Precursor to the Business Trial Group: Morgan & Morgan, Lou Pearlman, and the Backstreet Boys

Louis J. Pearlman—Ponzi scheme mastermind, disgraced boy band manager, and all around con-man—passed away in August while serving a federal prison sentence in Miami, Florida.

The Orlando resident was a Svengali-like businessman who launched, and fraudulently cashed in on, the careers of the Backstreet Boys, NSYNC, and a host of lesser-known pop acts.

Pearlman was sued by every artist he represented except one, yet news of his passing prompted reflection that, despite his financial crimes, the man once known to his boy bands as “Big Poppa” helped to spark the careers of many current stars.

Morgan and Morgan’s connection with Pearlman dates back to a series of lawsuits filed on behalf of Pearlman’s partners and the Backstreet Boys by attorney Clay Townsend. The first Pearlman case in 2000 was the first commercial case brought by the firm.

Clay is now an attorney with the Business Trial Group—Morgan & Morgan’s contingency-fee commercial litigation practice—and has a national reputation for his work on high-profile entertainment law cases involving stars such as Britney Spears, Harlem Globetrotters players, and Steven Spielberg.

One of a Kind

Pearlman leaves a mixed legacy as a schemer, a charmer, and a pop music icon.

“He might not have been a stand up businessman, but I wouldn’t be doing what I love today without his influence,” Tweeted NSYNC’s Lance Bass about Lou’s passing.

Ashley Parker Angel, who rose to fame with boy band O-Town, Tweeted, “Love him or hate him, Lou gave many of us our start. It’s a shame he let greed get in his way.”

Clay Townsend sued Pearlman numerous times on behalf of cheated band members and investors. Townsend told Billboard 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 one of a kind. Even in battle he was always pleasant to me.”

Clay has been featured as a legal commentator on legal issues related to the Pearlman and Backstreet Boys litigation on television shows such as Fox News with Geraldo and American Greed and in books and magazines.

Pearlman’s Rise and Fall

Pearlman relocated from New York City to Orlando in the 1980s and became well-known in the Orlando scene. His original business partner performed at Townsend’s Fish House and Tavern, a restaurant and nightclub that Clay Townsend owned and operated from 1980-2000.

“I don’t care if I pay my lawyers millions, but I will never pay your client a dime.”

While Pearlman’s image wasn’t terribly reputable, he was exceptionally charismatic. This led major banks, investors, retirees, and acts like the Backstreet Boys to trust him.

The backbone of Pearlman’s fraudulent empire was his Trans Continental Airlines—a business that existed only on paper. All of the money contributed to Trans Continental’s Employee Investing Savings Account (EISA) went straight to Pearlman. Some of it was parlayed into his Trans Continental Records.

In 1992 Pearlman sunk $3 million into a talent search that produced the Backstreet Boys, a group which went on to become the best-selling boy band of all time. But Pearlman pocketed most of the money the band earned using underhanded accounting tricks such as naming himself both manager and a sixth member of the band.

In 2000, Morgan & Morgan attorneys Clay Townsend and Keith Mitnik filed a business tort lawsuit on behalf of the original Backstreet Boys members against Pearlman.

Townsend recalls how during the case Pearlman said to him several times, always on a first name basis and with a cordial smile, “Clay, I don’t care if I pay my lawyers millions, but I will never pay your client a dime.”

Clay Discusses Lou Pearlman, Backstreet Boys on American Greed

Clay went on to sue Pearlman at least four more times for breach of fiduciary duty, fraud, contract breaches, and cheating band members out of their interest. The settlement agreements that Clay helped clients reach, however, were often confidential, preventing Pearlman’s deceptions from becoming public record.

People continued to trust the business mogul and invest in his enterprises. He got massive bank loans and tax credits as well as two keys to the city within Florida. Using the playbook that established the Backstreet Boys, he launched NSYNC, O-Town, LFO, Aaron Carter, and others, all while continuing to bilk artists and investors out of millions.

Even as his shady dealings began to catch up with him, Pearlman remained affable and defiant—sometimes to his own detriment. During the Backstreet Boys and Aaron Carter cases Lou told Clay, “I took all the risk and made them all multimillionaires…this is unfair to me…[and] I did everything with the advice of counsel who said it was ok.”

The latter comments enabled Morgan & Morgan to circumvent Pearlman’s attorney-client privilege, obtain emails and letters with some of his attorneys, and later learn that Lou did some bad acts against the advice of counsel.

Nick Carter of Backstreet Boys with Clay and Susan Townsend

When in 2006 investigators finally got wise to Pearlman’s long-running EISA Ponzi scheme, he fled to Bali. At that time, Morgan & Morgan still had two lawsuits pending against him.

Unfortunately, Pearlman was forced into bankruptcy by his investors, so almost no one was able to recover even close to the full amount he owed them. Clay and the Business Trial Group settled a case against Pearlman on behalf of the Backstreet Boys in 2014 that saw the band receive a final payment from Pearlman’s bankruptcy estate in addition to previously unreleased recordings.

Pearlman was arrested in Indonesia in 2007, sent back to the U.S., indicted on charges of conspiracy, money laundering, and making false statements, and sentenced to 25 years in prison.

Big Names. Big Results.

As the defendant in one of the first contingency-fee business case handled by Morgan & Morgan, Lou Pearlman has a special place in the firm’s history. The Pearlman cases illustrated the need for a law firm with the talent and resources to litigate complex business cases on a contingency-fee basis, which eventually led to the formation of the Business Trial Group in 2009.

Whether our client is a small business owner or a star, BTG works on a contingency-fee basis.

Clay Townsend, who focuses his practice on entertainment law and general complex commercial litigation, has represented big name clients including the Backstreet Boys, the Harlem Globetrotters, Johnny Wright, Michael Douglas, and Catherine Zeta Jones. He’s also litigated cases to confidential resolution against celebrities such as Britney Spears, Steven Spielberg, and Ryan Lochte and well-known companies like Paramount Pictures, Universal, Dreamworks, Hard Rock Café, and Anheuser-Busch.

Entertainment law is a hybrid field that involves intellectual property law, employment law, labor law, and contract law, among other practice areas. The Business Trial Group’s diverse and experienced legal team is one of the few in the country capable of taking on prominent entertainment law cases on a contingency, which is why other attorneys often refer high-profile and complex cases to us.

But no matter how challenging the case, the Business Trial Group keeps things simple for its clients with contingency-fee litigation. This is particularly beneficial for clients facing the well-funded opponents typical of entertainment law disputes.

To learn more about Business Trial Group’s contingency-fee model and how we achieve justice for clients of all sizes, contact us for a free case review.