Two men were recently charged with roles in Ponzi schemes that cheated wealthy people, including some who believed they were investing in ticket businesses for popular shows like an Adele concert and Broadway’s Hamilton.
Joseph Meli, 42, of Manhattan, and Steven Simmons, 48, of Wilton, Connecticut, were arrested on charges alleging they enticed wealthy individuals to make multi-million-dollar investments. The Securities and Exchange Commission said in a civil complaint that the Ponzi schemes led people in 13 states to invest $81 million. Meli’s scheme included investments in businesses that would buy large blocks of tickets for major concerts and musicals, authorities said. The SEC said at least $51 million of the $81 million was diverted to pay off other investors or for the personal expenses of coconspirators. Simmons was not charged in the civil complaint, but both men were charged criminally with conspiracy, securities fraud and wire fraud. They were each freed on $1 million bail as U.S. Magistrate Judge James C. Francis IV rejected a prosecutor’s request that they be held without bail.
Simmons declined to comment as he left Manhattan federal court, though his attorney noted he had no criminal record. Meli’s attorneys called the accusations false. Deputy U.S. Attorney Joon H. Kim said Meli and Simmons ran Ponzi schemes even as they pitched backers with legitimate-sounding inducements. “Meli allegedly made up out of whole cloth purported deals to buy Broadway tickets that he could later sell at a profit,” Kim said. “But as alleged, Meli was just robbing Peter to pay Paul.”
William F. Sweeney Jr., head of the FBI’s New York office, said the defendants had joked about their Ponzi scheme, saying it was a “shell game.” “When fraudsters think they’re going to get away with scheming investors out of money, they tend to forget that at some point the money will run out. It’s the way a Ponzi scheme ends,” he said. According to a criminal complaint, the fraud stretched from November 2015 through January and the Ponzi schemes developed as investors demanded their money. Meli spent over $200,000 at a luxury car dealership, the complaint said.
Assistant U.S. Attorney Joshua Naftalis had sought to have both men detained without bail. He said Simmons was a danger to the community because he told an FBI agent after his arrest he hoped Meli “put two slugs in the back of the cooperator’s head.” Attorney Florian Miedel, representing Simmons, told the magistrate judge that Simmons had made an “ill-advised, jokey comment” but had no criminal history. The prosecutor said Meli was a risk to flee, citing a statement heard by investigators in which he claimed he was draining his bank account and had gotten together his passport and valuables. Naftalis said that comment led investigators to make the arrests earlier than they had planned.
Michael Bowen, an attorney representing Meli, said his client drained his account Thursday to pay Bowen’s law firm to represent him after learning he was under investigation. He said Meli also had turned over his passport and valuables to the law firm for safekeeping. In a statement, Bowen and attorney Marc Kasowitz said the complaint against Meli was not true and he will “vigorously defend against the criminal charges.”
The Adele concert and Hamilton were identified in the SEC’s complaint. Ponzi schemes involve using recently invested funds to pay out returns to older investors to maintain the illusion of a profit-earning endeavor. Ponzi schemes, named for Charles Ponzi, an Italian con artist who defrauded thousands of people across New England in the 1920s in a postage stamp scheme — generally promise high return rates with little to no risk. This particular scheme, structured around the premise of buying large ticket blocks to popular New York City shows which would then be resold for large profits, focused specifically on high-demand performances such as concerts by the singer Adele or the popular Broadway musical “Hamilton.” Since its inception, “Hamilton,” which won 11 Tony Awards in 2016 — including the award for best new musical — has been one of the most popular shows in New York City. The show set a Broadway record for the most money grossed in a single week when it earned $3.3 million over eight performances in the days following the cast’s live address to now-Vice President Mike Pence. It also set a record for the highest premium ticket price charged by a Broadway box office when a single ticket sold for $998, far surpassing the previous record of $700 for Barry Manilow on Broadway back in 2013. During the record-breaking week, the high average for paid admission was $303, a number that reflects only tickets charged by producers and sold at the box office or through Ticketmaster — suggesting that a considerable number of seats sold for massive premiums in what has become an enormously profitable resale market.
The scheme raised money off the concept of buying large blocks of tickets to the show, guaranteeing large returns off the high resale premiums, even going so far as to misrepresent to investors that an agreement existed with the producer of “Hamilton”’ to purchase 35,000 tickets to the musical. While Mr. Meli had approached the producer about such an arrangement, the producer declined to participate leading the SEC to allege that no such agreement existed. In fact, according to the SEC, the majority of the money raised was used to pay off earlier investors. According to Reuters, the two men are also accused of using company money to help a fund manager repay $4.2 million to investor in a separate scheme whose money had been previously misappropriated. In addition to the money paid in order to maintain the scheme, a further $2 million was used for personal expenses including $82,000 in jewelry, $208,000 spent at a luxury car dealership, and almost $50,000 spent at an Atlantic City casino, according to the financial press.
