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- [00:00]
Lindsey Graham
Hi, this is Lindsey Graham, host of American Scandal. Our back catalog has moved behind a paywall.
- [00:06]
Narrator
Recent episodes remain free, but older ones will require a Wondery plus subscription. With Wondery, you get access to the full American Scandal Archive ad free, plus early access to new seasons and more. Join Wondery plus in the Wondery app.
- [00:19]
Lindsey Graham
Or on Apple podcasts.
- [00:36]
Narrator
It's the mid-1990s in Chicago, Illinois. Dr. Joseph Chow walks into his kitchen carrying a file folder full of papers and places it on the counter in front of his wife. He tells her that this is all the information he has and that he thinks it's a really good opportunity. Chow's wife cocks an eyebrow and flips open the folder as she silently reads through the papers inside. Dr. Chow watches his wife's face, looking for any hint of what she's thinking. Chow is an engineering professor at the University of Illinois, Chicago, and his wife runs a successful long term care facility. They've done well for themselves and they have money to invest. So recently when Chow got a cold call from a stockbroker telling him about a potential opportunity, he was intrigued. The broker pitched a penny stock for a company that seemed very successful leasing blimps to companies like McDonald's and MetLife. Chao's always liked to find opportunities that other investors have missed. Instead of Fortune 500 stocks or mutual funds, he prefers slightly riskier investments with the potential for high returns. So Chao was even more excited when he got a direct call from the CEO of that blimp company, Lou Pearlman. In this call, Perelman pitched Chao on another one of his businesses, a charter plane company called Transcontinental Airlines. He said the company wasn't public yet, but it would be soon, and Perlman wanted to give Chao the opportunity to get in on the ground floor. He also mentioned another program called Employee Investment Savings Accounts, or eas, and said Chao could buy into that as well. During that phone call, Chao found himself liking Perelman immediately. He seemed the kind of savvy and ambitious businessman Chao wants to invest in. So he asked Perelman to send him Transcontinental's recent financial statements as well as more information on the ESAs. Now he's sharing those statements with his wife. They all look rock solid to Chao, but he knows his wife is more cautious with investing, so he's not sure what she's going to think. And when she looks up from reviewing the brochures on the esa, she has a look of trepidation on her face. Chow knows immediately she's not excited about this opportunity but he's not ready to give up without a fight. Chow's wife pushes the documents back across the table toward her husband. Oh, I don't know. What's not to know? You see the statements showing they're bringing in over 75 million in annual revenue?
- [03:03]
Lindsey Graham
Yeah.
- [03:03]
Narrator
They look legit. The company's making strong, steady profits. I think this is a good investment. But if the company's going public soon, then why can't we just wait for that to happen? Then we'll know if the bank's vetted it. It'll be less of a risk. But then we don't get the advantage of already being shareholders when the IPO happens. That's leaving money on the table. Besides, this company has been vetted. Chao searches through the papers until he finds what he's looking for. Here. This is the statement from Cohen and Siegel, the accounting firm that did the audit. This is a third party signing off on the numbers. Yeah, and I was glad to see that. And the ESA is doubly insured, covered by both the FDIC and Lloyd's of London. Lou's making these investments as safe as possible. Lou, huh? You're on a first name basis with him? Well, we talked on the phone for a while. I mean, and that's actually another thing. He took the time out of his day to speak with me personally. That should mean something. And he created this band called the Backstreet Boys. They're already huge over in Europe, and he's confident they'll be huge in the US Too. So we'll be investors in them, too. And we'll get VIP tickets when they come to the US Go backstage, meet them, the whole thing. I mean, the girls would like that. The girls would love that. But I don't know. What if we had some sort of medical emergency? We needed to pull out our investment. Liu says we can withdraw our money anytime we want, no strings attached. Chow takes his wife's hand in his. Honey, I know this isn't the same as buying bonds or investing in mutual funds, but it's not crazy. He's not promising the moon. The returns he's offering on the ESA are not that much higher than what you see from putting your money into a cd. And this is an opportunity to be part of a company where the. Where the CEO himself calls me personally, will really be a part of the transcontinental family. And they're audited, they're fully insured. So if we're not happy, we can just take our money out. Okay. We can put some money in, but if I get uncomfortable, we're pulling out. Absolutely. But this is going to be good. I know it. Chao grins. He's excited to get into business with a smart, ambitious entrepreneur like Lou Perlman. He's got so many irons in the fire and obviously knows his way around so many different industries. Chao feels certain at least one of them will generate huge returns. Plus he can't think of any other investment where he'll have a direct line to the CEO. But Chao knows his wife has her doubts. There is some risk in every investment, but as far as he's concerned, this one is simply too good to pass up.
