True Conspiracy

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Monday, August 21, 2006

Great American Fraudsters - The Barry Minkow Story

Barry Minkow (born March 17, 1967) was an American teenage entrepreneur who managed to present the front of a successful businessman for a number of years during the 1980s. He was convicted of fraud, and became a prison inmate for over 7 years subsequent to his misdeeds. 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 San Diego, California * Community Bible Church, having publicly renounced and forsaken his previous misdeeds. Minkow is also a recognized fraud expert, and speaks on the subject to university students and the business community in an effort to prevent fraud.

Beginnings of Zzzz Best

Raised in a culturally Jewish family inside a modest Reseda house within the San Fernando Valley of Los Angeles, Minkow learned his business manners from his mother's job as a telemarketer. At the age of 15 while a high school sophomore he started his own carpet cleaning company, Zzzz Best, in his parents' garage in Reseda. From its humble beginnings in home carpet cleaning by a few employees, in four years it had 1,400 employees and had begun to specialize in insurance restoration business. One of the first contracts he received was from the Genovese Mafia family. His frequent television commercials in the Los Angeles market during 1986-7 featured the then young entrepreneur in business suit with tie, confidently extolling the superiority of Zzzz Best.

Minkow formed dozens of business contacts. His most important contact was Tom Padgett of Interstate Appraisal Services, an insurance claims adjuster who appeared to get large restoration contracts. He was presented as a business success story in magazines and TV shows. Mayor of Los Angeles Tom Bradley declared a Barry Minkow Day. He lectured in business schools and contributed to Narcotics Anonymous. He had a Ferrari Testarossa and a mansion in Woodland Hills. Zzzz Best' stock rose to $18 (USD) a share on Wall Street, valuing the company at more than $280 million (USD).

However, behind the scenes his company was little more than a front to attract investment for a Ponzi scheme. Zzzz Best did not clean anywhere near as many carpets as claimed but generated a plausible paper trail to fool potential investors. Interstate Appraisal Services was formed as a separate company to support this fraud. Minkow raised money by factoring his accounts receivable for work under contract. He hired reputable accountants and lawyers to boost his image. Upon indictment, he claimed that he had intended to form a legitimate business empire and pay back everything, nobody being the wiser.


Zzzz Best went public on the stock market in 1986. 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 US$2 million to complete the building in twenty days.

There were signs of problems, but investors chose to ignore them. The company's Chief Financial Officer also owned a florist's business, and that company was accused by customers of having stolen over $92,000 by charging flowers to their credit cards without authorization. Minkow decided to ignore these allegations, and short-sellers including the Feshbach Brothers, took positions betting that the 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, California, so that he could present it to his auditors as a wreck that Zzzz Best had recently finished restoring. Zzzz Best was about to buy rival carpet cleaning company KeyServe when their stock suddenly plunged. Members of the press had been researching the company, and communicating with short-sellers who had done their own research. These investigations indicated that the company's contracts had been largely fictional. The story ran in the Los Angeles Times, and spurred FBI investigation of Minkow's link to the Genovese crime family and white separatist movements. Minkow was arrested and indicted in 1987.

Conviction and prison

The court's estimate of the extent of fraud was US$26 million. Eleven Zzzz Best insiders were convicted of fraud alongside Minkow, who got 25 years in prison. He served just under seven and a half years, most of them at Englewood Federal Prison in Jefferson County, Colorado. During his early prison stay in San Pedro, California before his trial, Minkow became a Christian. He earned Bachelor of Arts and Master of Arts degrees in Church Ministries (with an emphasis on Theology and Apologetics) from Liberty University. In 1996 he earned a Master of Divinity, also from Liberty.

Release and a different path

After Minkow's early release from prison in 1995, he went to work at the Church at Rocky Peak in Chatsworth, California (near his Reseda childhood home) as Director of the Bible Institute and Pastor of Evangelism.

Since 1997 he has served as the senior pastor of San Diego's Community Bible Church. As of 2006, Rev. Minkow remains in this position.

Minkow also is an executive at the Fraud Discovery Institute in San Diego, which he helped found. In this capacity, he posed as a potential investor in an investment scheme run by fellow pastor Steve O. Cooper, of the Nu-Way Christian Ministries Inc. of San Diego, then passed the information he received to state and federal authorities. Cooper and his wife had been promising investors returns of 3% a month, and their scheme was shut down by regulators in August 2005. He has similarly investigated the Turning International Ltd. scam by Derek Turner in the Bahamas, Rainmaker Managed Living, MX Factors, and others.

Recent developments

The original judgment on behalf of investors and lenders against Minkow was dismissed in 2002 by U.S. District Court judge Dickran Tevrizian, Minkow's judge at his 1987 sentencing. His probation was also cut short as of the fall of 2002. Currently the former convict's outstanding monetary debt remains with Union Bank of California, with principal and interest totalling around $19 million (USD) as of 2004. Minkow pays up to 30 per cent of his $68,500 (USD) yearly salary each month to the bank. Additionally, it has been said that the great majority of his speaker's fees go to pay this debt. Minkow and his wife Lisa, live with two adopted Guatemalan children and three dogs in their southwest San Diego County home.

More on Barry Minkow

Cleaning Up: One Man's Redemptive Journey Through the Seductive World of Corporate Crime

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