"I am expanding to the hilt, and I have no shame." --From Barry Minkow's
"Making It in America."
Even as his financial empire was collapsing last summer, Barry Minkow planned to host a television show designed to counter the negative image of America's younger generation. A brochure for "Class of Tomorrow," which was being marketed by two producers to various networks, hailed the 21-year-old Wunderkind as nothing less than "what tomorrow's youth is all about."
After all, Minkow's exploits had been widely chronicled: He had founded the ZZZZ Best carpet cleaning company in his parents' Reseda garage at 15, built it into one of Wall Street's hottest firms and donated more than $110,000 to anti-drug and other civic ventures. He seemed too good to be true.
And he was.
The glowing descriptions of Minkow as the embodiment of the American dream--"the Rocky of rug cleaning"--have taken on darkly ironic overtones in the wake of the company's demise, accusations by Los Angeles police and last week's federal indictment of the former carpet cleaning king and 10 associates on 54 counts of racketeering, fraud and money laundering.
Minkow remains in custody with his bail set at $2 million, facing a maximum sentence of 350 years in prison and a $13.5-million fine if he is convicted on all counts.
His rapid rise from rugs to riches is a saga of personal and corporate deception of stunning proportions, according to prosecutors and former associates. The indictment alleges that Minkow masterminded an intricate scheme that used phony businesses, sham invoices and other ruses to secure millions of dollars from stock sales and bank loans by convincing lawyers, accountants and investors that vastly inflated revenues claimed for ZZZZ Best were bona fide.
One thing no one seems to dispute at this point: ZZZZ Best's major source of income, a business that purportedly restored office buildings damaged by flood or fire for insurance companies, was almost entirely fabricated. The legal finger-pointing concerns fixing responsibility.
"Minkow was, in substance, charged not only with participating in (the scheme) but with orchestrating it," U.S. Atty. Robert C. Bonner said. He estimated that losses to banks and investors exceed $50 million.
In his defense, attorney Arthur H. Barens argued that Minkow relied on older, more sophisticated business partners and was unaware of any illegal activities. Barens said these same businessmen are cooperating with the government "to exercise some damage control in their future by pointing the finger at some 19-year-old."
A jury likely will have to decide the question: Was Minkow, in essence, taken in by unscrupulous associates who called the shots, or is his defense yet another attempt at deception?
The characterization of Minkow as someone who was not in control would surprise many people who worked closely with the young tycoon. When ZZZZ Best launched a $2-million television advertising campaign in early 1987, for instance, Minkow insisted that he be featured on camera in the commercials depicting his company as the Mr. Clean of an often dishonest industry.
"He wanted to be the star," said David Marchese, a partner at the advertising firm that produced the ZZZZ Best spots. "That's his modus operandi. He felt he knew more about it than anybody else and it was his commercial and his company."
Minkow displayed that same confident demeanor Friday during his first appearance in court as a defendant. His muscular frame clad in baggy sweats and athletic shoes, he proffered advice to his attorneys, joked with other defendants awaiting arraignment and winked at a spectator.
At one point, he browsed through drawings of himself by television artists. "Don't like that one," he said. "The nose is too small."
In a television interview shortly before the sealed indictment was made public, Minkow averred that he was a victim of his own immaturity and arrogance.
"I'm not mature enough to handle a company with 1,400 people," he said. "I wasn't then, and at least I have the ability without the ego and the pride to admit it now."
Barry Jay Minkow's story reads like a 1980s version of F. Scott Fitzgerald's Jay Gatsby--a working-class youth driven to amass great wealth; a vain man who surrounded himself with fancy cars, glitzy parties and attractive women; a high-profile multimillionaire who is said to have quietly consorted with mobsters.
At a press conference in July, Police Chief Daryl F. Gates alleged that Minkow and ZZZZ Best were part of a conspiracy to launder narcotics profits for East Coast organized crime families. No arrests have been made in connection with the allegation, but police said last week that the investigation is continuing.
Born March 22, 1966, in Inglewood, Barry Minkow was the youngest of three children of Robert I. and Carole Minkow. The family moved to a small stucco home in Reseda when Barry was 4.
Called a Nuisance
"He was a nuisance, a Dennis-the-Menace type," said neighbor Donald Miller. "I'd hear them yelling at him."
The hyperactive Minkow spent two years at the Ridgewood Military Academy where, he recalled, he gained the drive to acquire wealth. He also said classmates broke his nose eight times.
