How Lou Pearlman used Backstreet Boys to Create a Massive Ponzi scheme

Lou Pearlman wanted to make money. He started selling blimps in the 1980s. He then moved into chartering flights, where he became fascinated with the success of New Kids On The Block. Dollar signs must have been in his eyes as he set up his record label.

A portrait of Lou Pearlman.
Photo by Ron Davis/Getty Images

He was staggered by the amount of money they were making and decided to make his boyband which was the beginning of the Backstreet Boys. In the end, Pearlman gets too greedy. It’s a fascinating tale so read on to find out more!

Starting a Boot Camp

He moved to Florida and auditioned people he could debut in his group. He then spent money training them, giving them singing lessons, choreographies, and tutors, and cultivating them into the group he wanted.

Lou Pearlman poses with N'Sync.
Photo by Mark Weiss/WireImage/Getty Images

While the Backstreet Boys were still making a mark in the music industry, Pearlman started another group using similar methods, NSYNC. He made the bands compete and enjoyed their rivalry, making them egg each other to get better results. With the success of the two, he started earning huge money.

Using the Backstreet Boys and NSYNC to Get Investors

Pearlman used the success of his boybands to get investors to invest in his other business, which he said were all under the umbrella of TransContinental. This was supposed to include an airline, a music studio, a film studio, a talent and travel agency, real estate, restaurants, and even a bank. It turned out to be a huge Ponzi scheme.

Lou poses with the Backstreet Boys.
Source: ABC

He would ask investors to invest in his business, promising them that it was secure and they would get steady returns. He was true to his word on the returns, and it was enough to keep them satisfied and kept this enterprise for almost 20 years. He would move money from one place to another, paying back loans, plugging one hole and the next to keep his scheme going.

Making Investors Feel Secure and Excited

Pearlman hooked the investors by spending money on them, making them feel secure, and using the boy’s image. He would pick up investors in private jets and limos. He would give them a tour of his impressive offices and provide them with a card listing all their 40 to 50 companies.

Lou Pearlman at a Chippendales event.
Photo by Johnny Nunez/WireImage/Getty Images

He would then take the investors a tour of the studio, where they would find the NSYNC or Backstreet Boys performing. The investors would feel excited and believe that the money was worth it, only for it to be nothing but a smokescreen.

Getting Caught and Dying in Prison

Pearlman was suspected of fraud in 2006, which was when the band members realized they had been duped all along. They always had their suspicions, with making a miniscule amount of money, compared to their success, having to fly coach while Pearlman was supposed to have his airplanes.

Lou Pearlman jokingly places handcuffs on Joey Fatone.
Photo by Mark Weiss/WireImage/Getty Images

They still feel indebted to him because they would not have had the opportunity to become members of two of the big names in music history. Pearlman was arrested in 2007 and sentenced in 2008 to prison, where he died at the age of 62 from heart failure.