In Corrupt America: Barry Minkow

In Corrupt America: Barry Minkow

They called him a “whiz-kid” because he was young — very, very young — and he was rich — very, very rich. Barry Minkow was only twenty years old when he appeared on the Oprah Winfrey Show in a black suit, no tie, touting his solid gold life philosophy of “Think big. Be big. End of story.” He was a model of success, an upstart, the perfect entrepreneur. At 15, he created ZZZZ Best in his family’s garage, a company that a few years later, he would franchise and then take public. At twenty, he was at the top of Wall Street, driving a Ferrari, and worth over $100 million on paper. But somewhere in there, back when things weren’t going as well he would have liked, Minkow took his company in a different direction than he intended.

It started out legitimate — carpets were, at first, cleaned — and ZZZZ Best supposedly thrived. In 1984, Minkow claimed his company raked in $1.3 million; the next year, $5.4 million. And people noticed: Minkow was listed as one of the top 100 young entrepreneurs by the Association of Collegiate Entrepreneurs and the Young Entrepreneurs’ Organization, even earning a commendation from Tom Bradley, the mayor of Los Angeles, for the “fine example” Minkow had set.

The company seemed to be a legitimate success, until it wasn’t enough for Minkow. In 1985, he began borrowing from a known mobster and loan shark, taking cash at an interest rate of 2-5% a week so that he could eventually buy up Morningstar Investments, a Utah shell corporation, and take the company public. The initial public offering sold out, even though the company showed enormous debt. The most important part, however, came in an offering statement that the company issued, stating that they would no longer be focusing on cleaning carpets, but instead, putting 86% of their revenue into insurance restoration activities. In a 60 Minutes interview given years later, Minkow would say, “We were claiming to be doing restoration jobs that were totaling in excess of $50 million. We weren’t doing any.”

Throughout the latter half of the 80s, ZZZZ Best supposedly signed contracts for restorations in, among other places, Dallas, San Diego, Sacramento, even tiny Arroyo Grande, Calif., where they were to complete a $2.3 million job in an eight-story building. Turns out, Arroyo Grande is a town of 13,000, with five traffic lights– their largest building is three stories high.

Minkow’s downfall, though, was fraudulent credit card charges. In May of 1987, the Los Angeles Times reported that ZZZZ Best employees has used customers’ credit card numbers to run up $72,000 in inflated charges in 1984 and 85, and in 1986, it happened again, this time for $91,000. With investigations mounting and his company struggling under watchful eyes, Minkow resigned in June, cashing out $700,000 worth in stock to retain a criminal lawyer. Under new management, ZZZZ Best then sued Minkow for misappropriating millions in company funds. Six months later, he was found guilty on 54 counts of racketeering, securities fraud, embezzlement, mail fraud and bank fraud. He was sentenced to 25 years in prison.

But this story has an interesting, but sadly familiar, twist. Minkow would only serve seven years of that sentence after finding religion in prison. He was released on parole and quickly became a pastor at a Christian church in San Diego (he was formerly Jewish). Minkow also soon founded the Fraud Discovery Institute, an organization devoted to exposing scams like the one he ran at ZZZZ Best. Proving that it does, in fact, take one to know one, Minkow’s company has exposed multiple scams, and he has even gone undercover for the FBI while wearing a wire.¬†After the Fraud Discovery Institute unearthed millions in fraudulent companies, the judge who sentenced Minkow to 25 years in prison released him from the terms of his parole.