Minkow's image of his parents was taking a beating, too. He later recalled in an interview that he was ashamed when the family's telephone was cut off because they couldn't pay the bill.
Robert Minkow, a cheerful man always ready with a joke, at one point worked as a real estate broker and night foreman, his son said. Carole Minkow, a serious-minded person, worked for a carpet cleaning company.
Minkow says he was 9 when his mother got him a summer job as a telephone solicitor in the rug cleaning company because she couldn't afford a baby-sitter. Later, he grew so confident of his salesmanship, he boasted on national television: "I could sell frozen yogurt in a blizzard."
At 15, Minkow recalled, having familiarized himself with the business, he started ZZZZ Best in his garage with three employees, four phones and $6,200, saved from his carpet cleaning work evenings and summers.
Minkow joined a fragmented field of carpet cleaning operators without any dominant firms. In the San Fernando Valley area alone, there are about 150 different companies, most of them mom-and-pop operations.
The industry is marred by widespread consumer complaints, state and local officials report. The major problem is the bait-and-switch game--firms advertise a ridiculously low price to get in the door, then announce that the price doesn't include much of what needs to be done.
Minkow sought to counter this practice by guaranteeing that his firm would clean two rooms of carpets for $39.95--without extra charges. Ironically, there were few, if any, complaints about the work of Minkow's small firm.
Videotapes of the company's early days show Minkow, his dark hair extending over his collar, seated at a card table earnestly calling prospective customers. Too young to drive, he hired an older friend to chauffeur him. After moving the operation to a Reseda office, he recalled, "I was a kid who had a ticket into the adult world."
He said he picked the name ZZZZ Best (pronounced "Zee Best") so there was one "Z" for each of the four children he planned to sire.
Minkow hired his mother, and later put his father to work, too, as a salesman in ZZZZ Best's commercial division. In a rap music videotape that employees made for Barry's 21st birthday, Robert Minkow rapped: "Now I know I raised me a gem/Happy Birthday, son, you're 21/And all the fun has just begun."
Though he had to worry about cash flow as well as calculus, Minkow graduated from Grover Cleveland High School in June, 1984. He received the unlikely twin plaudits of Most Likely to Succeed and Class Clown.
By the time he graduated, ZZZZ Best had 80 employees in three offices.
A savvy self-promoter, Minkow hired a ghostwriter to do his 136-page "Making It in America--18 Years Old and a Million Dollars," and published it himself.
Eye for Publicity
He also hired a public relations firm to tout his accomplishments. Entrepreneur magazine headlined an article on him: "18-Year-Old Cleaning Mogul Makes the Rules and Plays by Them," and he won a 1985 commendation from Los Angeles Mayor Tom Bradley.
Despite the growth of his businesses, Minkow expressed bitterness about being sold short by bankers who denied him credit and other adults who refused to take him seriously. What law enforcement authorities now describe as his preference for cash transactions thus may have begun as necessity.
"People told us, 'You couldn't do it,' and we did it," Minkow said during an appearance on "The Oprah Winfrey Show" last April. "Success is the best revenge."
Minkow, meanwhile, was also growing physically. Angered by the bullying he had absorbed at the military academy, he began rigorous weight training.
"Weightlifting gave me the confidence to look in your eye and say, 'You're fired,' " Minkow told a television interviewer. " 'Cause not everyone was bigger than I was."
But it appears that Minkow may have inflated his weightlifting accomplishments.
In recent years, when he worked out in the early mornings, he was able to bench-press 275 pounds or more, impressive for a 5-foot, 10-inch, 175 pounder, fellow weightlifters said.
Minkow, however, said in promotional materials that he bench-pressed 400 pounds daily, which experts say would make him one of the top 100 weightlifters nationwide. Further, he wrote in his book that he won several events "competing against the best lifters in the state of California."
But Mike Lambert, editor and publisher of the Camarillo-based Powerlifting USA, the nation's most authoritative source on power-lifting competitions, said Minkow's name never appeared in the magazine's list of winners. "We didn't find anything," Lambert said.
Despite his bravura, Minkow was dogged by money problems.
"We had to watch every penny," said Elenora Madrinan, a high school friend of Minkow's who was ZZZZ Best's advertising coordinator. "Six months after I started with the company, we started having problems with the payroll."
