally keeping parents in the dark with a sort of pact that encouraged the boys to keep to the code of “what happens at Pearlman’s house, stays at Pearlman’s house.”
When certain members were finally brave enough to speak, however, damning stories were told and left up to the listeners and readers to determine their truth value. One such story came from a Take5 member who claimed that he and his friend had gone to Pearlman’s house to shoot pool one night. “When they arrived, Pearlman met them at the door naked, explaining he was just getting out of the shower. Another time… Pearlman showed him security-camera footage of his girl group, Innosense, sunbathing topless” (Burrough).
While the first occurrence sounds disturbing, the second is downright inappropriate and probably illegal given the girls were likely minors and the footage taken without their consent. Another young man named Steve Mooney, who was under Pearlman’s employ as a driver and assistant to gain his favor, also followed up with own confirmations. Mooney claimed that Pearlman tried to coerce him into giving sexual favors in exchange for a spot in the soon to be band O-Town, in which Mooney highly coveted a part. Mooney turned him down and shortly thereafter left Pearlman’s keeping. He remembers being constantly touched and massaged by Pearlman on his arms, abs, and back when in his presence and seeing other boys receiving similar treatment (Burrough).
At one time, Mooney was brave enough to ask another member of one of Pearlman’s second-tier bands why he put up with Pearlman’s advances. The kid replied “‘Look, if the guy wants to massage me, and I’m getting a million dollars for it, you just go along with it. It’s the price you got to pay’” (Burrough). As disgusting as this may sound, it’s hard to believe otherwise when so many people brought up the question. Therefore, not only was Pearlman shady in his business dealings, he was also quite possibly making improper advances and having inappropriate relationships with his artistic clients.
While Pearlman has never been officially charged with any counts of child molestation or pornography, he did, however, land himself behind bars. And not just because he was a poor excuse for a manager.
Mayday, the Plane has Crashed
As the Backstreet Boys and *NSYNC climbed into stardom and subsequently battled it out with Pearlman in court, Pearlman continued to grow his plane company called Trans Continental Airlines. What few realized, however, was that this company housed all of Pearlman’s business exploits. “In fact, almost all Pearlman’s ventures became subsidiaries of Trans Con Air—the Backstreet Boys, the Chippendales male-stripper franchise (acquired in 1996), Trans Con Records, Trans Con Studios, even Trans Con Foods, which included a string of TCBY yogurt franchises and a small chain of deli-cum-pizzerias called NYPD Pizza” (Burrough).
Not only was this situation a problem because it created a largely diversified range of products and services that were unrelated, it also made it an unwieldy corporation that needed plenty of outside investment. The biggest problem of all, however, was that this company existed only on paper. For over a decade, Pearlman had been running a Ponzi scheme right under the nose of all his bands and all his “aircraft” clients and investors.
Creating fake accounts called “eisas,” which stood for Employee Investment Savings Accounts, Pearlman went after both big-time investors and vulnerable retirees, telling them “‘I’ve got this eisa plan, and normally these plans are restricted to employees, but I’ve built in a special clause that allows me to give it to friends and family…’ The genius was he promised only a point above prime or so, so people never got suspicious” (Burrough).
By selling fake stock in exchange for investments, Pearlman had created the perfect sham. It’s estimated that between the early 1990s and 2006, Pearlman received more than $300 million from these counterfeit exchanges. The state of Florida, where Pearlman operated, alleges “…it was a straightforward Ponzi scheme: Pearlman paid old investors with money from new ones” (Burrough). If anyone became too suspicious they were warded off with seemingly legit documents from AIG insurance and the FDIC. The FDIC approval was later found to be a forgery and while the AIG form was real, it was completely unrelated to Trans Con and thus null and void (Burrough). It was only when payments stopped coming to investors in 2006 that people began to have suspicions and raise concern.
It turns out that there is little evidence to support that many were knowingly involved in Pearlman’s scheme. One way that Pearlman achieved this was to hire inexperienced people or people who were already in some sort of trouble and pay them well. For example, Pearlman even went so far as to hire an executive banned from the securities industry for swindling investors to handle merchandise for the Backstreet Boys (Burrough).
It wasn’t until 2008 when Pearlman was finally caught in Bali after having run to various parts of the globe trying to escape. He plead guilty to fraud charges and was sentenced to 25 years in prison (Kaufman). Thus, while he may have gotten out of his other wrongdoings as a band manager, Pearlman’s greed finally caught up with him and landed him behind bars.
