Barry Minkow has been charged with conspiracy to commit securities fraud.… (Sandy Huffaker, Bloomberg…)
Federal prosecutors have drafted a new chapter in the life story of Barry Minkow, making it a tale of a teenage con man who straightened out, only to go bad again.
Sent to prison more than two decades ago after the carpet-cleaning firm he started in his parents' garage in Reseda was exposed as a $100-million scam, Minkow in recent years had pursued twin careers as a Christian minister and a for-profit fraud investigator. He issued reports alleging wrongdoing at a number of companies and was credited by the FBI with helping bring several Ponzi schemes to light.
But the government now says his campaign against one company, Lennar Corp., was part of an effort to torpedo the home builder's stock price and illegally profit from confidential FBI information. On Thursday prosecutors charged Minkow in federal court in Miami with conspiracy to commit securities fraud.
Minkow will plead guilty to the charge Wednesday, his lawyer, Alvin Entin of Fort Lauderdale, Fla., said.
A five-page charging document filed by prosecutors says Minkow was hired in late 2008 by an unidentified co-conspirator who was in a dispute with Lennar over a failed business deal. The idea was to pressure the Miami firm to pay up by, among other things, artificially depressing the price of Lennar's shares, the government alleges.
Lennar's stock plunged 20% after Minkow attacked the company and its senior executives, who wound up suing him in Florida state court, alleging libel and extortion. A judge in that case issued a default judgment against Minkow in December, finding him liable even before trial and ordering him to pay Lennar's substantial litigation expenses.
Miami-Dade County Circuit Court Judge Gill S. Freeman said Minkow repeatedly misled the court and his own lawyers. Minkow, Freeman wrote, concealed the identities of crucial witnesses, used illegal means to obtain information about Lennar executives, "jettisoned" a computer containing key email evidence, and fabricated a story about being in a hospital emergency room when he missed a court hearing.
According to the government's filing, Minkow used news releases and the Internet, including YouTube, to disseminate false assertions of improprieties in Lennar's financial reports. He also triggered a federal criminal probe of Lennar and misappropriated knowledge of the inquiry "by trading Lennar securities for his own benefit," the filing says.
Minkow invested about $20,000 in Lennar stock option contracts, betting that the stock's price would decline, but didn't make any money on the transaction, his lawyer said last week.
In a statement, Wilfredo Ferrer, the U.S. attorney in Miami, said "Minkow's manipulation of the market and his relationship with the FBI for his personal gain caused a severe drop in the stock prices of a large local corporation."
"This type of deceit and abuse of trust will not be tolerated," Ferrer added.
Minkow, who recently lived in the San Diego area, couldn't be reached for comment Thursday. His home and cellphone numbers are no longer in service. He has resigned as a pastor at San Diego Community Bible Church.
Lennar, which remains in a legal battle with Minkow's co-defendant in the civil case, Nicolas Marsch III, said in a statement that it would continue to cooperate with the government's "ongoing investigation."
"The criminal activity described in the government's filing has been a continuing assault on our company for several years," Lennar Chief Executive Stuart Miller said.
Entin declined Thursday to comment on whether Minkow is cooperating with the prosecutors.
Marsch's lawyer, Richard VanDyke of La Jolla, said his client had been forced into bankruptcy proceedings by Lennar's multimillion-dollar legal assault but still preparing for a jury trial in a bitter dispute over losses suffered when he and Lennar partnered on developing the Bridges at Rancho Santa Fe, an upscale golf community. VanDyke said Marsch had hired Minkow, "but certainly not to manipulate stock or to conduct insider trading."
"He's not a conspirator with Mr. Minkow in any way, shape or form," VanDyke said. "Mr. Minkow is on his own down there in Florida."
Minkow has been in the spotlight for much of his life. By the time he was barely out of his teens in the 1980s, his ZZZZ Best carpet-cleaning firm had a successful initial public offering. He was widely celebrated, including on Oprah Winfrey's show, before it was revealed his company had performed little actual business.
The story of Minkow's rise, fall and rebirth was to be the subject of a $4-million feature film starring James Caan, Ving Rhames and Minkow himself. The movie will be revised, losing its fairy-tale ending, its director, Bruce Caulk, said last week.