Lou Pearlman's Ponzi scheme is discovered, FBI finds him in Bali: Part 9

Pearlman’s conglomerate was little more than an empty shell and the investors’ money had fueled his lavish lifestyle and his boy band business.
9:18 | 12/14/19

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Transcript for Lou Pearlman's Ponzi scheme is discovered, FBI finds him in Bali: Part 9
I didn't really understand the whole Lou Pearlman empire until he was on the run, basically. I just couldn't believe it. I was like, really? When things started to close in on Lou, he fled. There was some debate in the beginning about whether he was actually fleeing or just he had some business to do. But he did go to Germany initially. He made a public appearance at an awards ceremony in Germany. Big in America When I was in Germany opening up for this boy band, Lou thought it was a really good idea that I get presented a gold record on stage, in front of the audience, like, 10,000 people. And I said to him, "Well, the song hasn't gone gold. We haven't even released it yet." "I know, but they don't know that. They won't know it. It'll blow it up. It'll be really great." And he says, "I'm here to present Sean van Der wilt for big in America." And, he meant to say platinum because -- here's another lie. But he said gold. So he went, "P -- gold for big in America!" This is a presentation to Sean van Der wilt for "Big in America," going P -- gold! It's crazy. So I got a gold record for a song that was never released. Leopards don't change their spots. The same guy that would phony up a gold record is the same guy that would scam the public. Back in Florida, investigators are closing in. They're looking for evidence. They had to take everything out of there that was either important to the case, or was of value to try and get some money back for his investors. When they first went into the search warrant locations, the house, it looked like someone had left in a hurry. There were gold records everywhere. There were posters signed. There were first edition cds. There were outfits. All the things that he kept in his own sort of personal boy band hard rock cafe. There were suspicions that there were diamonds that he hid in the walls of his house. We actually hired a company who specializes in x-raying walls. We really went with a toothpick through the entire palatial house. And we were not able to find anything. Even the FBI did not find anything. Simultaneously, the investigators are raiding Lou Pearlman's trans con offices at church street station. Trans continental offices after the FBI had raided it, it looked like a hurricane had swept through the place. Papers everywhere and some were shredded and half-shredded. It definitely looked like somebody had ransacked the place. Trans con was a con all the way through. Trans con airlines had no airplanes, had no employees, had no revenues, had no contracts with airlines. We never, ever flew on a trans continental airplane. We would fly to different places and we'd always be on these delta flights. You know, in coach. And I always thought it was weird that someone that was in the airline industry couldn't help us out a little bit getting to places. I've been a filmmaker for many years now. And I just love telling stories. I always knew I wanted to produce this movie about Lou's life. And there were so many things in uncovering who Lou was. In the Lance bass produced movie, "The boy band con," one of Pearlman's oldest friends discusses how Pearlman was up to tricks and cons as a way to fake people out about what was really going on. The early memories that I have of Lou and myself, I really enjoyed those days. Now, although I wasn't really involved with trans continental, I always loved models. What Lou did is, he took my 747 model, it's about six inches longer than this, and he branded it. And then he took it over to Laguardia airport. And then he very cleverly held it by the tail and made it look like it was taking off. Without his fingers showing that it was a model. So people, when they saw these photos, thought that the model was an actual 747 that was a trans continental branded airplane. It was one of the many jaw-dropping things that I discovered in producing "The boy it was so jaw-dropping. Like, oh, my god. Like, how would you ever think, "Oh, maybe he's holding the tail of a plane in front of la Guardia?" To make it look like trans continental airlines' business is a legitimate business, Lou creates another fake company called Cohen & Siegel. They've got letterhead, signage, all the things that someone might be looking for if they were trying to say, "Is this real? Does this really exist?" It was called Cohen & Siegel because it was named after the famous gangsters, Mickey Cohen and bugsy Siegel. It didn't exist. It merely was a location where his mail was sent. And the calls were forwarded to him. All you had to do was look at that Cohen & Siegel financial statement. You knew that it was not prepared by a cpa. It was just pure B.S. Any time we see the representation coming from one of Lou's companies that the fdic or AIG or Lloyd's of London was insuring it, we knew right then it was a fraud. Time and time again, there wasn't any kernel of truth to anything whatsoever. And it actually got to be easier for us to think and just assume everything is fraudulent. Lou was really good about keeping investors in the know. He was using these financial statements from Cohen & Siegel to make investors feel like they were informed. A classic hallmark of a Ponzi scheme. A Ponzi scheme is simply an investment scheme in which money from the new investors is used to pay off the old investors so you're able to keep the thing going. The people who are running these schemes just take the money for themselves. Lou just transferred the money directly to his own bank accounts. The very nature of a Ponzi scheme is he just has to keep going. The idea is if the shark doesn't keep swimming, if the shark doesn't keep eating, the shark dies. It was hard not to think about Pearlman and what he had done in comparison to Madoff. They're both terrible crimes that have victimized countless numbers of individuals. I think when you cut to the core, it's the same plan, except that Bernie Madoff targeted very wealthy people. Well, my clients were retired, this was their only cushion for the rest of their lives. So this was a devastating loss to them. Prosecutors have all the evidence they think they need to throw the book at Lou Pearlman. The only problem is that he's not in the United States. We issued our criminal complaint early March of 07. We had no clue where he was at. Where he was going. Nothing. Finding Lou Pearlman was like looking for where's Waldo. We wanted to have him make a mistake. And so we would follow up on the leads where we could. And then we got lucky. This case was a circus from a media perspective. One of the people who did a lot of good coverage was Helen Huntley from "The St. Petersburg times." Somebody who read Helen's articles was in Bali, Indonesia. I had no idea where Lou Pearlman was. And just out of the blue, getting this email, so I thought it was pretty exciting. One day, I got an email from this German tourist who was there in Bali, who said that he thought he had seen Lou Pearlman there. He did a little research on the internet. And he knew that there was a lot of trouble surrounding Lou. I asked him if I could forward his email to Scott Skinner in the FBI. And he said yes. So I did. And in the meantime, I'm on the phone to our agents in Jakarta. They went down to Bali. And the German tourist went to take the picture of Lou Pearlman. The next morning, Thorsten takes this picture of Lou eating breakfast there in the resort. And the two guys on the side of the picture are actually the FBI agents. They are there in the hotel coffee shop with Lou. He was getting close to running out of money. And he certainly ran out of time. The FBI did not have jurisdiction to arrest him. But in an effort to cooperate, Lou agreed to accompany them to Guam, which of course is a United States possession where he could be arrested by the FBI. He knows that we've got him. He knows we got him good. A tip came from Indonesia that Pearlman was at a hotel in the Bali tourist district of nusa Dua. He was caught with $10,000 cash. People everywhere knew who Lou Pearlman was. You had all the people, all the reporters and everything else. He knew what he was facing. After we arrest him, okay, and he was just completely lying to us. It just never stopped for him. We told him, "You need to tell the truth." The biggest question -- where is that money? Where is he hiding it? And has it already been spent?

This transcript has been automatically generated and may not be 100% accurate.

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