An insurance appraiser who befriended Barry Minkow in a gym and went on to help him build his ill-fated ZZZZ Best carpet cleaning empire was sentenced Monday to eight years in prison by a Los Angeles judge who said there is "too much flimflam" in the investment world.
Thomas G. Padgett, 37, the first defendant to be sentenced in the massive bank fraud and securities fraud case involving ZZZZ Best's collapse, admitted helping set up a series of phony insurance restoration jobs that helped net the faltering company millions in bank loans and public stock offerings.
Padgett--a spokesman for white supremacist causes who became friends with Minkow, who is of Jewish heritage, while they lifted weights in a San Fernando Valley gym--admitted running a sham appraisal company created to handle phony cleanup jobs and to helping convince an army of bankers, accountants and lawyers that the jobs were genuine.
A Vietnam War veteran who was earning a meager living as an auto insurance appraiser when he went to work for Minkow, Padgett ended up netting several hundred thousand dollars from ZZZZ Best, along with the use of a waterfront home in Newport Beach.
With the help of Padgett, whom prosecutors have placed in the "second tier of culpability" among the 12 people indicted in the case, the ZZZZ Best operation resulted in total losses that "easily exceed" $70 million, Assistant U.S. Atty. James R. Asperger said.
"Padgett met with investors, bankers, lawyers, accountants, underwriters and others in a classic, con artist's 'sting,' " Asperger said in a memorandum to the court.
"I don't believe Barry Minkow ever could have gotten started without Mr. Padgett's willingness to lie and to verify fictitious restoration jobs," the prosecutor added.
Padgett, a Westchester resident, pleaded guilty in February to four counts of securities fraud, bank fraud and mail fraud in connection with the phony insurance restoration scheme.
$43 Million a Year
At one point, federal prosecutors say, the scheme brought in $43 million a year in bogus revenues and accounted, on paper, for 90% of the carpet cleaning firm's business.
Raul Ayala, Padgett's attorney, said his client is remorseful about his role in the scheme and has cooperated extensively with the FBI, providing a detailed account of the fraud and what led up to it.
U.S. District Judge Dickran Tevrizian, in imposing the eight-year prison term, said frauds of the kind ZZZZ Best employees allegedly perpetrated have become too widespread.
"There's too much of that going on. There's too much flimflam, and it's usually the little people that get hurt," the judge said. "That's the tragedy with these white-collar crimes."