- [05:41]
Lindsey Graham
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- [06:59]
Narrator
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- [07:00]
Lindsey Graham
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- [07:27]
Narrator
From Wonder E. Hi, I'm Lindsey Graham and this is American Scandal. In the early 1990s, Lou Perlman was on the verge of massive success Despite a series of early failures, he had an uncanny ability to present himself as a high flying entrepreneur in the aviation industry. He dabbled in blimp advertising and launched a charter plane company, Transcontinental Airlines. But it was a chance idea starting a boy band that set him on the path to building a pop empire. Perlman left New York City for Orlando, Florida, and spent more than two years and $3 million developing an act that would become the Backstreet Boys, funding the project with money from Transcontinental investors. By late 1995, his gamble was starting to pay off. The Backstreet Boys had a hit single in Europe. But for Perelman, this was just the beginning. To solidify his reputation as a music mogul, he needed more than one successful band. He needed a rivalry. And that's exactly what he set out to create. This is episode two, Tearing Up My Heart. It's 1995. In Orlando, Florida. Julian Bensher walks through the doors of Transcontinental headquarters and waves hello to the receptionist before showing himself down the hall toward the office of the company's CEO, Lou Perlman. Bensher has known Perelman for the last six years, and in that time, he's invested in nearly every one of Perelman's businesses. They're close collaborators who share a daredevil attitude and a willingness to take risks. When Perelman came to Bencher and said he wanted to start a boy band, Bencher told him to go for it. Bencher also put up about 50% of the cost of developing the band. He's not seeing a return on that investment yet, but thinks it's only a matter of time until he will. So when Perelman told Bencher he was launching the next phase in their budding music business, Bencher was eager to hear what Perelman had up his sleeve. Perlman looks up from his desk with a grin on his face and offers Bencher a seat. Hey, Julian, it's good to see you. Thanks for stopping by. My pleasure. Always eager to hear what you have cooking. How's the single doing? Almost too well. It's climbing the charts in England and Germany. I think the success is starting to go to their heads. Really? How so? Well, I wrote this song, a terrific song, and I'm trying to convince the guys to record it, but they're refusing. After everything you've done for them? I know, I know. But I'm happy with them. Their first hit record. We're putting together a promotional tour of Europe as we speak, and it's going to be great. I'm hiring a team of security guards, which, you know, the boys don't really need, but it's going to give them the appearance of success. That's a smart move. And you see their appeal expanding outside of Europe? Oh, absolutely. We're seeing interest in South America and Asia, but the US market just isn't ready for them yet. It's still too focused on grunge and rap. But I know that's going to change. 5 clean cut, good looking boys with voices like Honey Man. As soon as we can get them on the radio and mtv, they'll be unstoppable. This is all exciting. What's next? Well, all of this has got me thinking. When the Backstreet Boys do hit it big over here, copycat bands are going to be popping up like daisies. Oh, you think? Oh, it's inevitable. When one person invents Coke, someone else invents Pepsi, Right? But think about this. What if Pepsi and Coke were invented by the same person? Wait, are you telling me you want to start another boy band? Yeah. Brilliant. Don't you think? From a business perspective, probably. But we're not talking about soda here. You said the Backstreet Boys are like family. Don't you think they'll be upset that you're bankrolling the competition? Well, what they don't know won't hurt them. You can't keep something like that a secret. Sure it can. I'm giving this new band a codename on the books and telling them not to discuss the fact that I'm managing them. And by the time they do their first show here in Orlando, the Backstreet Boys will be in Europe. They'll have no idea. Lou, this seems risky. Everything in life is risky, Julian. Ben sure can't argue with that or anything when it comes to Perelman. Once Perelman gets an idea, he runs with it and there's nothing anyone can do to stop him. But as they wrap up their conversation and Bencher heads out of the office, he worries that Perelman could be jeopardizing his