The Curious Case of Barry Minkow
Jul 24, 2011
Posted by Jody Eisenman | Filed under Uncategorized
Minkow, who born in 1967, was known as a boy wonder. At the age of 15, he started a carpet cleaning business that eventually branched into an insurance restoration business. By 1986, the company called ZZZZ Best went public on NASDAQ. Now, in order to go public, one must have audited financials by an independent accounting firm. Unfortunately for the investors, the accounting firm never investigated the restoration sites. Had he done so, he would have discovered that most of them were actually post office boxes. At some point when Minkow wanted to raise $15 million, the accountants wished to see his offices. Minkow then perpetrated one of the most audacious schemes to date. He paid off a guard to use an office building and filled it with restoration equipment. After the accountants left, he returned everything. Somehow, the accountants were fooled again. By early 1987, ZZZZ Best had a market capitalization of $280 million. At that point, Minkow made an offer to buy KeyServ and Service Master. He also had designs on buying the Seattle Mariners baseball team. Minkow was at the zenith of his power.
At this point, some of Minkows’ background came to light. It turned out that some of ZZZZ Bests’ original investors had mob ties. In addition, the media discovered that Minkow had run up $72,000 in fraudulent credit charges years earlier. When Drexel Burnham (Michael Milken’s old firm) pulled out of the financing deal, the stock plunged. By July, ZZZZ Best had lost over 80% of it’s’ value, and Minkow resigned. Eventually, he was convicted on multiple counts of fraud, and served seven and a half years in prison. In prison, he converted to Christianity, and became a pastor. In an effort to turn his life around, he started the Fraud Discovery Institute, which targeted mostly penny stock companies. He received publicity from the media, including the Wall Street Journal and 60 minutes. Based on his discoveries, the judge in his fraud case released him from probation. Of course, nothing was all that simple with Minkow. It turned that while he was publishing these reports, he was also engaged in short selling the stocks he wrote about. Things came to a head in 2009. A man named Nicholas Marsch was suing the homebuilder Lennar for fraud. Although Minkow hired investigators who could not substantiate any of Marschs’ claims, Minkow created a You Tube video accusing Lennar of being “a financial crime on progress”. In turned out he also shorted Lennar stock via put options, and made out like a bandit when Lennar lost over 40% of its’ value in two weeks. It turned out that Minkow had sent these unfounded allegations to the FBI, SEC and IRS, who all opened investigations on Lennar. It was also discovered that Minkow had attempted to extort money from Lennar in order to walk away. Eventually, Marsch’s suit was not only thrown out, but he was ordered to pay Lennar $12 million in damages. Minkow was named as a co-defendant in a defamation suit by Lennar against Marsch. Miknow continued to lie and deceive the court and even his own lawyers. This past week, the court ordered Minkow sentenced to 5 years in prison, and fined him a staggering $500 million. With interest, this number could reach one billion. Once a crook, always a crook, I guess.
