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Ex-Football Player, Insurance Aide Mired in ZZZZ Best Flap

July 08, 1987|BARRY STAVRO | Times Staff Writer

Founder Barry Minkow, the 21-year-old one-time whiz kid, isn't the only one who has become embroiled in the controversy surrounding ZZZZ Best Co. Add to the list a former employee of Travelers Insurance Cos. and a former UCLA football player.

Both were named along with Minkow in a $25-million lawsuit filed Monday by ZZZZ Best Co. alleging theft and fraud. The Reseda carpet-cleaning firm, a seeming overnight success story, turned into an overnight failure when it announced Monday that it would file for protection under Chapter 11 of the federal bankruptcy law.

Besides Minkow, who resigned last week as chief executive, the individual defendants in the suit are Thomas Padgett, 39, president of Interstate Appraisal Services of Culver City, a major source of ZZZZ Best's insurance restoration work, and Mark Morze, 36, a former ZZZZ Best employee who was involved in Marbil Management Co., an Agoura firm also involved in restoration work.

The suit, filed in Los Angeles Superior Court, alleges that Minkow and the others caused ZZZZ Best's "insurance restoration business . . . (to) become entwined with a complex elaborate scheme designed by defendants to divert Z Best's corporate funds to defendants' personal use."

According to documents filed with the Securities and Exchange Commission earlier this year, 89% of the company's $33.3 million in revenue in the first nine months of ZZZZ Best's fiscal year came from restoration work, repairing water- or fire-damaged carpeting, furnishings and flooring materials.

But the company now says that it has discovered facts that "appear to substantiate allegations of fraud associated with the company's restoration business."

Minkow's co-defendant, Morze, was a ZZZZ Best employee, and Marbil Management was "an alter ego" of Morze, the company's suit alleges. The suit adds that Minkow and Morze caused ZZZZ Best to pay out more than $18 million to Marbil in the past 18 months to supply labor and materials for the restoration work, although, the suit contends, the labor and materials were never provided.

A former ZZZZ Best official identified Morze as a one-time UCLA football player. Records at the UCLA athletic office say that a Mark Morze played on the 1972 UCLA team. Morze did not return phone calls on Tuesday.

Padgett, who used to work for the Travelers Insurance Cos. in the Los Angeles area, said last month in a lengthy interview that he started Interstate Appraisal Services 2 1/2 years ago.

'Bombarded by Calls'

Padgett said he met Minkow at a health club when Minkow was 12 years old and used to lift weights with him. Padgett said when Minkow founded ZZZZ Best in 1981, he gave him a small, $300 carpet job. In later years, he said, his firm was awarding ZZZZ Best multimillion-dollar insurance restoration jobs.

Last month, Padgett laughed at the suggestion that his insurance restoration business and the multimillion contracts he awarded ZZZZ Best might be nonexistent.

"I have been bombarded by calls from short-sellers in ZZZZ Best trying to say restoration work of this size doesn't exist. I have to laugh. I have paid ZZZZ Best millions of dollars in cash for services that I paid for. I have hundreds of contractors who work on jobs of this size," Padgett said. (Short selling is a way of trading stock, figuring that its price will fall.)

But Padgett refused to give the names or addresses of any of the multimillion-dollar restoration jobs that ZZZZ Best and his firm were involved in.

Last month, a reporter who visited Interstate Appraisal offices in Culver City and Van Nuys saw a total of only three employees. Padgett did not return a reporter's phone calls Tuesday.

The SEC is known to be investigating possible money laundering, falsified financial records and securities fraud at the company Minkow founded at age 15 in his parents' Reseda garage.

As of late yesterday, ZZZZ Best had still not filed its bankruptcy papers. "It takes a while to get all these papers together," said Nancy Melman, an attorney with Hughes, Hubbard & Reed, the law firm representing the company.

On Monday, the company said it was forced to file for bankruptcy because it had very few liquid assets. As of Jan. 31, in documents filed with the SEC, the company listed an increase of $12.6 million in working capital from a recent stock offering.

Concern about the bankruptcy filing apparently prompted a group of 25 angry ZZZZ Best employees to show up at a ZZZZ Best carpet-cleaning office in Chatsworth demanding their paychecks and personal items.

The employees gathered Tuesday outside the office at 9601 Variel Ave. about 3:30 p.m., Los Angeles Police Capt. Tim McBride said. He said "there was a lot of yelling and shouting" between the demonstrators and ZZZZ Best employees inside the office. There were no arrests. ZZZZ Best employees inside the office agreed to let the others in later this week, one at a time, to claim their possessions, McBride said.

ZZZZ Best's stock closed at 93.75 cents per share Tuesday, up 18.75 cents, as 1.9 million shares were traded over the counter. That was far below the high of $18.375 earlier this year.

ZZZZ Best interim president, Bruce T. Andersen, who is also the firm's chief financial officer, did not return a reporter's phone calls Tuesday.

Andersen's wife, Pat, said: "All the innocent people are still working (at the company). These honest people, they are victims of criminals who have taken the money."

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