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Barry Minkow (born March 17, 1967) is an American religious leader and ex-convict.
As a young teenager Minkow was a fraudulent entrepreneur who managed to present the front of a successful businessman for a number of years during the 1980s. His company, ZZZZ Best (pronounced "Zee Best") appeared to be an immensely successful carpet-cleaning company but collapsed in 1987, costing investors an estimated $100 million. He was convicted of fraud and several other offenses and sentenced to 25 years in prison, but served only seven years. During his time in prison, Minkow became involved in Christian ministry, which continued after his probationary release from prison in April 1995.
Today he is senior pastor of the Community Bible Church in San Diego, California, having renounced his felonious acts. Minkow is recognized as an expert on fraud, and speaks on the subject to university students and the business community in an effort to prevent fraud.
Minkow and ZZZZ Best are mentioned in Burton G. Malkiel's work A Random Walk Down Wall Street as an example of stock market bubbles. Minkow tells his story in the book, "They Thought for Themselves", by Sid Roth; published by M V Press, ISBN 0910267022, published 1996.
Beginnings of ZZZZ Best
Minkow was raised in a modest house in Reseda, a neighborhood in the San Fernando Valley of Los Angeles. He attended and graduated from Grover Cleveland High School in Reseda. He learned his business manners from his mother's job as a telemarketer with a carpet cleaning company.
At the age of 16—while still in high school—Minkow started ZZZZ Best in his parents' garage with the help of an investor who specialized in usurious loans to businesses. He soon branched out into "insurance restoration" services as well as home carpet cleaning.
Minkow found the going difficult at first. For instance, two banks closed his account due to California state laws which barred minors from signing binding contracts, including checks. He also found it difficult to cover basic expenses, such as payroll. Out of frustration, he was forced to obtain usurious loans from two other Los Angeles-area investors. He also resorted to check kiting, stealing and selling his grandmother's jewelry, staging break-ins at his offices, and running up fraudulent credit card charges. At one point, one of his original investors tried to foreclose against him and repossess his equipment. However, a court backed Minkow's claim that the investor's interest rate was unlawfully high, and forced him to accept a significantly reduced principal. This only bought him a temporary respite, and he was forced to turn to businessmen with ties to the Mafia to get financing. In order to justify the need for this new financing, he had Tom Padgett, an insurance claims adjuster, give him some letterhead from his company to make it look like ZZZZ Best was working large numbers of restoration contracts for Padgett's company.
Nonetheless, Minkow was able to expand his company and open additional offices across Southern California, becoming the largest carpet-cleaning company in the region. He instituted a policy of promoting entirely from within the company; all of his managers started out as carpet cleaners or telemarketers.
However, Minkow's company was little more than a front to attract investment for a Ponzi scheme. While ZZZZ Best's home carpet-cleaning business was very real, its insurance restoration business was virtually nonexistent. It generated a fraudulent paper trail to fool potential investors. He helped Padgett form "Interstate Appraisal Services," a separate company, to support this fraud.
Minkow raised money by factoring his accounts receivable for work under contract, as well as floating funds through several banks in an elaborate check kiting scheme. He hired reputable accountants and lawyers to boost his image.
Going public
In late 1985, one of Minkow's longtime friends suggested that becoming a public company would solve most of Minkow's cash shorts; up to that time the company had existed from payroll to payroll. Minkow liked the idea, seeing it as a way to fulfill his ambition of making ZZZZ Best "the General Motors of the carpet-cleaning industry".
ZZZZ Best officially went public in January 1986 when it merged with a Utah-based shell company, gaining a spot on NASDAQ. At the time, Minkow was the youngest person to take a company public in American financial history. He retained a 53 percent controlling interest in ZZZZ Best; at fifty cents a share, this made him an instant millionaire on paper.
Going public also offered Minkow an instant solution to covering up his fraudulent activities. Under securities law, he was not allowed to sell any of his personal shares until January 1988. At that time, however, he planned to sell a million of his shares to the public. He hoped that by then the company would have grown enough that he'd be able to pay everyone off once and for all and go completely legitimate.