relationship with the Backstreet Boys. Trust is critical in business and once it's gone, it's almost impossible to win back. Shortly after his meeting with Julian Bencher, Lou Pearlman begins searching for singers to join his second boy band. The first member cast is a 20 something performer at Universal Studios named Chris Kirkpatrick. Perelman tells Kirkpatrick that if he can get four other guys to join the group, Perelman will back them financially. So with Perelman's support, Kirkpatrick quickly recruits two teenage stars of the recently canceled Mickey Mouse Club, Justin Timberlake and J.C. chase. He also enlists one of his old co workers from Universal Studios, Joey Fatone. And Timberlake's vocal coach suggests their fifth and final member, a high schooler from Mississippi named Lance Bass. And the first time they all sing together, their voices meld beautifully. Someone observes that they sound perfectly in sync. And with that, Perelman's second boy band not only has its roster but its name. Perelman puts NSYNC through rigorous rehearsals the same way he did with the Backstreet Boys. He rents them a house and pays them $35 a day in exchange, they work full time to perfect their performance. But adding another boy band to his roster is not the only way Perelman is expanding his business interests. He also buys the Male Stripper Review Chippendales, as well as a sprawling office complex just outside Orlando. And all the while, he continues to raise money by selling investment plans through his company, Transcontinental. He even hires regional sales agents to expand his outreach and find new investors for Transcontinental's Employee Investment Savings Account, or esa. But not all of these agents are on board with what they're required to sell. And in the fall of 1995, FDIC Senior Attorney J. Michael Payne receives a letter from one would be agent who says he's been contracted to sell ESAs to outside investors. The sales agent had never heard of an ESA before, and he didn't quite understand what it was, so he reached out to Payne to make sure that the plan is above board. Payne reads through the letter and then goes over Transcontinental's brochure about the esa. And he can't figure out what the thing is either. It seems similar to both a security of deposit or CD and a brokerage account, but Transcontinental hasn't fulfilled the regulatory requirements to offer either. So Payne decides to call up Transcontinental CEO Lou Perlman. And when Perlman answers the phone, he's happy to answer all of Paine's questions. But he doesn't understand the confusion. He says the ESA is simply a 401k retirement plan that's available to Transcontinental employees and shareholders. But Payne says that he's heard that ESA shares are being sold to outside investors. Perlman insists that's a misunderstanding, but Paine presses him, explaining that the FDIC was contacted by a sales agent who said he was explicitly hired to market the ESA to non employees and non shareholders. But Perlman doesn't Budge, he reasserts that the ESA is meant only for employees and shareholders and no one else. Payne can tell that this line of questioning isn't leading anywhere, so he thanks Perlman for his time. And then, after he hangs up the phone, the attorney wonders whether he should escalate this problem to his superiors. Because despite Perlman's denials, he suspects that something about these so called Issas is not legitimate. The FDIC's brief inquiry into Perelman's ESA program ultimately fizzles out. For reasons that remain unclear, the agency decides not to pursue the issue further. And over the next two years, Perelman becomes increasingly optimistic about the future of Transcontinental. In a letter to investors, including Dr. Joseph Chau, Perillman reports that an IPO is coming soon and that auditors are currently assessing the company's 47 planes in preparation for going public. When he reads the news, Chao is thrilled. It feels like this is proof his investment in Perelman was a wise one. He's so enthusiastic about the imminent IPO that he convinces his wife that they should invest more. After all, Perlman promised they could withdraw their principal anytime they wanted, so the risk feels very low. And at the same time that Transcontinental races toward its ipo, Perlman's music empire is also accelerating. The Backstreet Boys are getting bigger and bigger, and Perlman's second band is starting to break through, too. In 1996, NSync releases their first single in Germany and starts touring there, just like the Backstreet Boys had done before then. And while Perelman's two boy bands are making a name for themselves overseas, pop