Two North Dakota banks are tied up in million-dollar lawsuits involving the man behind the once popular boy bands 'NSYNC and the Backstreet Boys.
Both First National Bank & Trust of Williston and First International Bank & Trust of Watford City are suing Lou Pearlman, a Florida-based businessman and boy band promoter over loans gone bad.
Both cases are only part of an elaborate fraud operation Pearlman allegedly used to gather more than $300 million in investments from banks and individuals nationwide.
First National has filed a lawsuit against Pearlman and his company, Trans Continental Airlines, in the U.S. District Court for the District of Minnesota over $14 million. Watford City-based First International also has filed an $8 million lawsuit in Florida.
Leaders at both banks were out of the office Friday and unavailable for comment.
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The two lawsuits are just a portion of legal action that has been taken against Pearlman and others who were allegedly involved in his scheme. One lawsuit even lists the Governor of Florida as a defendant.
According to the St. Petersburg (Fla.) Times, the lawsuit alleges that Gov. Charlie Crist interfered with investigations into Pearlman and his companies while he was serving as Florida's Attorney General.
The mess doesn't stop there.
According to Tim Karsky, commissioner of the North Dakota Department of Financial Institutions, as many as 14 state-chartered banks could also be affected by bad loans given to Pearlman.
"It's probably one of the biggest cases of fraud that I've been aware of," Karsky said.
At this point, Karsky doesn't expect any negative repercussions for the North Dakota institutions because of the complexity of Pearlman's scheme. "It looked like it was a sound credit decision," he added.
In addition to Trans Continental Airlines, Pearlman ran a variety of companies. His recording company, Trans Continental Records, gained success around the world behind popular boy bands such as 'NSYNC and the Backstreet Boys.
Pearlman and his companies used the money to run a giant Ponzi scheme, Florida financial regulators say. Money taken from later investors was used to pay those who had invested earlier, and Pearlman and his companies siphoned off millions, the regulators' complaints say.
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Gerald McHale Jr., who was appointed Feb. 2 as receiver of Pearlman's business interests, estimated in a court filing that Pearlman fraudulently raised more than $315 million from investors, and owed more than $120 million to banks.
Karsky said the North Dakota banks apparently loaned money to Pearlman based on documentation that looked genuine, including financial information from a Florida certified public accountancy that was apparently fabricated.
A Grand Forks institution has also been affected by fraud. Alerus Financial did not comment on whether two large credit losses a total of $5.3 million were related to Pearlman and Trans Continental Airlines. CEO Randy Newman said the losses were caused by fraud in two external market loans.
The fraud resulted in a 25 percent decrease in 2006 expected earnings for Alerus Financial's shareholders.
The Associated Press contributed to this report.Edison reports on business. Reach him at (701) 780-1107, (800) 477-6572, ext. 107; or jedison@gfherald.com .
