Federal prosecutors Friday unsealed a 54-count racketeering and fraud indictment accusing millionaire whiz kid Barry Minkow of staging an elaborate securities hoax to prop up his carpet-cleaning company while bleeding it nearly dry of money, some of it laundered through Las Vegas casinos.
Minkow, who earned national fame by turning the company he founded in a Reseda garage at the age of 15 into a $200-million Wall Street commodity, surrendered to authorities late Thursday on the indictment, which also names 10 of his former business partners and associates at ZZZZ Best Co. Inc.
U.S. Magistrate Venetta Tassopulos set bail at $2 million, in part based on prosecutors' allegations that Minkow, 21, removed as much as $816,000 from the company treasury in the waning days of his crumbling empire and may have stashed millions more in overseas bank accounts.
The indictment also alleges that Minkow offered a businessman who learned of the securities scheme a $25,000 bribe to recant his allegations to ZZZZ Best's outside accountants that the company engaged in massive fraud.
In announcing the criminal charges, federal prosecutors portrayed the young San Fernando Valley entrepreneur as the brains behind a sophisticated operation that set up sham companies and drafted phony invoices to dupe banks and brokerage houses into accepting ZZZZ Best's revenue figures, which were inflated by tens of millions of dollars.
U.S. Atty. Robert C. Bonner estimated that up to 90% of the activities from which ZZZZ Best claimed most of its revenue--insurance projects restoring buildings damaged by flood or fire--were "made of whole cloth . . . totally bogus."
"It was a bold, brazen scheme which nobody involved in, according to the interviews we've conducted, believed would work, and yet he was able to carry it off," said Assistant U.S. Atty. James R. Asperger, who described the operation as "a classic sting . . . of the Robert Redford, Paul Newman style and vintage." (Redford and Newman were the stars of "The Sting," a movie about an elaborate con game.)
Bonner said losses to investors and banks are believed to exceed $50 million.
"This case is the most massive and elaborate securities fraud perpetrated on the West Coast in over a decade," Bonner said.
To dupe the firm's accountant and lawyer into signing off a multimillion-dollar stock offering, for instance, Minkow and his partners allegedly staged a visit to a high-rise building in Sacramento where they pretended to be repairing water damage. One of them posed as a building manager, using a rented office nearby and, to complete the ruse, they displayed blueprints and photographs of the project site, according to the indictment.
Minkow's attorney, Arthur Barens, said the youthful businessman, who lives in Woodland Hills, relied on his older, more sophisticated business partners and was unaware of any illegal activities.
"Who are the witnesses in this case? Indicted defendants, savvy businessmen who are trying to exercise some damage control in their future by pointing the finger at some 19-year-old," Barens told the magistrate Friday.
"If there were hordes of millions of dollars offshore, I doubt very much that Mr. Minkow would be sitting around Reseda preparing his defense," Barens added. "And what has he been doing (during the investigation)? Cleaning carpets. He's out on a daily basis on his hands and knees cleaning carpets."
Minkow appeared for his bail hearing Friday in what friends say has always been his favorite attire: a loose-fitting warm-up suit and athletic shoes. Flanked by his attorneys, Minkow quietly volunteered suggestions for his defense from the counsel table and joked with spectators during courtroom breaks.
Though Los Angeles police announced last summer that they were investigating allegations that Minkow's company laundered drug profits for East Coast organized crime families, the federal indictment does not allege any organized crime ties or narcotics money laundering.
Capt. Stuart Finck, head of LAPD's Organized Crime Intelligence Division, said authorities are continuing that part of the investigation.
'Money Was Laundered'
"We have specific information that drug money was laundered. The extent, we're investigating," Finck said. "We're hopeful that if any charges are to be sought, they'll be filed in the next few months."
Three of the defendants are accused with Minkow of conducting a racketeering enterprise to make it appear that ZZZZ Best was an extremely profitable business by concocting the insurance restoration projects. They are: Thomas Padgett, 37, of Westchester; Mark L. Morze, 37, of Whittier; and Mark Roddy, 36, who is already in custody on other federal charges.