Two days before he resigned as chief executive of the scandal-ridden ZZZZ Best carpet cleaning company, Barry Minkow sent two aides to Las Vegas to "launder" more than $700,000 in company funds, according to a police crime report.
Minkow later used $110,000 of the laundered money to hire an attorney, the report says.
The report, prepared by the Los Angeles Police Department Organized Crime Intelligence Division, was turned over this week to the district attorney's office for consideration of new charges.
It says Minkow gave two brothers who were ZZZZ Best consultants, Jack and Jerry Polevoi, $487,000 in company money plus $225,000 loaned to the firm by a New York brokerage house.
Mission's Purpose Cited
The Polevois' mission, the report says, was to disguise the origin of the money by exchanging it for chips in Las Vegas, gambling with a little of it, then cashing in the chips.
But the document indicates it was a botched job, with casino officials quickly becoming suspicious and blocking some of the men's transactions. However, the team made at least one good bet--using $35,000 of Minkow's money for a stock investment that gambled on ZZZZ Best shares dropping in value.
Minkow, 21, is in a maximum-security cell at Terminal Island federal prison, his bail set at $1.5 million, awaiting trial on a federal indictment charging him and 11 others with using the Reseda-based carpet cleaning company in an intricate scam--involving phony businesses, sham invoices and other ruses--to secure millions of dollars from stock sales and bank loans.
The Las Vegas operation began last June 30, two days before Minkow resigned and fewer than two weeks before the company filed for bankruptcy, the report says.
Jack Polevoi, then Minkow's neighbor in a security-gated Woodland Hills community, was a loyalist of the whiz kid entrepreneur, according to the report, telling investigators "he would do whatever was desired by Barry Minkow."
So it was hardly surprising, said Jack Polevoi's attorney, Brian Sun, that his client readily took off for Las Vegas on Minkow's orders after Minkow gave him two huge ZZZZ Best checks. Jack Polevoi had a gambling obsession, Sun said, and when the job was described to him, "the lights went off in his head like you wouldn't believe."
Before leaving, Polevoi turned the company checks into $225,000 in cash and the balance into several dozen cashier's checks of $9,500 each--intended to avoid a $10,000 trigger that requires disclosure to the Internal Revenue Service.
Casino records examined by detectives showed that in the ensuing week, the 40-year-old twin brothers, along with a handful of cohorts, made two trips to Las Vegas. They allegedly rushed through about 10 casinos in an effort to obscure the money's path.
Attorneys for the Polevois said the brothers would not comment on the allegations, but Sun argued that the Polevois' Las Vegas actions could not be viewed as "classic" money laundering because they were so open about what they were doing.
Sun said Jack Polevoi "has a gambling problem. He has been a member of Gamblers Anonymous. He'd been to Vegas many times before. They knew who he was."
"They left a trail so wide, so open and so blatant, it wasn't classic money laundering," said Sun, a former assistant U.S. attorney. "I'm not saying it's not money laundering, but not classic laundering. It was just stupid."
The casinos, according to the crime report, indeed were wary when the Polevois first tried simply to cash 30 cashier's checks--casino officials refused to cash 22 of them.
Subsequently, the group sought merely to buy chips.
But police reported that one manager at the Las Vegas Hilton called a local firm that monitors casino transactions, Central Credit, and discovered that a member of the Polevoi group, Eugene J. Lasko, had been bringing $9,500 cashier's checks to a series of casinos. The manager then ordered Lasko to return his gambling chips and reported to the IRS that he had deposited $47,500 in cashier's checks with the casino.
"Lasko appeared to be very nervous," according to the personal notes of a Sands Hotel official who blocked Lasko's efforts to exchange $40,500 worth of cashier's checks for gambling chips and then into cash.
Last Feb. 17, Lasko, 57, who worked for a landscaping firm owned by Jack Polevoi, pleaded guilty to a conspiracy charge in federal court in Los Angeles. Recalling the trouble-prone week in Las Vegas, Lasko told a federal judge, "I felt like a fool . . . ."
But another member of the entourage, Kathy A. Carter, 34, of Las Angeles told investigators of the one successful transaction.
On their second day in Las Vegas, according to the police report, the brothers instructed Carter to take $35,000 in traveler's checks to the local Paine Webber Inc. brokerage outlet and to "short" ZZZZ Best stock in her name. Buying securities in this manner is profitable if the stock falls in price.
'Use Her Real Name'
"Jerry Polevoi . . . told (Carter) to use her real name but not her Social Security number for tax purposes," the report says.
Shortly after the transaction, according to the report, an "excited" Paine Webber broker called Jerry Polevoi to tell him that ZZZZ Best stock had dropped three-quarters of a point. The police report indicates that the Internal Revenue Service is investigating the deal. Carter has not been accused of any wrongdoing.
After the money was later returned to Minkow, the report says, he used $110,000 to pay Los Angeles attorney Arthur H. Barens, 43, for representation in the criminal investigation.
In an interview, Barens--whom Minkow replaced with another legal team last month--said he used the retainer for legal expenses. "At no time did I have any reason to believe that the funds were from any improper source," he said.
The ZZZZ Best bankruptcy trustee, Herbert Wolas, has been seeking since February to recover $252,500 in fees paid to Barens, Richard C. Chier and other former Minkow lawyers, alleging that the money rightfully belongs to ZZZZ Best creditors.
Chier this week denounced the police report on the legal retainer, saying it "contains a lot of raw sewage that is not corroborated by any evidence other than a zealous policeman's desire to ruin the reputation of high-profile citizens."