During this period, Minkow was accused in a Superior Court lawsuit of stealing and forging about $13,000 in money orders from a neighborhood liquor store to invest in ZZZZ Best. He denied the accusation and the case was settled out of court without an admission of wrongdoing.
In late 1984 and early 1985, ZZZZ Best used customers' credit card numbers to ring up $72,000 in false charges. Minkow said unscrupulous former subcontractors were at fault and had been fired. He repaid the money.
Minkow wrote in his book: "There are no magic formulas" to business success. "It doesn't take rich uncles lurking in the background. Just hard work."
But he apparently had his own version of a "rich uncle."
Minkow said he got involved in 1985 with the late Jack M. Catain Jr.--long described by police as a major Los Angeles organized crime figure with links to Mafia families in Chicago and Philadelphia--when ZZZZ Best "was in desperate need of financial assistance."
In a civil suit that followed a falling out between the two men, the ailing Catain said he obtained loans for Minkow in return for about 50% interest in the business, but that Minkow refused to pay him his share of the profits. Minkow's lawyer said Catain was paid what he was owed and the loans were usurious, with interest rates of 2% to 5% a week.
Minkow's lawyer said his client didn't know of Catain's alleged mob ties. In court papers, however, Minkow acknowledged that he continued the relationship after learning of Catain's indictment on counterfeiting charges. Catain was convicted Nov. 7, 1986, but died in February, 1987, before sentencing and resolution of the Minkow lawsuit.
Called Source of Problems
Madrinan, Minkow's friend and employee, now says, "I'm sure that's where Barry went wrong.
"He got involved with this person and didn't realize who he was until it was too late," Madrinan said. "Jack helped him out with the money. Once you're in, you're never out."
Los Angeles police also believe that after Catain hooked the young entrepreneur, other mob figures were attracted to Minkow "like sharks circling a bloody fish," one investigator said.
At his July news conference, Gates announced that his officers had searched the homes and offices of more than a dozen businesses and individuals suspected of "laundering" narcotics proceeds, including five people who were "organized crime subjects or associates of organized crime subjects." None of those were among the group indicted last week.
One of those that Gates named was Maurice Rind of Encino, who was twice convicted of stock fraud in the 1970s and who served as Minkow's "confidant," according to Scott Dear, who worked as ZZZZ Best controller for part of 1986. Rind helped Minkow acquire the $2 million in assets needed for ZZZZ Best to qualify for a listing on the computerized over-the-counter stock market, Dear said.
"It was part of the mystery of Barry's world how he ever met these guys," Dear said.
Rind says he didn't "do anything illegal" and has challenged police to find any evidence against him. "They can investigate us now until the world comes to an end and they wouldn't come up with nothing," he said after Gates' public accusations.
A confidential source who told of being in the company of Minkow and some of the alleged organized crime figures said: "They didn't treat Barry very well. . . . They would always talk about the (ZZZZ Best) stock. They would say, 'Do better, Barry.' Barry backed down to them a lot."
Minkow began to reap the benefits of his growing wealth in late 1985. That November, he paid $698,000 for a large Mediterranean-style home with a red stucco roof in a gated community in Woodland Hills. A huge black Z was emblazoned on the bottom of the pool. He wasn't ready for a Gatsby-type mansion, but he was on his way.
Minkow drove a white BMW and a bright red 1985 Ferrari with "ZZZZ BST" license plates. He sported a gold ring and gold chains.
For the 19th birthday of his girlfriend, Joyce Lipman, an attractive, 5-foot, 8-inch, hazel-eyed blonde, Minkow bought her a black Porsche.
It was through Lipman that Minkow met her father, Harold Lipman, 59, the associate superintendent of the Simi Valley Unified School District. Lipman, a silver-haired man with a doctorate in education and a sterling reputation among colleagues, added credibility to ZZZZ Best when he joined its board in February, 1986.
"I was asked to give Mr. Minkow a hand by my daughter," said Lipman, who has since retired from the school district and says he was shocked to learn of ZZZZ Best's alleged fraudulent activities.
On Jan. 20, 1986, ZZZZ Best went public, making its stock available for purchase, by merging with Morningstar Investments, an inactive Utah shell corporation. ZZZZ Best had four offices at that point and reported sales of $2 million in 1985.
As a corporate executive, Minkow was "a constant contradiction," in the words of an ex-associate. A whirl of nervous energy, he was a quick study and a consummate salesman, but he was also a rough-hewn kid in a grown-up world--showing off by taking sensitive long-distance calls on his speaker phone during business meetings, for instance. He preferred sweats to suits and ties, but also demanded that employees, including his mother, call him "Mr. Minkow."
