Barry Minkow, the 21-year-old whiz kid entrepreneur who founded the ZZZZ Best carpet-cleaning firm, was part of a nationwide narcotics money-laundering operation with ties to organized crime, Los Angeles Police Chief Daryl F. Gates said Wednesday.
Gates said a three-month investigation found that eight other individuals and organized crime families in New York used ZZZZ Best and four other Los Angeles businesses as "fronts for laundering large organized crime profits from narcotic trafficking."
No arrests have been made in the case and an attorney for Minkow immediately called the allegations "absolutely preposterous."
Started Business at 15
Minkow, who started the carpet-cleaning business in his parents' garage when he was 15 and built it into a company whose stock was worth about $200 million, frequently promoted himself as a remarkable success story, made large charitable contributions and was featured in anti-drug advertisements. The Reseda-based company's stock plummeted, however, after disclosures that some of its customers had been overcharged on credit card billings.
Minkow resigned as ZZZZ Best's president last week, and the company on Wednesday filed for Chapter 11 bankruptcy protection.
Gates made his allegations of money laundering at a press conference after police served search warrants Wednesday on nine people and 16 locations, including Minkow's Woodland Hills home. He said police still are collecting evidence needed for prosecution of the case.
Gates provided few details on the alleged scheme, but said police believe that ZZZZ Best's insurance restoration business was "a sham fraudulently designed to increase the value of ZZZZ Best Co. stock . . . and to provide a front for the laundering of drug proceeds."
He was referring to ZZZZ Best's contracts to repair carpets, flooring and furniture damaged in fires or other mishaps.
About 89% of ZZZZ Best's $33.3 million in revenue for the nine months ended Jan. 31 came from the restoration work, the company has reported. But according to a $25-million lawsuit filed Monday in Los Angeles Superior Court by ZZZZ Best's current management against Minkow and others, the company paid $18 million to another firm for labor and materials that were never provided.
In a money-laundering operation, proceeds from an illegal enterprise are channeled through a legitimate business and then paid back to the original source so that the money appears to have been legally earned.
Several of the individuals and companies mentioned by Gates denied the allegations.
"On behalf of Barry Minkow, I categorically deny any of these activities," Minkow's attorney, Arthur H. Barens, said. "It's absolutely preposterous."
Minkow cooperated with police when they searched his home at 8 a.m., Barens said. "They looked for documents. To the extent he had them, he provided them," the attorney said.
In addition to Minkow, Gates said, others involved in the laundering scheme were: Maurice Rind, 48, a former San Fernando Valley stockbroker who once served time in federal prison for securities fraud and who was an investor in ZZZZ Best; Arlene Rind, 44, who was arrested Monday on a charge of cocaine possession; Robert Victor, alias Robert Viggiano, 51, who has invested in ZZZZ Best's insurance restoration business; Ronnie Lorenzo, 41, who Gates said is a suspected organized crime figure; Richard Schulman, 43; Darlis Clark, 46; Joseph Mangiapane, 48, and Gary Oppenheimer.
Police did not give addresses for the suspects.
Gates said that the investigation began in March after Lorenzo was arrested on a fugitive warrant from New Jersey. Checking into his activities in Los Angeles, the Los Angeles Police Department's organized crime intelligence division developed information on the alleged narcotics and money-laundering operation, he said.
Among the firms Gates called "front businesses" are the Splash Restaurant in Malibu, Art Auctions and Art World of Los Angeles.
Other businesses Gates named were ZZZZ Best; its subsidiary, 4Z Equipment; B&M Insurance Co., a Northridge firm that was involved in ZZZZ Best's insurance restoration business, and Interstate Appraisal Services of Culver City, which gave ZZZZ Best contracts for the restoration work.
Several of the individuals, Gates said, own or control "front" businesses. "There is cause to believe" that Lorenzo (the Splash restaurant), the Rinds (Art Auctions) and Schulman (Richman Financial Services) "import or distribute cocaine or . . . serve as a means of laundering drug proceeds," he said.
Gates said Lorenzo, Mangiapane, Schulman, Victor and Maurice Rind, have criminal records and "are organized crime subjects or associates" of organized crime figures.
The allegations sparked disbelief among businesses and individuals identified in Gates' press release.
Century City attorney Norris J. Bishton Jr. called the statements about Art Auctions Inc. an "unbelievable shock," saying that the firm is "100% legitimate."