Company Tells Reasons for Resigning : Auditor Feared the Worst at ZZZZ Best
Ernst & Whinney quit as auditor for ZZZZ Best, the Reseda-based carpet cleaning firm, because of allegations that a major ZZZZ Best insurance restoration contract did not exist and because of concerns about ZZZZ Best’s internal controls, according to a letter from the accounting firm to the Securities and Exchange Commission.
The allegations, if true, Ernst & Whinney said, “would raise issues . . . as to the integrity of some members of management.”
As a result, “we did not want to be associated with its financial statements,” Ernst & Whinney said in its July 16 letter.
The letter fulfilled an SEC requirement that an auditing firm must explain why it resigns an account.
At the time the accounting firm quit as auditor last month, ZZZZ Best’s founder, 21-year-old Barry Minkow, said that Ernst & Whinney had no disagreements with his company over accounting practices.
Los Angeles Police Chief Daryl F. Gates on July 8 alleged that Minkow and ZZZZ Best were part of a narcotics and money-laundering conspiracy. No arrests have been made.
Insurance Work
Gates said that ZZZZ Best’s insurance restoration work, in which it repaired carpets, floors and furniture damaged by fire and other accidents, was grossly inflated and a sham.
Minkow resigned from ZZZZ Best earlier this month. Within two weeks, the company filed for bankruptcy protection under Chapter 11, ceased operations and filed a $25-million suit against Minkow and others accusing them of fraud and diverting corporate funds for personal use.
On Monday, a preliminary injunction was issued by a Superior Court judge prohibiting Minkow from transferring any assets he received from ZZZZ Best.
Some of ZZZZ Best’s assets will be put up for sale today, according to its bankruptcy trustee, Herb Wolas, because the company has only about $30,000 cash. Last winter ZZZZ Best raised about $12 million from a stock offering.
