As the CEO of a $300mm company by the age of 20 in the 1980s, he committed one of the most publicized fraud cases on Wall Street by the time he was 22, convicted of 57 counts of fraud and off to federal prison for 25 years. Since then, he’s been helping fraud agencies to crack cases. So, how did he do it?
Barry Minkow is the famous con man behind ZZZZ Best Carpet Cleaning, a business he founded at 16 years old. He eventually took it public and he himself was at a time worth approximately $100MM. So what happened? He simply leveraged banks, lied to investors, cooked his books, and leveraged his auditors against themselves by asking, “You don’t want to be the one to lose the ZZZZ Best account do you?” He fabricated some 20k+ documents to fool investors, auditors, banks, etc.
He was claiming to do over $50MM in restoration projects for fire damage and water damage; the problem of course being that none of those projects were real. Close associates helped him fabricate paperwork to support all of the earnings and contracts that were investigated by auditing firms. And, the kicker is, no one asked him basic questions about vendors, projects, or anything close to uncovering these blatant lies. This is turning into a pattern here.
The thing is, Barry did actually have a legitimate carpet cleaning business but that never really made money. Barry himself claims the fraud started by spraying water instead of Scotch Guard, and later with a $200 theft of a money order out of a liquor store when he couldn’t make payroll.
He fabricated contracts for water and smoke damage in commercial buildings, used the contracts as collateral for loans, and walked out with the cash. He was able to defraud investors by fabricating documents to back up his office restoration business, which was allegedly the moneymaker. He literally copied, whited out, and pasted invoices and accounts receivable to help borrow money from banks, lenders and anyone else that was willing to loan some money.
Once everything came down, he owed investors over $26MM, which wiped out life savings on par (at the time) with another more recent famous fraudster named Bernie Madoff.
After his stint in jail though, he seeed to have turned the corner. Much like DeCaprio’s character in the movie “Catch Me If You Can,” he was a rehabilitated specialist in detecting fraud while they’re still ongoing, helping authorities uncover more chicanery than he was ever a part of during his heyday. They claim this amounted to hundreds of millions of dollars in money that was defrauding investors.
He founded a company called the Fraud Discovery Institute where he taught people about white collar crimes. This apparently started when a friend asked him to look into some shady investments. He later found out the business in question was operating without a business license and turned out to be a huge $35mm fraud.
Spoiler alert, in 2009 he got back into the game looking for a loan to complete a movie production about his life. Posing as a reformed pastor, he offered a woman from his local church a promissory note that was proved worthless. While claiming to have turned a 180 in life, he also started multiple companies to uncover fraud projects. In one of the home building companies, he was spreading false information and made a few bucks by shorting the stock.
But this is just the surface. In part two, I’ll get into more of the details behind the scam directly from the former CFO of the company and show where all the magic really happened.
Here are a few source links:
http://articles.chicagotribune.com/1988-02-02/business/8803270183_1_zzz…
