Former king of the boy bands Lou Pearlman faces the music in an exclusive jailhouse interview

THE HIT CHARADE Pearlman with mega-selling golden goose Aaron Carter

On a sunny January afternoon in Orlando, Florida, a buttoned-down accountant named Paul Glover arrived at the ragtime-themed offices of Trans Continental Enterprises, a collection of travel, entertainment, restaurant, and retail operations presided over by boy-band impresario Lou Pearlman. The now 53-year-old Pearlman burst into prominence in the '90s, waddling his way to the top of the pop charts with bubblegum acts 'N Sync and the Backstreet Boys, followed by O-Town, LFO, Natural, Take 5, US5, and Aaron Carter, among others. By 2003, when he took over the Trans Con complex—a once-thriving tourist destination known as Church Street Station—he was as much an Orlando icon as Mickey or Goofy. He was often spotted zipping around town in his powder blue Rolls-Royce Phantom or in a stretch Hummer limo, blonde girlfriend in tow. Banks tripped over themselves to loan him millions for new projects. In grateful acknowledgment of his contributions to the local economy, Orlando officials literally handed him the key to the city.

Meanwhile, unbeknownst to even his closest executives, the companies that buoyed his mid-'90s hit parade and lavish lifestyle had fallen into financial shambles. Investigators had been looking into Pearlman's operations since early 2000, as company debts mounted and news of a budding scandal leaked. Security guards at Pearlman's offices, once tasked with fending off starstruck teens, had instead begun warding off angry investors who demanded money and answers. And in November 2006, Pearlman's longtime friend Frank Vasquez, who'd served as Trans Con's vice president of operations and was intimately familiar with the business, climbed into his Porsche, lowered his garage door, and turned on the ignition. With raids of Pearlman's home and offices by the Justice Department and the IRS just around the corner, the corpulent mogul—known to his underlings as Big Poppa—was desperate to wring out any liquid assets that might buy him some time.

That was where Glover came in. The 48-year-old CPA was brought into Pearlman's flailing operation by Frank Amodeo, a secretive "distressed business manager" who, for two years, had been working quietly behind the scenes to bail out Trans Con. At Amodeo's request, Pearlman ordered his executives to open the corporate books to Glover, presuming the accountant would be a team player. Big mistake.

By 3 p.m. that January afternoon, Glover had set up camp in Pearlman's spacious third-floor corner office—accented with a faux tiger rug, shower, and motorized draperies—and had begun poring over documents as Trans Con senior executive Bob Fischetti and Pearlman's executive assistant, Janet Hart, hovered anxiously nearby.

Among the documents the accountant discovered were boxes of angry certified letters from investors in a $500 million savings account scheme that had kept cash flowing to Pearlman's faltering music management company. The investors wanted their money. But there was no money. Instead, records clearly indicated that "that half-billion dollars was going straight into Lou's hands," Glover says. "Immediately, I'm thinking, This is a Ponzi scheme.

For Glover, the biggest red flags were the official-looking quarterly statements for Trans Con's Employee Investment Savings Accounts. While the accounts had nothing to do with Pearlman's music operations, these phony investment vehicles, peddled by local insurance salesmen and financial advisors, clearly traded on Pearlman's reputation as an entertainment mogul with a golden touch. The accounts promised investors—including Pearlman's employees, friends, and relatives, as well as trusting retirees—higher returns than standard savings accounts. Investor statements were audited by a firm called Cohen & Siegel of Coral Gables, Florida, but Glover spotted glaring errors, even in the boilerplate used in the footnotes. "I've seen poor accounting work before, but I thought, wow, this is a shoddy firm." So he decided to ring up Cohen & Siegel with a few questions. Much to Glover's surprise, the moment he pressed "send" on his mobile phone, the phone on Pearlman's desk started buzzing. "When I hung up my phone, the phone on his desk quit ringing, too," Glover says. "Janet and Bob started laughing. They said, 'Oh, no, he's Cohen & Siegel.'" Glover dialed Cohen & Siegel once more. Lou's line lit up again.

