2 Plead Guilty to Fraud in ZZZZ Best Case

Two more associates of millionaire whiz kid Barry Minkow’s ZZZZ Best carpet cleaning company pleaded guilty Thursday to charges that they helped Minkow stage an elaborate hoax to garner nearly $27 million through stock offerings and bank loans.

Thomas G. Padgett, 37, of Westchester pleaded guilty to four counts of securities fraud, bank fraud and mail fraud, and Brian Morze, 41, of Encino pleaded guilty to two counts of mail and securities fraud.

Three of 12 original defendants have now entered guilty pleas in a 54-count racketeering and fraud indictment that targets much of the hierarchy of the carpet cleaning company Minkow founded in his parents’ Reseda garage.

“My father told me one time that a man with a briefcase could always steal more than a man with a gun, and I think this case illustrates that,” U.S. District Judge Dickran Tevrizian said after the latest guilty pleas.

Assistant U.S. Atty. James Asperger has refused to say whether any of the defendants have agreed to testify against Minkow, but he did say that several former ZZZZ Best employees and board members who were not involved in the wrongdoing, including former board member Michael L. Malamut, are expected to testify.

Both Padgett and Morze admitted to playing roles in a scheme to convince auditors, bank officials and lawyers that ZZZZ Best was earning millions in insurance restoration projects that government prosecutors say were “virtually entirely fictitious.”

Padgett set up a company, Interstate Appraisal Services, that pretended to give the insurance jobs to ZZZZ Best. Asperger said Padgett often acted as the “pitchman,” approaching potential loan brokers with information about lucrative projects in which ZZZZ Best was engaged.

Morze, who worked for Interstate Appraisal, admitted flying to Denver to negotiate a deal on some San Diego property that Minkow and his cohorts allegedly planned to use as a phony job site.

Padgett also admitted to submitting false revenue statements and tax documents to bank officials for the purpose of obtaining an estimated $11 million in loans and letters of credit, in addition to a $15-million stock offering issued in reliance on fraudulent securities documents submitted by the company.

“My actions led to a false sense of security and a false impression about ZZZZ Best assets and worth,” Morze told the court.

Padgett faces up to 20 years in prison and a $1-million fine when he is sentenced on March 28. Morze faces 10 years in prison and a $500,000 fine. His sentencing was scheduled for May 9.