Behind 'Whiz Kid' Is a Trail of False Credit Card Billings

Times Staff Writer

James D. Richman said he charged $100 worth of carpet cleaning while living in Santa Monica, but he got billed for $1,790 on his Visa card statement. Barbara Lee of Westminster paid by check but wrote her Visa number on top. Sure enough, she said, her Visa card was billed for more than $1,600.

Then there was Lucille Frost of Santa Ana. She was slapped with $1,389.50 in Visa charges and $1,710.57 in Mastercard charges--all for $75 worth of carpet cleaning.

What do these people have in common? Their credit card numbers fell into the hands of Reseda-based ZZZZ Best Co., the fast-growing carpet-cleaning business started and run by whiz-kid entrepreneur Barry Minkow. Now just 21, Minkow is becoming a household name in Southern California, thanks to his remarkable success and his frequent television commercials.

Through ZZZZ Best's lawyer, Mark R. Moskowitz, Minkow acknowledged to The Times this week that ZZZZ Best rang up $72,000 in false charges from November, 1984, to March, 1985. In an earlier interview, Minkow himself had said there were $150,000 to $200,000 in false charges. Moskowitz later called this account mistaken.

In any case, Minkow said ZZZZ Best made good on all the bogus charges by April, 1986, and he blamed 12 unscrupulous carpet-cleaning subcontractors whom the company had been paying an immediate 50% commission on every ZZZZ Best sale. Minkow said the subcontractors were caught and fired, but he refused to identify any of them.

But the same thing happened again in early 1986, according to a credit card security official, at Floral Fantasies, a Canoga Park flower shop that was owned by Charles B. Arrington III. Arrington, 26, is chief operating officer of ZZZZ Best.

Floral Fantasies submitted $91,000 in false charges in early 1986, said Gil Lopez, branch investigations manager at First Data Resources in Santa Ana, a unit of American Express that does credit card processing for banks. Lopez said he had talked to Minkow 10 or 15 times to resolve the problem, because Minkow told him he was the owner. Minkow denies ever speaking to Lopez but admits that he reimbursed the money.

"I was getting ready to submit the case . . . and go for prosecution on the entire $91,000 of fraud," said Lopez, an ex-Army intelligence officer. "Out of the blue, Mr. Barry Minkow calls up the bank and calls me up and says, 'I will pay the entire amount back.' "

Minkow said through his attorney that he was just bailing out Arrington, who inherited the situation from a previous owner. But city tax records say Arrington acquired the store on Oct. 1, 1985, before the false charges occurred. Arrington said he sold Floral Fantasies last June, but he couldn't be reached for comment on the charge problems. The store is still in business.

Lopez added that while Floral Fantasies' account at California Overseas Bank was opened by Arrington, Lopez never spoke to him.

Lopez said it took Minkow until June or July last year to repay all the money, and that meanwhile the store had use of it interest-free.

"Again, he (Minkow) claimed it was an employee (who made the charges)," Lopez said. But because the money from the charges was paid into a Floral Fantasies corporate account, Lopez said, it seems unlikely that an employee could have benefited.

The phony charges were racked up by using Visa or Mastercard numbers to generate credit card slips for non-existent or inflated sales. The slips were filled out as telephone orders, which don't require a card imprint, and then presented for payment to the company's bank, which routinely paid cash for them.

Cardholders who noticed the phony charges didn't have to pay them. But not all of them notified their banks of the phony charges in time.

Robin H. Swanson of La Canada said she charged $23.95 worth of Floral Fantasies flowers on her Visa card Jan. 15, 1986, but was billed for $625.06 because she didn't report it to her bank within 60 days.

Won Judgment

She said that when she demanded a refund, store employees told her that Minkow was the owner, and she got a judgment in small claims court against him last Oct. 21, a judgment that she said Minkow eventually paid. Through another lawyer, Minkow denied any knowledge of the Swanson case.

Minkow's meteoric rise began at an early age. Raised in Southern California, he began working at age 10 for the carpet-cleaning business his mother managed.

At 15, against his parents' wishes, he started ZZZZ Best, his own carpet-cleaning business, in their Reseda garage, which they rented to him at $150 a month. Now, he says, both parents work for him.

Minkow took ZZZZ Best public in January, 1986, and after a December, 1986, public stock offering now retains about 52%, or 5.9 million shares. That would give him a fortune worth $90 million at the current market price.

He's been featured in major newspapers, appeared on the Oprah Winfrey Show on national television and received a commendation from Mayor Tom Bradley, which said Minkow had "set a fine entrepreneurial example."

ZZZZ Best stockholders have also fared well. Since its public offering on Dec. 9, ZZZZ Best shares have soared from $4 each to a closing over-the-counter price of $15.375 Thursday.

For the nine months ended Jan. 31, ZZZZ Best earned $3.4 million on revenue of $33.4 million. Last month, the company agreed to pay $25 million for Flagship Services of Newtown Square, Pa., whose KeyServe Group subsidiary does carpet cleaning under contract to Sears, Roebuck.

Dogged by Controversy

But for all ZZZZ Best's growth, both the company and its young entrepreneur have been dogged by controversy and lawsuits.

In 1985, Minkow was so desperate for cash that he turned to the late Jack M. Catain Jr., a Los Angeles-area reputed mobster, according to court papers. In the same papers, Minkow also said Catain arranged loans for him at 2% to 5% interest per week.

ZZZZ Best has been rejected for membership by the Better Business Bureau of Los Angeles and Orange counties. The reason? A credit-card complaint filed in March, 1985, by James D. Richman. Bureau President William Fritz said ZZZZ Best never responded to the bureau's inquiries about that complaint.

Richman, now a Tarzana resident, says he never paid the questionable charge, and his bank took care of it.

Lopez said he first became aware of credit card problems at ZZZZ Best in late 1984 or early 1985, when disputed ZZZZ Best credit card charges started pouring in.

"I contacted Barry Minkow at that time, and his story was that he had an employee working in one of his shops that was generating credit card sales," Lopez said.

But since ZZZZ Best's bank at the time was not a customer of First Data Resources, Lopez merely returned the drafts unpaid for the company's bank to deal with. In early 1986, according to Lopez, phony charges began turning up from Floral Fantasies. Lopez said that when he confronted the store manager, she referred him to Minkow.

Lopez said that even though most cardholders who suffered phony ZZZZ Best or Floral Fantasies charges lost no money, those who failed to examine their monthly credit card statements carefully might never have noticed and simply paid the bill.

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