music is making a comeback in the US the grunge and rap that once dominated the charts are increasingly being replaced by pop acts like British girl group the Spice Girls and youthful brother Trio HANSEN. So in 1997, Jive Records decides it's time for Backstreet Boys to release an album in America. It's an immediate success. The first single from the album, Quit Playing Games With My Heart, climbs to number two on the Billboard Hot 100. By the year's end, both the album and single have sold over a million copies. Seemingly overnight, the Backstreet Boys are everywhere. They're selling out venues all over the US and their faces are on magazine covers, T shirts and posters. To the boys in the band who have poured years of their lives into this project, it feels like they've finally reached the top of the mountain. But the moment they start to enjoy the view, they notice something ominous on the horizon. In March 1998, less than one year after the Backstreet Boys released their first US album, NSync releases their US debut. And it becomes immediately clear that they're not just some also ran boy band. With their strong voices, catchy songs, and tightly choreographed performances, NSYNC is a legitimate rival to the Backstreet Boys. And it's not long before the press gets word of who's behind them. Lou Perlman. Now that he has two wildly popular acts, the press heralds Perlman as a bona fide music mogul with an unmistakable eye for talent. But the Backstreet Boys feel betrayed by their manager. Perlman has always told them that they were like a family. Now they find out that he's started a whole other family behind their backs. And when they ask him about it, Perlman shrugs the whole thing off as nothing but a business decision. But if it is just business, then the band has some questions. Because even though they've toured for years and sold millions of dollars in albums and merchandise, their bank accounts are not reflecting their success. Somehow, the five of them have made just $300,000 combined. Meanwhile, their manager is living the life of a millionaire. It doesn't add up. So in 1998, the Backstreet Boys sue Perlman to get released from their contract. The case quickly settles out of court, and the terms are kept confidential. But the Backstreet Boys do successfully break free from Perelman. And when news of the decision reaches NSync, they start to question their finances as well. By the fall of 1998, NSync has become one of the most successful groups in the world, but they're still living on a $35 a day allowance. So finally, an executive from the group's record label invites the boys and their families to a private dinner where he and Perelman will formally present them with their very first checks. The band is buzzing with excitement. And when NSYNC member Lance Bass walks into the private room of a fancy steakhouse, he can't stop thinking about how this money is going to change his life. The group has sold around 15 million albums. They've toured Europe and the United States, sold millions of dollars in merchandise. So Bass is confident he'll make at least several hundred thousand dollars, maybe even half a million. So while Bass does his best to enjoy the dinner and the opportunity to relax without press or fans around, he's anxious to get that check. And finally, after several speeches, Perlman passes a plain white envelope to each member of the band. Bass hand shakes as he reaches inside and pulls out the check. But when he sees the amount, he feels like he's been slapped in the face. The check is for $25,000. Bass can't believe his eyes. He looks around and sees that the other guys have the same confused and disappointed looks on their faces. Bass knows that $25,000 is nothing to sneeze at, but he's in one of the most successful bands in the world. They're bringing in millions and millions of dollars and he wants to know where all that money is going. Bass glares across the room at Perelman. He looks like he expects them to be happy, and that makes Bass even angrier. Over the past few years, Perelman's bought new cars and new boats. He eats fancy three course dinners almost every night. Clearly he's making money from NSync's success. But Perlman's not the one putting in the blood, sweat and tears. Night after night on stage, Bass feels rage bubbling up inside him. He trusted Perlman completely, considered him like family. And now he realizes that Perlman was just ripping him off the entire time. Bass doesn't say a word. He just stands up, tears his check in half and marches out of the room. He's not going to accept the paltry sum he's been offered. He's going to get the money he's earned.
