Barry Jay Minkow, Financial Fraud

At the age of 21, Barry Jay Minkow was sentenced and convicted by a Los Angeles federal grand jury in January 1988 on 54 counts of racketeering, securities fraud, embezzlement, money laundering, mail fraud, tax evasion, bank fraud and credit card fraud. What appeared to be success at its best was actually a front in order to attract investors, leading to one of the largest investment frauds by a single person. The massive Ponzi scheme collapsed in 1987, costing investors and lenders over $100 million.

In his family house garage, Barry Minkow founded ZZZZ Best, a carpet-cleaning and restoration company. He was a sophomore at Cleveland High School in Los Angeles and had three other employees. In the beginning, Minkow had struggled to meet ends. Two banks had closed his business account because California law didn't allow minors to sign binding contracts. He was also afflicted by complaints and demands for payment from suppliers.

He found it difficult to meet payroll. He managed to finance his business by check kiting, stealing and selling his grandmother's jewelry, staging break-ins at his offices, and running up fraudulent credit card charges. As time passed, Minkow was able to get into the “insurance restoration” business with the help of an insurance claims adjuster, Tom Padgett. They were able to form a fake company, Interstate Appraisal Services, that verified the details of the restorations to Minkow's bankers. Minkow was able expanded his company across Southern California with the money he revecied.

Mirkow’s company differed from other companies who had Ponzi schemes. His company did in fact receive high-marks for its quality. It actually was a carper-cleaning company. However, the company’s insurance restoration division, which eventually accounted for 86 percent of company revenues, was not. Minkow raised money by factoring his accounts receivable for work under contract, as well as floating funds through several banks in an elaborate check-kiting...