Minkow could be a tough boss: "My way or the highway" was a favorite expression. Anxious to know what was happening in every department, he would poke his head into various offices without warning, former employees say.
But by all accounts there was an esprit de corps among the largely youthful staff. Minkow himself, often at his desk before 7 a.m. and still there in the evening, was an inspiration.
"We all believed in Barry," said Madrinan, a three-year ZZZZ Best veteran.
Minkow showed his appreciation. In June, 1986, he threw a luxurious company party for 350 at the Beverly Hilton Hotel. Forgoing his exercise uniform for a white tuxedo and black bow tie, Minkow presented awards to key aides, including his mother.
Minkow also threw a Christmas black-tie bash that year at the Westin Bonaventure Hotel. ZZZZ Best had gone public in a big way on Dec. 9, selling $13.2 million worth of stock and warrants to the public, an offering that prosecutors now allege was based on fraudulent claims about the company's revenues.
Minkow's parties were noted for their sobriety. He never drank liquor and insisted that no one else under 21 imbibe. He also required ZZZZ Best employees to submit to a drug test.
His anti-drug crusade included posters of him plastered throughout ZZZZ Best offices stating, "My Act is Clean. How's Yours?"
With his public relations firm trumpeting his generosity, Minkow contributed $20,000 each to Narcanon, a national drug treatment program, and Narcanon International for school drug education. He helped pay for a public service announcement for the Los Angeles Mothers Against Drunk Driving, gave $20,000 to the West Valley YMCA and spent $30,000 to landscape a girls softball league field.
One place that Minkow rubbed elbows with his business associates and met others was at the gym. Among those with whom he pumped iron were Mark L. Morze, Thomas G. Padgett and Daniel B. Krowpman, all of whom were named with him in the federal indictment unsealed Friday.
In the house of cards that ZZZZ Best became, according to the indictment, Padgett played the role of the insurance executive who handed out jobs to the cleaning company. To an outside investor or auditor, it looked like his firm, Interstate Appraisal Services of Culver City, was awarding million-dollar contracts to ZZZZ Best to repair fire or water damage to large buildings.
Krowpman's firm, Cornwell Tools, created paper work "that gave the false impression" that it provided millions of dollars in equipment for ZZZZ Best's jobs, the indictment said. And Morze, an accountant and former UCLA football linebacker, was in charge of the insurance projects. Morze has since said he was cooperating with authorities.
For Barry Minkow, 1987 proved the best of times, and the worst of times.
Early in the year, he vowed, "I'll be President in the next 20 years." By year's end, he faced the prospect of serving a term in the penitentiary rather than the White House.
By March, Minkow's face was becoming familiar to Los Angeles television viewers. ZZZZ Best's $2-million advertising campaign ridiculed competitors--showing their salesmen as buffoons who ruined customers' carpets while upping the price--and closed with Minkow making a pitch for ZZZZ Best. Chest out, he looked into the camera and declared: "I'll guarantee the work and price in writing."
To the surprise of the advertising professionals, Minkow shot the commercials in a single take, advertising executive Marchese said, an impressive display of poise.
With his business booming, Minkow sought to bolster his academic credentials. Marchese, who teaches part time at Pepperdine University, said Minkow asked for his help to get him into the graduate school of business. But the university turned down Minkow's proposal that he be awarded undergraduate credit for his business experience.
Although the small, legitimate rug cleaning business was prospering, the largely bogus restoration jobs accounted for the vast majority of the revenues claimed on ZZZZ Best's ledgers. ZZZZ Best announced one $13.8-million Dallas job that insurance restoration experts say would have been the largest ever let.
The stock took off. It opened 1987 at $4 a share and reached a high of over $18. Shortly after Minkow's 21st birthday, his 51% of the company's stock was valued at $103 million.
On April 16, ZZZZ Best announced that it was going to spend $25 million to buy the KeyServ Group, a nationwide firm that had taken in $80 million the previous year by cleaning carpets for Sears customers. ZZZZ Best, which had 21 offices and 1,030 employees in California, Neveda and Arizona, was acquiring a firm with 50 locations and 2,300 employees in 34 states.
According to Morze, the purchase was to be the "cure" that would allow ZZZZ Best to stick with legitimate carpet cleaning and "get rid of this bogus restoration business."