- [21:41]
Lindsey Graham
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- [23:34]
Narrator
When the members of Insync received their first checks in November 1998, they're shocked to discover that all they've earned is $25,000 each. Based on all the hours they've put in. That's less than minimum wage. Something is not adding up and it's time to talk to a lawyer about it. That December, group members Lance Bass and JC Chasez, along with their parents, get in touch with an entertainment lawyer named Adam Ritholtz. After reviewing NSync's contract with Perlman, Ritholtz asks Bass, Jose, and their parents to come into his office in Manhattan for a meeting. An assistant escorts them into a conference room, and after a few minutes, Ritholtz walks in carrying a stack of manila folders. He welcomes the group and thanks them for making the trip to New York, then suggests that they jump right into it. Ritholtz pulls out NSync's contract from one of the folders. All right, I'm not going to mince words. This is a terrible contract. I showed it to one of my colleagues and they said it might be one of the worst in music history. And look, I'm not judging you for signing it. I say this only to be clear about what we're up against. So if it's okay with you, I'd like to walk you through some of the key points. So in this contract, your manager created the band as a corporation called NSync Incorporated, and through that company, he is essentially the sixth member of the band. Lance Bass leans forward, thankful to finally be getting some answers about what's going on. Wait, he's a member of the band? Legally speaking, yes. It means any money you made during touring, he got 1/6 of that right off the top. In addition, he's also taking another 20% in his capacity as your manager. So he's double dipping? Oh, it's more than that. We haven't discussed what he's taken from your publishing rights, merchandise sales Royalties and so forth. And this isn't normal? No. A typical manager makes a straight 15 or 20%. And look, I understand he did pay for a lot when the band was starting. Renting the house, paying for vocal coaches and choreographers. But look, he's paying himself back for that and much more. I'm sure there were times he took you out to meals, flew you on private planes, bought you clothes and jewelry that you probably assumed were gifts. Yeah, constantly. They weren't gifts. You were paying for all of it. That's called recoupment. And it's a standard industry practice. But not to the extent that Perelman's been doing it. He made it seem like he did all that because he liked us. Oh, I'm sure he liked you just as much as he liked this contract. Because there's something else. According to this, Lou has the right to sign contracts on behalf of NSync Incorporated. So it's possible there are more deals out there that we don't even know about. I wouldn't be surprised if he set up even more ways to pay himself through Transcontinental as a consultant or some other mechanism. How do we find that out? Well, if you were to retain me as your lawyer, the first thing I would do is write a letter to Liu and demand that he turn over every single contract at any NSYNC has entered into. Then we'll begin to know what we're dealing with. But let's say when we get the contracts, they're all as terrible as this one.
- [26:32]
Lindsey Graham
What?
- [26:32]
Narrator
What could we do then? Well, here's the thing. In the music industry, power changes. When you signed this contract, Lou held the power. Back then, you needed his financial resources and connections, but probably not now. Now you're his golden goose. And if he wants to keep you, then he should be open to renegotiating and giving you a fairer deal. But that's all we really want. A fair contract. So, thank you over. Talk amongst yourselves, talk to the other members of the band, and let me know if you want me to represent your interests. After thanking Ritholtz for his time, the families file out of the office to discuss their next steps to bass. Though it's a no brainer, they should hire Rithole immediately and do everything they can to get rid of this terrible contract. When the other members of NSYNC learn about the terms of their contract, their limit, they all agree to hire Adam Ritholtz as their lawyer, and he immediately gets to work. He drafts a letter to Perelman demanding He send over all of NSync's contracts, and Perelman quickly provides them. But as Ritholtz reads through them, he's shocked by what he finds. Perlman has arranged things so that he gets 50% of NSync's merchandise sales and royalties and 100% of the publishing rights of their songs. He's even set up Transcontinental as a business consultant to NSync Inc. Granting him another 10% of all the band's earnings on top of his commission. As manager, Ritholtz begins the process of trying to renegotiate all of these deals. And at first, Perelman seems to have no problem revisiting the contracts. He says he just wants the guys to be happy. But when Ritholz starts discussing new terms, Perelman changes his tune. He insists that he can't Renegotiate anything until NSync delivers four more albums. Ritholtz pushes back, but Perelman refuses to budge. This impasse drags on for months until finally both sides agree to a last ditch effort to come to terms. All of the members, Perlman and their attorneys meet in Orlando. Ritholtz presents NSYNC's final offer to Perlman. They'll pay him a flat commission of 25% on their total gross income until the four albums are delivered, no matter how long that takes. To Lance Bass, that seems very generous. But Perlman doesn't even bother to make a counteroffer. He just tells them they're ungrateful and