This case brings to mind another, a con classic. Last August, onetime boy-band impresario and lifelong con-man Lou Pearlman, imprisoned in a federal penitentiary since 2008, died at the age of 62 of cardiac arrest at a Miami hospital where he was scheduled to have heart surgery. Those who knew him best were pretty much satisfied with that ending. In the late 1990s and early 2000s, however, Pearlman was celebrated, admired and even adored, an affable King Midas of pop with a magnetic personality. He was a walking exercise in irony: The middle-aged, nasal-voiced, balding and 300-plus-pound Queens, New York, native surrounded himself with chiseled, underage singers and dancers. He didn’t invent boy bands, but the ones he formed dominated charts, shattered sales records and helped propel Clive Calder’s Jive Records toward a $2.74 billion buyout by BMG in 2003, the largest ever at the time. Pearlman started Backstreet Boys, whose third studio album Millennium reached No. 1 on the Billboard 200 in 1999 and became the biggest-selling album of the year; to date, Backstreet Boys have sold 31.5 million albums in the U.S. Next he created NSYNC, whose 2.42 million single-week sales of their 2000 album No Strings Attached set a record that lasted until Adele broke it in 2015. Pearlman played a seminal role in the careers of Justin Timberlake, Lance Bass, Joey Fatone and many others. He followed his two biggest acts with a long tail of less-successful others: O-Town, LFO, Take 5, Natural and Aaron Carter, to name a few.
Many who did business with Pearlman, though, remember him as a financial criminal. In 2008, he was convicted of two counts of conspiracy, one count of money laundering and one count of making false statements during a bankruptcy proceeding. He was sentenced to 300 months in prison, one for every million investigators said he stole in a massive Ponzi scheme involving fake savings accounts and a fake airline business. Still others, including Nick, Aaron and Jane Carter, Denise McLean (mother of Backstreet Boy A.J.), Pearlman’s former drivers, and young entertainers such as Tim Christofore of Take 5 have charged throughout the years that Pearlman acted in physically inappropriate ways with boys he groomed for success. Echoes of his alleged casting-couch exploits still reverberate through today’s pop music world. In recent years, several prominent figures have made public accusations about entertainment industry luminaries who reportedly victimized aspiring artists. Kesha has claimed sexual assault at the hands of her producer, Dr. Luke; Metropolitan Police in the U.K. documented hundreds of sexual abuse incidents involving English television and radio personality Jimmy Savile.
“Lou Pearlman is one of the most iconic figures in popular music and culture,” says Songwriters Hall of Fame inductee Desmond Child, who collaborated on hits with everyone from Aerosmith and Bon Jovi to Ricky Martin and Zedd. He, John Stamos and Andreas Carlsson (a collaborator on *NSYNC’s hits “Bye, Bye, Bye” and Backstreet’s “I Want It That Way”) are currently in development on a movie about Pearlman. “His unseen influence has dominated the airwaves, from the first Backstreet Boys single to every inescapable smash by One Direction, Justin Bieber and Nick Jonas.” If the man once known as “Big Poppa” to his beloved boys had his way, the story of his legacy would begin and end with his pop music success and influence. But his later life was dominated by desperation to prove he was worthy of the credit he gave himself.
Pearlman faced decades in prison for charges related to his $300 million Ponzi scheme. As recently as 2014, Pearlman told The Hollywood Reporter, “I’ll be back.” He was due to get out in 2029, but he wasn’t sitting idle. He hosted visitors, opportunists who wanted to believe in his comeback, or financial victims eager to empower him with a way to recoup their investments. “He was able to make people think they were the most important people in the world, but he didn’t have it in him to connect deeply,” says Tammie Hilton. She was Pearlman’s Florence Nightingale, a nurse who took care of him in 1996 when a cyst on his liver ruptured and almost cost his life. Known by some as Pearlman’s girlfriend for a time, she remained the closest to him for longest, even though Hilton said she quit believing anything he said a long time ago. Others were still enamored. “He had anybody that he could putting money in his commissary account,” Hilton says.
“No matter what he did, he never had the ability to be honest,” says Alan Gross, Pearlman’s closest childhood friend. Gross still lives in the Flushing apartment across from the former airfield where the two used to watch blimps come and go; the Pearlmans lived a floor beneath him. Lou was the only child of Reenie and Hy Pearlman, who owned a dry cleaning business. Lou became known around the building for his relation to Art Garfunkel, his cousin; the first time Gross saw Garfunkel perform was at a family dinner with Lou. Gross encouraged Pearlman’s interest in blimps and helped set him up in his first blimp business but pulled away as Pearlman became more desperate for fortune and fame. “He really changed my life,” Gross says. “I would have been a pretty boring person without him. But if it wasn’t for me, he wouldn’t have gotten his start in the first place.”
