The first prosecution concerns Mr Lou Pearlman, the boy band mogul and former head of Trans Continental Airlines and Trans Continental Airlines Travel Services, who pleaded guilty to four charges, including investment fraud, money laundering, bank fraud and making false claims during bankruptcy proceedings at a hearing on 6 March. A judge is expected to sentence Pearlman on 21 May.
In a plea agreement, he has admitted running scams that defrauded investors and major banks for more than 20 years. Pearlman raised more than $200 million from at least 1,300 investors through a savings plan labelled an ‘Employee Investment Savings Account’ and a stock purchase plan run through his Transcontinental companies. He told savings programme investors their accounts were FDICinsured, then reinsured for up to $1 million through Lloyd’s. Witness statements were provided confirming that Lloyd’s had been unable to verify coverage and evidenced documentation received from Mr Pearlman when he stated that the “misunderstanding regarding the Lloyd’s coverage stemmed from a single instance in which a representative mistakenly relayed incorrect information”. The charges carry a maximum of 25 years in prison and a $1 million fine.
The second case first came to Lloyd’s attention in November 2005 and involved Mr Jon Nyborg, the General Manager of Norwegian insurance brokers European Insurance Agency (EIA), issuing documents to the Norwegian public and business community evidencing that the coverage purchased had been arranged with certain underwriters at Lloyd’s. Following extensive research, it was established that in many instances, no such coverage existed. Whilst the prosecution against Mr Nyborg did not include financial fraud, the court did state that it did not see any reason to question any of the information provided by Lloyd’s. Mr Nyborg was found guilty of illegally removing funds to the value of NOK 19.5 million from EIA and was sentenced to 22 months imprisonment in July 2007.
Mr Nyborg appealed the sentence and, as a result, at a further hearing in February
2008, the Court of Appeal increased the sentence from 22 months to 36 months. In summing up, the Appeal Court made specific references to the insurance fraud and the potential harm to policyholders if not for the swift action of Lloyd’s in responding to this threat.