they'd be nothing without him. Perelman carries on like this until finally JC Chisez has had enough. He stands up and walks out. The rest of the band follows suit. So with negotiations having broken down, Ritholtz starts looking for another way out of the contract. He pores over it word by word, searching for any technicality he can use to break the band out of their obligations to Perlman. And In May of 1999, he finds something. There's a clause that says from the day NSync finished their first album, Transcontinental had one year to release it in the United States. And if Transcontinental did not, the band was free to find their own American label. Perelman had found a label for the album within that time, but that label had not released the album in the US Within a year of NSYNC finishing it, in large part because Perelman had wanted the Backstreet Boys US album to come out first. So Ritholtz sends a letter to Transcontinental explaining that by postponing the release of NSync's first US album, the company had breached its contract with the group, effectively nullifying the whole thing. And with this letter, NSync consider themselves free and clear of Lou Perlman. In September, the band signs with Jive Records, the Backstreet Boys label. But three weeks later they're sued by Perelman. Perelman claims that he did uphold the terms of their contract, and therefore it's still valid. In his view, NSync have no right to sign with Jive, and he requests an injunction to prevent chai from releasing NSync's next album until his suit against them is resolved. So in November 1999, the entire band shows up to a hearing in an Orlando courthouse to see how the judge responds. They all don suits and ties, and outside fans have gathered to show their support for the group. They hold up signs and scream that they're on the band's side. But Lance Bass is nervous. He knows there's a real chance that the judge will rule against them, and if that happens, the band has to come to a decision. Rather than be forced to continue working with Perelman, they might have to break up. For Bass, it feels like his entire career is on the line. He loves NSync and wants to keep making music with the other guys. So the band members enter the courtroom with their families and file into the first row of the seats, anxious and hoping for good news from the defense table. Adam Ritholtz nods at them while just a few feet away, Lou Perlman sits with his lawyer at the plaintiff's table. Everyone rises as Judge Ann Conway enters the courtroom. She tells the court to be seated and then kicks off the hearing. Perelman's lawyer starts first. He argues that INSINC infringed upon Transcontinental's trademark and breached their contractual obligations by signing a new contract. He talks about how much time and resources Transcontinental put into NSync, and how those efforts were essential to NSync's success. Bass clenches his jaw because this narrative seems to be that NSync abandoned the one person who believed in them as soon as they hit it big. It could be compelling, and Bass worries that the judge will believe it. But then the attorney takes it a step further. He argues that since Perelman is the sixth member of the band and has the contractual right to hire or fire any member of the band, he is NSync, not them. Bass's eyes go wide in disbelief because he's willing to concede that Perlman did put in a lot of time and money into developing the band, but he is not the person that people pay to see. Bass looks up at the judge and he's relieved to see an incredulous look on her face. She interrupts the lawyer to ask if he's really saying that Perlman is in sync and not the five men she sees in the front row whose faces are on the posters that adorn her own daughter's wall. Bass sneaks a look at Perlman and his face is bright red. His attorney reiterates that even though it may sound strange legally, Perlman is in sync. The judge doesn't buy it. She denies Perlman's injunction request and urges Perlman's lawyer to settle the suit as fast as possible. Bass breaks into a huge grin. His mom grabs his hand and squeezes, tears of joy in her eyes. The other guys are beaming too. With this injunction denied, they can release their new album and finally earn the money they deserve. It's been a year since Bass tore up that paltry royalty check. Now, at last, he and the other members of NSYNC are finally free of Lou Pearlman. Bast just hopes that all the media tension around this case means that Perlman's days of preying on young singers and their dreams of pop stardom are over for good.
- [33:44]
Lindsey Graham
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Lindsey Graham
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Lindsey Graham
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Uncommon Goods they're all out of the ordinary. In December 1999, one month after the injunction hearing, Insync reaches a settlement agreement with Lou Perlman. The details have never been disclosed, but Perlman is assumed to have received a large sum of money to release NSYNC from their contract. Three months later, NSync releases their sophomore album, no Strings Attached on Jive Records. It sells two and a half million copies in its first week, setting a new record for first week sales. But even though the legal battles between Perlman and both his hit bands have made headlines, Perlman's music career is far from over. Young musicians are still lining up to work with him, believing that Perlman knows how to create stars and they're willing to risk an unfair contract to pursue their dreams. So Perelman keeps putting together musical acts. He forms a Latino group inspired by Puerto Rican