ZZZZ Best
ZZZZ Best was a carpet cleaning and restoration company founded by Barry Minkow that served as a front for a famous Ponzi scheme.
How it all started
Barry Minkow was born March 17, 1967 in a poor Jewish family. He decided to open his company for cleaning carpets as a schoolboy – he was tired of begging for money from his parents. In the autumn of 1982, Minkov took a loan of $1,600 and rented a garage from his father. He gave his company a very pretentious name - ZZZZ Best. Barry quickly realized that cleaning carpets alone would not make much money.
The young entrepreneur Barry Minkow was not squeamish about petty fraud, writing fictitious checks, stealing money from customers' credit cards. In order to get connections Minkov joined an elite fitness club in Los Angeles. The charming and outgoing young man managed to make acquaintances with influential businessmen.
At the same time, he befriended Tom Padgett, an insurance agency employee. Tom was a dispatcher – a specialist in assessing losses incurred as a result of various accidents. Minkov wanted to get into the restoration business under contract to insurance companies. But he needed to get a huge loan for doing so.
Most bank inspections are not done properly that is why Barry easily ran several fictitious transactions through his accounting department and made a handsome profit on paper.
After taking ZZZZ Best's paperwork into consideration, the checker at the credit bank decided to make inquiries at the insurance company ZZZZ Best was allegedly working with. He dialed a phone number and was answered by Tom Padgett.
As a result, Barry Minkow received several million-dollar loans. Within a year he had become a successful businessman, and Tom Padgett became his junior partner.
Stock Market
Minkow wasn't about to rest on his laurels. He decided to make his company public. It was a daunting task. A firm wishing to enter the stock market must provide a mass of documents and information, undergo a series of banking and auditing checks, and be approved by the Securities and Exchange Commission. According to Minkov, to achieve his cherished goal, he had to fabricate 22 thousand different documents.
At the accounting level of ZZZZ Best was no problem: Barry Minkov had long been stating the kind of profit he wanted – thanks to the fact that almost all the contracts were bogus. He set up two fictitious insurance companies, Interstate Appraisal Services and Assured Property Management, which supplied ZZZZ Best with the necessary contracts for restoration work. Tom Padgett was in charge of this line of work. It was to Interstate Appraisal Services that independent auditor George Greenspan came out.
One day Barry rented an unfinished building, and staged a fire in it. Minkow had carefully prepared for the inspection. There were cars marked ZZZZ Best in the courtyard, workers in branded clothing. And of course there were lots of carpets - Minkov had bought them for next to nothing from a bankrupt company. The inspectors did not find any flaws in the work of ZZZZ Best this time either, which was reflected in the documents, and then he hired subcontractors to start the restoration work at the site at full speed.
Three months later, the auditors wanted to visit the San Diego site again to evaluate the end result. Minkow came to despair. The first time he rented the building in San Diego, he promised the landlords he would buy it back, and then he suddenly disappeared. And most importantly, ZZZZ Best had not done any work on the property and had no intention of doing so.
Barry hastily flew to Colorado to settle matters with the owners of the unfinished building in San Diego. He apologized for his sudden disappearance and paid $500,000 in cash for a six-month lease on the property. Minkow then hired architects, who in record time developed a plan to renovate the building. Immediately the builders began to put the plan into practice.
Minkoff's firm was doing just fine. In the late spring of 1987, ZZZZ Best's stock price had risen from $4 to $18. The market value of the company exceeded $280 million. Minkoff's own fortune was estimated at $100 million. He bought the most expensive Ferrari car and a villa in Woodland Hills.
Minkov's star shone on the firmament of American business. His firm ZZZZ Best was jokingly called "General Motors" of carpet cleaning. The Wall Street Journal crowned him as the most successful businessman-teenager of all time. Los Angeles Mayor Tom Bradley had Barry Minkoff Day in the city.
And the young millionaire supported his celebrity status in every way he could. He talked about his successful career from the TV screens, pages of newspapers and magazines, and starred on the Oprah Winfrey show. Barry lectured to packed auditoriums at prestigious business schools. He did not forget his philanthropic work.
Collapse
ZZZZ Best's activities were scrutinized by the Securities and Exchange Commission, the FBI, private investigators, lawyers, auditors, and creditors. The most striking thing is that none of them even suspected that in the case of ZZZZ Best they were dealing with a famous Ponzi scheme. The collapse of ZZZZ Best began by sheer coincidence.
In May 1987 an article appeared in the Los Angeles Times based on the confession of a frustrated housewife. Minkow had scammed her in the early days of her entrepreneurship, forging a credit card slip and withdrawing money for services he never provided. The girl was vigilant and immediately caught the young bloodsucker by the hand, politely asking him to cancel the bill. Minkov went along with the principle and refused.
Holding a grudge, the girl began asking her neighbors about a similar scam by ZZZZ Best. More than a dozen people were offended, so a private investigation yielded a thick dossier that the housewife turned over to journalists.
Minkow became very angry and took the fatal step. Without consulting its audit backing from Ernst & Whinney, ZZZZ Best issued a press release on May 28 in which it reported record profits. It was already too much and Ernst & Whinney lost patience and purely by accident discovered evidence in ZZZZ Best's documentation that all of the company's insurance contracts were pure fake.
But our Minkov was not a timid sort, taking advantage of a formal loophole in the law that allowed for forty days without informing the SEC and investors about a change of auditing company, Barry Minkov managed to strike the final blow: he scratched loans from four investment companies at once, and also grabbed $1 million from a close friend.
They never got their money back: on the day the press release about the auditor change was published, ZZZZ Best's stock plummeted almost to zero, and the carefree Minkov immediately registered a Chapter 11 bankruptcy and creditor protection petition.
Barry Minkow was charged with 57 counts of federal L.A. law, which meant 25 years in a maximum security penitentiary. But he was released early in 1994.