WHEN THE MUSIC STOPPED The mogul in his mugshot

A few weeks later, Pearlman plopped himself on the veranda of his $12 million Italianate Orlando mansion to do a little wheeling and dealing. Protected by a cordon of guards armed with Uzis, he agreed to sell off what was perhaps the only legitimate asset he had left, the city block–size, honky-tonk Trans Con headquarters—along with its restaurants, compliment of massive bars and ballrooms, and even the Paris Hilton—themed Club Paris nightclub—to Orlando developer Cameron Kuhn for $34 million. As the feds prepared raids on his home and offices, Pearlman boarded a commercial jet and fled to Germany. While his exact movements remain a mystery, he popped up in Berlin to accept a Goldene Kamera "Pop International Band" award with his last active boy band, US5, and while there, sent a letter to the Orlando Sentinel touting the group's musical accolades and promising things would be cleared up real soon. At some point, he also visited Panama, where, according to documents later found in his Balinese hotel room, he considered becoming a legal resident.

German tourist Thorsten Iborg, 32, was sunning on a beach in Bali in June when he spotted a heavyset man wearing shorts and a Hawaiian shirt, sipping coffee. Iborg immediately recognized him as the creator of the Backstreet Boys. Later, he and his wife passed the man in the hallway of their hotel, the Westin, observed him at a cocktail party thrown by the hotel's manager, and spotted him idly surfing the Web in an Internet cafe. "He was watching some YouTube music videos," Iborg says. "He looked sad and bored. I think he wanted to be caught." Iborg sent an e-mail announcing his discovery to St. Petersburg Times reporter Helen Huntley, who passed the tip on to the FBI with his permission. A few days later, Iborg snapped a photo of Pearlman pawing at a pancake and waffle breakfast. He was busted by Indonesian police just minutes later. He had registered at the hotel under the name "A. Incognito Johnson" and was carrying a credit card with the same surname.
Security guards at Pearlman's offices, once tasked with fending off starstruck teens, had instead begun warding off angry investors who demanded money and answers.The onetime owner of a Gulfstream V flew "con air" back to Orlando, where he was indicted on three counts of federal bank fraud and single counts of wire and mail fraud (stemming from his default on $160 million in bank loans)—offenses with a maximum combined sentence of 130 years in prison. But he has yet to be charged for his biggest alleged crime: bilking 1,800 investors out of nearly half a billion dollars. Investors say they were given brochures that said their money was guaranteed by the FDIC, AIG, and Lloyd's of London. It wasn't.

If the evidence sticks, the man who masterminded some of the music industry's most lucrative pop ensembles will chalk up another superlative for orchestrating what many consider the largest and longest-running Ponzi scheme in U.S. history.

When I visited him last July in the Orange County jail, the former music mogul joked that incarceration has afforded him rare downtime, and said he regretted nothing.

"I'm proud of everything I've done," he said. "I've had a great, great time. I've just enjoyed all of the people throughout my career. We were the pioneers of a new regime. We brought a lot of joy to the world."

It's been quite a long fall for the cherubic Svengali once described in doting profiles as a real-life Horatio Alger. Pearlman, the son of Flushing, Queens, dry-cleaning business owners—and a cousin of Art Garfunkel—began his career as a newspaper delivery boy and later played guitar in a local band. Though he wasn't cut out for the stage, he eventually found his way into the music business via an alternate route: outfitting planes for Phil Collins, Paul McCartney, and New Kids on the Block—the seminal pop quintet that inspired him to start a boy band of his own.

Before the Backstreet Boys hit it big, Pearlman's biggest claim to fame was his ownership of Chippendales, the beefcake troupe of male peelers. Teaming up with pop producer Johnny Wright (the man who discovered Britney Spears), he began searching for his own quintet. He spent $3 million over the next two years tapping Disney's nearby talent pool of young wannabes, sweet-talking stage moms, and auditioning members for what would become the Backstreet Boys. He paid out of pocket for vocal and dance lessons, apartments, per diems, hotel and travel expenses, haircuts, and more. When he'd found his five, he spent even more money to ensure their success. He'd drop $50,000 on a charter flight to keep them on their tightly booked touring schedules. "An entourage of 11 people would be flying all over the place," says Wright, Pearlman's partner in Trans Con until the late 1990s and now president and CEO of Wright Entertainment Group. "When the Backstreet Boys' first single failed in the U.S., I said, 'Let's start again in Germany.' The label didn't want to fund it, so Lou put up his own money. Where it came from, I don't know. There used to be a running joke, because Lou would go to Atlantis [resort and casino] all the time. We'd say, 'Oh, Lou's going to make payroll this week.' Everyone said he was great at craps."

Wright suspected Lou had a benefactor with deep pockets, but he also had the impression that Lou's impressive hustle was working. "The whole time I was with Lou, he did everything he said he'd do," Wright says. "Whether he had to rob someone in the middle of the night, I don't know. But the money was there."