boy band Menudo. He tries his hand at an all girl group. He puts together a boy band where all the members also play instruments. He even takes on a band that integrates hip hop into their sound. And in 2001, he ventures into the burgeoning world of reality television, launching a show called Making the Band. It chronicles the creation of a Perelman managed boy band called O Town. Perelman also continues to expand into other businesses. He writes and produces a Feature film. He buys franchises of the frozen yogurt company tcby, as well as a pizza company, NYPD Pizza. He opens a steakhouse and buys a model scouting business. And despite his legal troubles, Perelman maintains a good reputation in the Orlando community. He's a generous supporter of his synagogue and a major donor to Republican candidates in the state of Florida. And in 2003, he spends $34 million on a historic train depot in downtown Orlando with plans to transform it into an office and retail complex. Perelman says it will house his many business ventures and help revitalize the city center. As a result of these efforts, he's presented with the keys to the city. But by the early 2000s, the National Interest in boy bands is fading, and Perelman's new group struggled to produce any hits. Even so, Perelman continues to live lavishly. He buys a mansion worth over $4 million, penthouse apartments in Las Vegas and Manhattan, a condo in Atlantic City. He also maintains a fleet of luxury cars and an armada of boats and jet skis. To support this lifestyle and prop up his struggling record business, Perlman takes out bank loans using transcontinental airplanes and other assets as collateral. He also continues to court investors, encouraging shareholders to increase their investment in Transcontinental and to refer friends and family who also might be interested. The company still hasn't gone public, but Perelman promises it will soon. And the Employee Investment Savings Account, or esa, is an alluring option as well. But some of Perelman's financial backers are now starting to ask questions. In 2004, one of Perelman's longtime investors, Dr. Joseph Chow, dies of pancreatic cancer. Chow started investing with Perelman all the way back in the 90s, and the two men had become friends. Perelman even attended the wedding of one of Chao's daughters. By the time he died, Chau had invested more than $14 million in ESA and Transcontinental. But after Chao's death, his family is hit with heavy estate taxes, and they need to use some of that transcontinental Continental money to pay the bill. Chau had always assured his family that they could withdraw the money anytime they wanted, so they assume it would be a straightforward process. But when Chau's widow, brother, and daughter try to reach Perelman about getting their money back, they can't get a hold of him. So when Perlman shows up at Chau's funeral, they decide to broach the subject right there and then. Following the service, Chow's daughter Jennifer approaches Perlman and mentions they need to Take their money out. She also points out that several of the loans Chow made to Perelman are now past due. Perlman tells her not to worry. He reiterates that they can take the money out of their ESA account whenever they want and promises to pay back the loans right away. But in the weeks following the funeral, Perlman doesn't pay back the loans or give them access to the ESA money. Hoping to resolve the issue as soon as possible, Jennifer asks her uncle to call Perlman and demand that he pay up. Yeah, Lou Perlman? Speaking. Mr. Perlman, this is Dr. Joseph Chow's brother. Oh, you know, I'm very sorry for your loss. Thank you. I know you've been in touch with my niece, Jennifer. She contacted you about repaying the money my brother loaned to you over the years. Yeah, of course, of course. And, sorry, I have just been swamped with work. I'll talk to my accountants and work out a payment plan so your family can get that money as soon as possible. Thank you. But there's also the money Joseph had invested into Transcontinental through his employee investment savings account. Before we touch that, I wanted to ask about the IPO because Joseph said that Transcontinental was on the brink of going public. Yeah. Unfortunately, with the stock market where it is these days, the chance of an IPO in the near future is actually pretty slim. That's disappointing, because I know that was a big reason he kept investing with you. The promise of going public and the payout that would come with it. Well, you know, nothing's guaranteed when you invest. I understand that. And if there's no IPO anticipated in the near future, then we want to withdraw that money today. Sure, we can do that. I should warn you that the same forces that are impacting the stock market are impacting Transcontinental in general. So if you withdraw all the money today, I can give you 10 cents on the dollar. I'm sorry, did you say 10 cents on the dollar? How is that possible? Well, you know, the economy is not in a great place, and I never made any guarantees on returns. Of course, if you leave it in, you never know what might happen. My understanding is that you always assured my brother he could at least take the principal out. You've misunderstood the agreement I made with Joseph. I don't think I have. No, you have. And I'll send you a copy of the letter that spelled out the term. Well, I appreciate that. Thank you. And in the meantime, I'll discuss this situation with my family and let you know how we'd like to proceed. Yeah, of course. I understand. You have a nice day now. And again, my condolences. Chow's brother hangs up the phone, his mind spinning. He always admired his