Minkow launched a massive television advertising campaign featuring himself in a business suit, confidently extolling the superiority of ZZZZ Best. Minkow was presented as a business success story in magazines and TV shows. Los Angeles Mayor Tom Bradley declared a Barry Minkow Day. Minkow gave lectures at business schools, owned a Ferrari Testarossa sportscar, and bought a mansion in the wealthy Valley gated community of Hidden Hills.
In order to obtain more financing, Minkow was persuaded to raise $15 million of capital through an initial public offering of ZZZZ Best stock. When accountants wanted to inspect ZZZZ Best's operations, Minkow borrowed fake offices for a tour of "Interstate Appraisal Services" and used an incomplete building to present a fake restoration job. He used $2 million to complete the building in twenty days. The accountant who audited the company before it went public didn't visit the insurance restoration sites himself. The public offering closed in December, and Minkow became the youngest person to lead a company through an IPO in American financial history.
There were signs of problems, but investors chose to ignore them. The company's chief financial officer owned a florist business, and that company was accused of having stolen over $92,000 by charging flowers to customers' credit cards without authorization. Additionally, ZZZZ Best's four outside directors had no experience running a publicly-traded company. Short-sellers, including the Feshbach brothers, took positions predicting that ZZZZ Best's stock would fall.
Magazines and TV shows did not bother to check his background. Investigations by the U.S. Securities and Exchange Commission, the FBI, two accounting firms and various individual investigators found nothing. Minkow bribed a security guard to give him access to a newly constructed building in Sacramento so that he could present it to his auditors as a wreck that ZZZZ Best had recently finished restoring.
Downfall
By February 1987, ZZZZ Best' stock was worth $18 (USD) a share on NASDAQ, valuing the company at more than $280 million. Minkow's stake was worth over $100 million. The company was now a 1,400-employee colossus with offices across California, Arizona and Nevada.
However, it was still facing severe cash shorts from paying investors for the nonexistent restoration projects. Minkow needed another cash infusion, and thought he had it when he heard that KeyServ, the authorized carpet cleaner for Sears, was up for sale by its British parent. Although it was double the size of ZZZZ Best, the two companies quickly agreed to a $25 million deal in which ZZZZ Best would be the surviving company. The merger would have made Minkow the president and chairman of the board of the largest independent carpet-cleaning company in the nation.
Then, almost as rapidly as it rose, ZZZZ Best came unraveled. Minkow had blamed the fraudulent credit card charges on unscrupulous subcontractors and another employee, and paid back most of the victims. However, one of the few people he didn't pay back was a homemaker who had been overcharged a few hundred dollars. She never forgot what happened, and tracked down others who had been bilked by Minkow. The woman's diary became the basis of a Los Angeles Times article revealing that Minkow was responsible for running up $72,000 in fraudulent credit card charges in 1984 and 1985. The story, which ran only four days before Minkow was due to close on the KeyServ purchase, was written by a reporter who had done a glowing feature article on Minkow two years earlier. The revelations caused a small brokerage to short ZZZZ Best's stock, sending its price down 28%.
Within hours of the story breaking, ZZZZ Best's banks either called their loans or threatened to do so. Drexel Burnham Lambert, the firm that was financing the merger, postponed closing until it could reinvestigate the matter further. Later that day at a press conference, a reporter indicated that a restoration project in Sacramento not only didn't exist, but that ZZZZ Best didn't even have a contractor's license that was required for large-scale restoration work.
To calm nervous investors, Minkow issued a press release touting record profits and revenues—but did so without notifying Ernst & Whinney (now part of Ernst & Young), the firm responsible for auditing the company prior to the KeyServ deal. The press release also implied that Drexel had cleared ZZZZ Best of any wrongdoing. ZZZZ Best's stock briefly rebounded, but dropped again after Drexel pulled out of the deal.
The day after this bold press release, Ernst & Whinney discovered that Minkow had written sev
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