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Behind 'Whiz Kid' Is a Trail of False Credit Card Billings

May 22, 1987|DANIEL AKST | Times Staff Writer

James D. Richman said he charged $100 worth of carpet cleaning while living in Santa Monica, but he got billed for $1,790 on his Visa card statement. Barbara Lee of Westminster paid by check but wrote her Visa number on top. Sure enough, she said, her Visa card was billed for more than $1,600.

Then there was Lucille Frost of Santa Ana. She was slapped with $1,389.50 in Visa charges and $1,710.57 in Mastercard charges--all for $75 worth of carpet cleaning.

What do these people have in common? Their credit card numbers fell into the hands of Reseda-based ZZZZ Best Co., the fast-growing carpet-cleaning business started and run by whiz-kid entrepreneur Barry Minkow. Now just 21, Minkow is becoming a household name in Southern California, thanks to his remarkable success and his frequent television commercials.

Through ZZZZ Best's lawyer, Mark R. Moskowitz, Minkow acknowledged to The Times this week that ZZZZ Best rang up $72,000 in false charges from November, 1984, to March, 1985. In an earlier interview, Minkow himself had said there were $150,000 to $200,000 in false charges. Moskowitz later called this account mistaken.

In any case, Minkow said ZZZZ Best made good on all the bogus charges by April, 1986, and he blamed 12 unscrupulous carpet-cleaning subcontractors whom the company had been paying an immediate 50% commission on every ZZZZ Best sale. Minkow said the subcontractors were caught and fired, but he refused to identify any of them.

But the same thing happened again in early 1986, according to a credit card security official, at Floral Fantasies, a Canoga Park flower shop that was owned by Charles B. Arrington III. Arrington, 26, is chief operating officer of ZZZZ Best.

Floral Fantasies submitted $91,000 in false charges in early 1986, said Gil Lopez, branch investigations manager at First Data Resources in Santa Ana, a unit of American Express that does credit card processing for banks. Lopez said he had talked to Minkow 10 or 15 times to resolve the problem, because Minkow told him he was the owner. Minkow denies ever speaking to Lopez but admits that he reimbursed the money.

"I was getting ready to submit the case . . . and go for prosecution on the entire $91,000 of fraud," said Lopez, an ex-Army intelligence officer. "Out of the blue, Mr. Barry Minkow calls up the bank and calls me up and says, 'I will pay the entire amount back.' "

Minkow said through his attorney that he was just bailing out Arrington, who inherited the situation from a previous owner. But city tax records say Arrington acquired the store on Oct. 1, 1985, before the false charges occurred. Arrington said he sold Floral Fantasies last June, but he couldn't be reached for comment on the charge problems. The store is still in business.

Lopez added that while Floral Fantasies' account at California Overseas Bank was opened by Arrington, Lopez never spoke to him.

Lopez said it took Minkow until June or July last year to repay all the money, and that meanwhile the store had use of it interest-free.

"Again, he (Minkow) claimed it was an employee (who made the charges)," Lopez said. But because the money from the charges was paid into a Floral Fantasies corporate account, Lopez said, it seems unlikely that an employee could have benefited.

The phony charges were racked up by using Visa or Mastercard numbers to generate credit card slips for non-existent or inflated sales. The slips were filled out as telephone orders, which don't require a card imprint, and then presented for payment to the company's bank, which routinely paid cash for them.

Cardholders who noticed the phony charges didn't have to pay them. But not all of them notified their banks of the phony charges in time.

Robin H. Swanson of La Canada said she charged $23.95 worth of Floral Fantasies flowers on her Visa card Jan. 15, 1986, but was billed for $625.06 because she didn't report it to her bank within 60 days.

Won Judgment

She said that when she demanded a refund, store employees told her that Minkow was the owner, and she got a judgment in small claims court against him last Oct. 21, a judgment that she said Minkow eventually paid. Through another lawyer, Minkow denied any knowledge of the Swanson case.

Minkow's meteoric rise began at an early age. Raised in Southern California, he began working at age 10 for the carpet-cleaning business his mother managed.

At 15, against his parents' wishes, he started ZZZZ Best, his own carpet-cleaning business, in their Reseda garage, which they rented to him at $150 a month. Now, he says, both parents work for him.

Minkow took ZZZZ Best public in January, 1986, and after a December, 1986, public stock offering now retains about 52%, or 5.9 million shares. That would give him a fortune worth $90 million at the current market price.

He's been featured in major newspapers, appeared on the Oprah Winfrey Show on national television and received a commendation from Mayor Tom Bradley, which said Minkow had "set a fine entrepreneurial example."

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