By DAVID MOON, Moon Capital Management
In most cattle herds
there's a bell-cow, the lead animal that the others follow to the water and the
food. On a farm, it's easy to find the bell-cow; she wears a bell.
In the people world, the bell-cow phenomenon is just as prevalent, except the bell-cow doesn't wear a
bell. But a herd does develop behind the beast, and as with cattle, the herd
often follows the bell-cow to the food, the water ' and sometimes the
Investors often find comfort in knowing who else is
making a particular investment decision, even if they have no idea about the
logic behind the other person's decision. The herd falls in behind the bell-cow.
see promoters whose most attractive selling point is the other people who are
invested in a certain asset. 'Mr. Bigshot Celebrity is invested in this
swampland. How can it go wrong?'
perfect example came to light a couple of weeks ago.
When the FBI raided the $12.5 million Orlando home of former
music starmaker Lou Pearlman, a financial pyramid began crumbling ' one built on
promises, government aid, the illusion of success and the celebrity of his
The state of Florida claims that Pearlman operated an old-fashioned
Ponzi scheme, defrauding
investors out of more than $500 million.
Officials say his victims include municipalities, banks
and thousands of individual retirement plan investors. He was able to attract
such a roster of patsies because of the famous patsies he either attracted or
created early in his career.
Pearlman gained prominence as the
architect behind bubble-gum pop bands such as Justin Timberlake's 'N Sync and
the Backstreet Boys.
His promotional materials effortlessly dropped names: Art
Garfunkel, Madonna, Michael Jackson. Hank Williams Jr., Britney Spears, Kenny
Rogers. P. Diddy. New Kids on the Block. Little Richard.
How could an investment in a Pearlman program be a sham?
All those famous people associated with him wouldn't do anything stupid, would
Now that's funny.
Tell that to the folks who lost $500
Mayors of Orlando twice gave him the keys to their magic
city. One of his companies owns the famous Church Street Station complex in
downtown Orlando ' a series of buildings that once comprised the cornerstone of
the thriving entertainment and shopping district.
Orlando considered Pearlman a development savior as he
purchased these multimillion-dollar properties in 2002 with financial assistance
from the city.
Hey, it's Lou Pearlman, the guy from the Backstreet Boys.
It has to be a good deal. Let's give him some tax
Pearlman's Church Street Station company is now in
Chapter 11 bankruptcy.
Pearlman has left the country and can't be located.
Add the city of Orlando and its taxpayers to the list of
cows blindly walking into the trailer headed to the hamburger
Think about this the next time the only compelling reason
you have for investing in something is the list of other investors involved in
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).