brother Joseph for how intelligent and successful he was. After emigrating from Taiwan, he earned a PhD in mechanical engineering from an Ivy League school, became a tenured professor. He can't understand why he invested his life savings with someone like Lou Perlman. As soon as he's gotten off the phone, Chow's brother calls Jennifer to let her know what Perlman said. Jennifer is outraged. Her father considered Perlman a close friend, but now it seems like Perl Perlman is deliberately ripping them off. So Jennifer hires a lawyer named Edwin Brooks to go through the paperwork and sue Perlman if necessary. But before Brooks can take any action, Perelman sues the Chau family first in an attempt to stop them from demanding any form of repayment. Perlman points to a forbearance letter that chau signed in 2002. In it, he agreed that Transcontinental would only pay back Chau on a schedule that was convenient to Transcontinental and would not put any undue pressure on the company. It's essentially a forgiveness letter, allowing Perelman to delay returning Chao's money indefinitely. The Chao family countersues. Brooks points to paperwork that shows Perlman promised that Chao would always be able to get back his principal. But the forbearance letter is a hard piece of evidence for Brooks to get around, and it's baffling. Brooks does not understand why Chao would sign a letter like that. He knows Chao was friends with Perelman and believed in Perelman's businesses, but this seems overly generous. The chaos had money to invest, but not to throw away. You can't imagine that Chau would forgive several millions of dollars in loans. That goes well beyond the relationship Chao had with Perelman. But Brooks has a copy of the letter signed in Chao's distinctive angular cursive. As improbable as it seems, this forbearance letter appears to prove that Chau just made a terrible business decision out of loyalty to Perelman. And his family doesn't have a case. But one night in 2004, while Brooks is in his office, he has an epiphany. He had just spent hours going back through the files on the Chow case trying to find anything he missed that could prove that Perlman is obligated to return Chau's money. Now his eyes are dry and achy from reading documents all day, but he can't stop looking at the forbearance letter. Every time he glances at it, something about the signature catches his eye. So on a hunch, he digs up another letter with Chow's signature on it and then compares that signature to the one on the forbearance letter. It looks the same. Exactly the same. He lines up the pages and holds them in front of his desk lamp. They are an exact match, and from his many years of legal experience, Brooks knows that hardly anyone signs their name exactly the same way twice. There are almost always subtle differences. So an image flashes before Brooks eyes. He pictures Lou Perlman hunched over his desk, his tongue sticking out of the corner of his mouth as he painstakingly traces over Chao's signature. His heart thumps as he looks at the forbearance letter. It finally makes sense why Chow's signature is on this document. Because Chow's signature is not on this document. He didn't sign it. Perlman did. This is no longer a case of a business deal gone bad. This is criminal behavior. But Brooks is going to have to prove beyond a shadow of a doubt that Perelman committed fraud. That is easier said than done. From Wonderful this is Episode two of Lou Pearlman, the Con man of Pop for American Scandal. In our next episode, Perelman faces intense scrutiny as more and more people question how he's been raising and spending his money. If you're enjoying American Scandal, you can unlock exclusive seasons on Wondery plus, binge.
- [46:30]
Lindsey Graham
New season first and listen completely ad free when you join Wondery plus in.
- [46:34]
Narrator
The Wondery app, Apple Podcasts, or Spotify. And before you go, tell us about yourself by filling out a survey@wondry.com survey if you'd like to learn more about Lou Perlman, we recommend the books the Hit Charade by Tyler Gray, the Song Machine by John Seabrook and Out of Sync by Lance Bass, along with the article Mad about the Boys by Brian Burroughs published by Vanity Fair. This episode contains reenactments and drama, dramatized details. And while in most cases we can't know exactly what was said, all our dramatizations are based on historical research. American Scandal is hosted, edited and executive produced by me, Lindsey Graham for Airship Audio editing by Christian Parocca Sound design by Gabriel Gould music by Lindsey Graham this episode is written by Austin Rackless Edited by Emma Cortlandt Fact Checking by Alyssa Jung Perry Produced by John Reed Managing Producer Olivia Fonte Senior Producer Andy Herman Development by Stephanie Chenz Executive producers Jenny Lauer, Beckman, Marshall, Louie and Arono Flaherty for wondering.
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C
Hello, this is Simon Mayo. And this is Mark kermode. He's the UK's best and most trusted film critic. He's a best selling writer, broadcaster and national treasure. Far too kind. Kermode and Mayo's Take has all the reviews you need and star guests such as Sir Ian McKellen. Nice to be with you. Emma Stone.
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Narrator
That sounds like something I would love to be a part of.
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C
Ewan McGregor. I'm very good. How are you doing? Cate Blanchett. What was that word you used?
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Narrator
Cattywampus.
- [48:09]
C
Kermita. Mayo's Take. All the film you need, available wherever you get your podcasts.