Advertisement
YOU ARE HERE: LAT HomeCollections

Con Man on How Not to Be Taken to Cleaners : Fraud: Former ZZZZ Best whiz kid Barry Minkow, fresh from prison, tries to make amends on lecture circuit.

October 13, 1995|JAMES S. GRANELLI | TIMES STAFF WRITER

IRVINE — Pacing up and down the aisles like a talk-show host, Barry Minkow exhorts his audience of accountants to stop cozying up to their corporate clients.

"You're perceived as the corporate cop," he tells them. But auditors aren't doing their job, he says, if they let someone like him create 20,000 phony documents and then sweet-talk them out of checking his records properly.

"When the auditor comes in, he's ready to fight," Minkow says as he jumps into a boxing stance. As a con artist, he says, he offers friendship to distract the auditor from diligently reviewing corporate financial records.

Minkow should know the routine. He's lived it.

At a time when the Charles Keatings were the saviors of the savings and loan industry and the Michael Milkens were the barons of Wall Street, there was the fresh face of youth and innocence in an enterprising kid named Barry Minkow.

As a 16-year-old, Minkow started the ZZZZ Best carpet cleaning business in the garage of his parents' Reseda home and built it into a public corporation worth $280 million.

But by the time he was 21, before the catastrophic collapses of the Keatings and the Milkens of the world, Barry Minkow was awash in one of the biggest financial scandals of the time. He had built much of ZZZZ Best on phony revenue, and he defrauded investors and lenders of $26 million. He was convicted in 1988, and spent the next seven years and three months in prison.

Now Minkow, only 29 and studying for a master's degree in divinity, is doing penance, trying to atone for his misdeeds by taking to the lecture circuit and hawking his autobiography, "Clean Sweep," as well as a boxed, three-tape video on fraud detection called "Fraudo-Dynamics."

Most proceeds from the sale of his book and tapes, as well as from his lectures, he said, go directly to a trust fund for ZZZZ Best victims. Proceeds from the movie rights to "Clean Sweep" go to his lawyer. Minkow is reimbursed only for out-of-pocket expenses and for pay he loses on the lecture circuit for missing work as a clerk at his lawyer's firm.

Since his release in April from a halfway house, the glib, charismatic Minkow has regaled about 30 audiences with revival-like preaching about the ways of con artists. Bankers, business executives, college students and law enforcement authorities around the nation have heard him.

*

Thursday in Irvine, about 100 accountants got an earful. At first skeptical, they became mesmerized during Minkow's hourlong talk at an all-day seminar put on by Cal Accountants Mutual Insurance Co., which specializes in insuring accountants.

CAMICO wants the auditors it covers to look more diligently at possible fraud, not only to halt possible losses to victims but to curtail insurance costs. The insurer has paid about $30 million on fraud claims since 1986, said Ronald B. Klein, the company's vice president of claims and loss prevention. So what convicted swindlers like Minkow have to say is important to a fraud detection program, he said.

Minkow takes up the challenge in showman-like fashion, playing the audience much like he did investors, bankers, lawyers and accountants in his heyday. His rapid-fire talk runs the gamut from bombastic exhortations to whispering advice and axioms: "Wealth-driven appetites are unsatiable."

He throws out questions about hypothetical auditing situations--"What would you do?"--and pats a few on their shoulders when they answer. "That's right, Paul," he says after a quick look at the name tag.

He admits his swindle upfront, but in a talk to auditors on fraud, he also points out how professional accountants could have caught him easily.

"Listen to me, folks," Minkow tells his audience. Closing his eyes, he paints a scene at a warehouse where an auditor is about to sample inventory to make sure a company has the products it says it has.

A 10-foot stack of boxes--sealed and ready to be shipped that day to a customer--stands alongside a container that the owner says is a sample of the products being shipped. The auditor checks the prepared sample and never opens the sealed stack, which is filled with rocks.

"We anticipate what you do and prepare a con for it," Minkow says. "Think outside the box" of files and documents accountants usually pore over.

"This stuff's happening," he said. "Don't give up objectivity for convenience."

*

Minkow displays a copy of a canceled check--front and back--payable to ZZZZ Best. A Van Nuys insurance appraisal firm was paying the carpet cleaning company $212,404.97 for restoration work. ZZZZ Best's auditor wants to see the check to verify the company's income, part of the auditor's typical sampling.

Minkow turns over a photocopy, telling the auditor that he photocopies all checks to help the auditing process go more smoothly and efficiently. The auditor accepts it.

Advertisement
Los Angeles Times Articles
|
|
|