Manage Your Manager
While researching this paper and learning many new things about Lou Pearlman and some of the bands that I’ve loved, several questions came to mind. Why weren’t any of his misconducts as a manager brought to light earlier? The Ponzi scheme is one thing and clearly he had gone to much thought to keep that successful, but what about all the band contracts? Why wasn’t anyone aware that he was writing himself in as a sixth member in each of these bands?
My only guess is that the boys were too young to truly know what they were agreeing to. The parents likely weren’t educated enough to know about these types of dealings in the industry and so didn’t know what they were signing off on. Thirdly, the lawyers were probably hired or paid off by Pearlman to keep quiet thus completing the circle. With his own record label and hand in all the other major label negotiations, it is very likely that Pearlman may also have kept this quiet from any other parties such as BMG, who helped distribute the records.
In addition, with Pearlman using his “own” money to pay for some of the bands’ upkeep, he could probably justify any of his dealings to himself and potentially other parties.
The whole issue regarding Pearlman’s questionable behavior with band members is another giant matter in itself. If things like that really did take place, were the boys really so scared that they couldn’t say anything? Perhaps they really did feel it would irreparably damage their careers but it still is extremely disturbing to consider. Is there no type of protection that would allow abused members to confidentially be released from their contracts? Then again there is always the whole issue of proof.
The bottom line is that it seems to me in light of all this is that bands need to take extra care when choosing who their manager will be and how much power they will have. Could it be worth it for bands to have their managers undergo a background and credit check? It’s very possible given that this wouldn’t be the first time a band has been taken advantage of by its manager.
Should there also be an industry standard that managers must comply with? Agents, accountants, and other business professionals within the field have them so why not managers? Perhaps there should be an artist managerial license or certification that prospective managers need to receive in order to ensure that they are educated and to try and better protect our artists.
Whatever the case, it needs to be known that managers should not be accounted for as band members, should not be combining their bands’ business assets with personal assets and other businesses of the manager’s, and should not be initiating inappropriate and potentially illegal relationships with their artists.
A seemingly innocent and persuasively charming man, Lou Pearlman was in reality one of the greatest conspirers of all time. While his Ponzi scheme was what eventually landed him behind bars, he had plenty of other injustices to add to his list.
Pearlman abused his power as a manager by not only stealing from his bands and overstepping his bounds but also by making improper and sexual advances on teenage boys. He created massive success for both the Backstreet Boys and *NSYNC but he also created massive damages dragging them both through years of litigations, rumors, and strife. His story is one that bands should know and be cautious of.
It would be wise for the industry to create certain requirements for managers that in practice would help keep the business cleaner, but it is unlikely any actions in this area will be made anytime soon. In the meantime, in order to protect their welfare, artists need to be fully educated in what their manager is supposed to do for them and how things can go very wrong if not done correctly. With the right team, and sometimes even with the wrong, an artist can find huge success. However, it will be much easier in the end for all parties involved if things are done legally and ethically. Here’s to making a better music business for everyone!
“Backstreet Boys Sue Pearlman, Trans Continental.” Billboard. Billboard, 3 Nov. 2005. Web. 20 Apr. 2015.
Boehlert, Eric. “N Sync Slapped With $150 Million Lawsuit.” Rolling Stone. Rolling Stone, 13 Oct. 1999. Web. 21 Apr. 2015.
Burrough, Bryan. “Mad About the Boys.” Vanity Fair. Conde Nast, Nov. 2007. Web. 20 Apr. 2015.Lieberman, Allyson. “Parties Finally Get ‘NSYNC on Boy-Band Contract Lawsuit.” New York Post. NYP Holding, Inc., 30 Dec. 1999. Web. 21 Apr. 2015.
Kaufman, Gil. “‘NSYNC, Backstreet Boys Mastermind Lou Pearlman Sentenced To 25 Years In Prison.” MTV News. Viacom, 21 May 2008. Web. 21 Apr. 2015.
Peoples, Glenn. “Why Zayn Malik’s Departure From One Direction Won’t Hurt Band’s Music Sales.” BillboardBiz. Billboard, 26 Mar. 2015. Web. 20 Apr. 2015.
Thompson, Eliza. “Backstreet Boy Brian Littrell: “There Were Plenty of Times That I Was Fearful for My Life”” Cosmopolitan. Hearst Communications, 30 Jan. 2015. Web. 21 Apr. 2015.