Minkow talked boldly of plans "to expand into England" and build a billion-dollar company.
On April 27, Minkow joined several other highly successful young entrepreneurs on "The Oprah Winfrey Show" where he fidgeted, interrupted others and demeaned his fellow guests.
"Tough times pass. And tough people last," he counseled. "Face the fear. The fear will disappear."
When another guest said viewers might want some non-cliche advice, Minkow retorted: "Your sales were $17 million. Mine were $50 million. End of story."
The end of ZZZZ Best's story was fast approaching. But first there was a last hurrah.
In early May, at a cost of hundreds of thousands of dollars, Minkow flew in 600 KeyServ employees and their wives from around the country for a high-spirited three-day conference with several hundred ZZZZ Best employees at the Century Plaza Hotel. The event was called "The Sky's the Limit," and employees of both companies gave Minkow a standing ovation when it ended.
The rug began to slip out from under ZZZZ Best on May 22, when The Times published an article describing the credit-card problems of 1984 and 1985. The company's stock plunged $4.25 that day.
"It really humbled him," Minkow's friend Elenora Madrinan said. "He really changed. He got to be a lot more quiet. He made more of a point to go and talk to people in the corporate office. He was trying to reassure them that everything would be OK."
It was too late. On June 1, ZZZZ Best's investment banker, Drexel Burnham Lambert, resigned, jeopardizing the KeyServ deal. The next day Ernst Whinney, ZZZZ Best's auditor, followed suit.
Minkow soon was busily accumulating cash. He got a $1-million loan from a ZZZZ Best board member, through a third trust deed on his home. On June 26, according to court papers, he got a $2-million loan from Prudential-Bache Finance Ltd., using his ZZZZ Best stock as collateral.
Assistant U.S. Atty. James R. Asperger said there is evidence that Minkow had developed "a close personal relationship" with a woman who worked at Prudential-Bache, who subsequently processed a postdated check for him--giving him traveler's checks, which were then cashed in Las Vegas. "He told her he loved her, that he would give her a postdated check . . . and that ZZZZ Best would cover it," the prosecutor said.
Missing Money Alleged
At Minkow's bond hearing Friday, prosecutors also alleged that he removed as much as $816,000 from ZZZZ Best's treasury in the company's waning days and may have millions stashed away in overseas bank accounts. Herb Wolas, the bankruptcy trustee assigned to help process creditors' claims, said there is "between $23 million and $30 million not accounted for."
Even with his empire crumbling, Minkow made a last-ditch bid to save the KeyServ deal, jetting to Chicago in late June with Hal Lipman to meet with Sears executives. Lipman said Minkow explained the credit card problems, apparently to the satisfaction of the Sears brass. The Sears executives planned to fly to Los Angeles within two weeks to finalize the deal.
They never made it. Minkow unexpectedly resigned July 2, citing a pair of bleeding ulcers. ZZZZ Best filed for bankruptcy six days later, and shortly thereafter the company's board sued Minkow and others for $25 million, alleging fraud and theft. On Aug. 7, Minkow declared personal bankruptcy.
Fitzgerald's Gatsby ended up face down in his swimming pool, shot after a mysterious automobile accident that subjected him to the rage of two jealous husbands.
Minkow also had his shooting incident. Five weeks after Gates alleged that he was involved with organized crime families, Minkow reported to police that four shots were fired at him from a white Lincoln Continental as he drove a friend's pickup truck along an isolated San Fernando Valley road. No arrests have been made.
In the six months after ZZZZ Best's demise, Minkow kept a low profile as he waited for the indictment that seemed inevitable. He was seen by neighbors working out with weights in his garage and by friends hanging around a San Fernando Valley pest control business owned by a friend. His attorney said he also was "out on a daily basis on his hands and knees, cleaning carpets."
Disputing the suggestions that Minkow has a fortune stashed away, attorney Barens commented: "If there were hoards of millions of dollars offshore, I doubt very much that Mr. Minkow would be sitting around Reseda preparing his defense."
In a rare interview, Minkow told a television reporter last week, "The Lord is my defense and my deliverance and I'll take it as it goes, one day at a time."
One thing Barry Minkow can certainly say in his own defense: From his meteoric rise as a multimillionaire Wall Street whiz kid to his equally breathtaking descent, he has been true to one part of his personal credo.
"I'm motivated," he once wrote, "by the idea of astounding other people."
Times staff writer Barry Stavro also contributed to this article