By the early 2000s, though, he had enough of a profile to lure investors in his Trans Continental Airlines, which supposedly operated more than 49 planes. In fact, he owned none. Even the company’s brochure was a lie. It depicted one of Pearlman’s jets taking off, but the jet in the photo was actually a toy. Pearlman’s fingers were holding the tail and barely cropped out of the shot.
A constant flow of investment money allowed Pearlman to hold an open casting call near Disney in Orlando, choose his talent, then sink millions into developing and promoting his boy bands, first in Europe, then in the U.S. He spent plenty cultivating his own outsized image, too, seizing a share of the spotlight rarely reserved for even the most flamboyant pop producers. He tooled around in a cornflower-blue Rolls-Royce. He had a life-size statue of Anakin Skywalker and an Uzi submachine gun, part of a weird collection of grown-up toys later auctioned off in an attempt to reclaim funds for his bilked investors. In the end, they got just about 5 cents on the dollar. In 1997, Pearlman’s work shifted from maintaining his opulent image to grasping for redemption after Brian Littrell sued him on behalf of the Backstreet Boys. The band had vigorously toured, performed and promoted themselves at Pearlman’s urging from 1993 to 1997 but were told they’d earned just about $12,000 apiece. Pearlman had nickel-and-dimed them for every recoupable penny. Plus, he’d double-dipped by paying himself not only as a manager but as a sixth member of the band. *NSYNC followed the Backstreet suit. Timberlake famously said he’d been “financially raped by a Svengali.”
In fact, nearly every band that Pearlman ever launched sued him. Some acts accused him of inappropriate sexual behavior, including those who lived with him at his $12 million Orlando-area mansion. The harshest accusations came in a November 2007 Vanity Fair story by Bryan Burrough, “Mad About the Boys.” Pearlman denied the accusations and no charges were ever filed. In the end, what did Pearlman in wasn’t the lawsuits; they were always settled privately. It was his bogus “Employee Investment Savings Accounts.” The accounts, which he said outperformed the market, were supposedly a benefit for those who worked for his Trans Continental empire, the catch-all for many of his almost 50 companies spanning entertainment, fashion modeling, airlines, restaurants and more. He invited investors to join the plan, which he promised was backed by the FDIC, AIG and Lloyd’s of London. It wasn’t. He’d forged insurance documents and financials just like he’d dreamed up an entire airline fleet. Not even a day in court could keep Pearlman from scheming. At his sentencing, for conspiracy, money laundering and more, he asked federal judge G. Kendall Sharp to let him use the phone and Internet two days a week — so he could continue to manage his band US5 and earn back the money he’d bilked. The judge balked.
In the last eight years, Hilton has kept in somewhat regular contact with Pearlman via the prison’s messaging system. Most of the notes he wrote her were brief. They began with “Hey babe” and often promised he was getting out soon, even though Hilton knew better. “He never gave up. I don’t think he ever grasped his reality.”
After Pearlman suffered a stroke while in prison in 2010 (which gave him a temporary speech impediment and paralysis on one side of his body), he promised her he was getting in shape and losing weight. “Then I’d see a picture of him and he’d gained 15 pounds,” Hilton says. Death, Hilton says, is the one thing that rattled Pearlman’s optimism. She met him on his deathbed (or so he believed) with a kidney problem. “He cried,” Hilton recalls. “He didn’t want to talk about it. It was always, ‘I can’t die. I have things to do.’” The last time she talked to him on the phone was just after his stroke in 2010. “He was afraid,” she says, “but he flipped and turned right into, ‘I’m not going to die.’ If he died he would never get to pay anyone back, he would never get to be bigger than he was.” Hilton, like most of the famous and regular people who’ve commented on his death, have mixed feelings about his passing. Orlando lawyer Clay Townsend, who sued Pearlman a bunch of times on behalf of his various artists, including the Backstreet Boys, says via email that Pearlman’s death is “pretty emotional for some of us who wrestled with him for a decade for various victims. He was a one of a kind. Even in battle he was always pleasant to me (odd).” While the artists Pearlman ripped off still credit him with discovering them, less fortunate are the investors whose life savings he stole, who saw their last hope of financial recovery die with him. “To say that Lou Pearlman was the most selfish person in the world is harsh,” Hilton says, “but it’s true.”