Minkow’s Lawyer Portrays Him as ‘Battered’ Victim of Mobsters
Carpet cleaning entrepreneur Barry Minkow was the victim of “battered wife syndrome” who was beaten, threatened at gunpoint and nearly drowned by a clan of mobsters who had taken over his company, Minkow’s lawyer told a federal jury Friday.
On the opening day of Minkow’s securities fraud trial stemming from the collapse of his ZZZZ Best carpet cleaning empire, attorney David Kenner for the first time gave the defense’s version of how the Mafia allegedly bled money out of the company that the teen-age Minkow launched in his parents’ garage and then warred over the profits as it became a hot Wall Street commodity.
While government prosecutors portrayed Minkow as a brazen young businessman with an uncanny ability to lure knowledgeable bankers, lawyers and accountants into a web of deceit, Kenner said Minkow was the victim of gangsters who threatened to kill him, his parents and his fiancee unless he carried out the charade.
“Who fooled who? Did Barry Minkow fool all the law firms, all the investors, did he fool the Securities and Exchange Commission, all the accountants, did he fool all the organized crime figures, or was he used and abused by the Mafia?” Kenner asked.
“The evidence will show this American dream came squarely in conflict with the American nightmare--the infiltration and takeover by organized crime of legitimate business,” he asserted.
57-Count Indictment
In a 57-count indictment returned by a federal grand jury, the 22-year-old Minkow is accused of constructing an elaborate pyramid scheme that enabled his company to gain $15 million through a public stock offering and $40 million from private bond placements based on company books bolstered by millions of dollars in phantom revenues.
The key to the scheme was a series of insurance restoration projects from which ZZZZ Best was purportedly deriving up to 90% of its revenues--more than $43 million in one year--by cleaning out, repainting and recarpeting office buildings damaged by fire and flood.
Some of the most reputable banks, investment houses and accounting firms in the country, including Ernst & Whinney, Prudential-Bache Securities and Drexel Burnham Lambert signed off on money for ZZZZ Best based on the millions the company reported that it was earning from the insurance jobs.
The problem, as even Minkow’s lawyer admitted Friday, was that the jobs never existed--they were created on paper by Minkow and his associates. New loans were going to pay off old loans. And as Minkow paid the bills on a luxurious house in Woodland Hills and on a red Ferrari, the empire, which Assistant U.S. Atty. James Asperger called “a house of cards,” collapsed.
Where the prosecution and defense parted ways was on the issue of whether Minkow was the mastermind or one of the victims.
“This is a case about how the defendant started his own business and lied to make the business grow, and to make money,” said Asperger, who is prosecuting the case with Assistant U.S. Atty. Gordon Greenberg. “The lies started early and, as the business grew, so did the lies.”
Asperger said Minkow, who was only 15 when he started ZZZZ Best in Reseda, had survived legal problems in the past--including at least one instance when he admitted forging $7,000 in stolen insurance checks--and told associates he would get off again with “a slap on the wrist” because of his age.
“He used his youth to his advantage. He chalked off his mistakes to inexperience, and he was convincing,” Asperger said.
Sham Company
Asperger described how Minkow launched a sham company, Interstate Appraisal Services, supposedly to coordinate the insurance restoration jobs and hired Mark Morze, a former UCLA linebacker with an accounting background, to generate fake financial statements and false invoices to make it appear that the jobs were real.
When accountants demanded to see the job sites, Minkow and his associates, 10 of whom have already pleaded guilty in the case, went so far as to locate office space in Sacramento and San Diego County and then stage tours of the offices for accountants while pretending they were job sites.
When investigators closed in and ZZZZ Best was forced into bankruptcy, Asperger said, Minkow was approached by one of the company’s directors, a man who had trusted Minkow and invested $1 million of his own money into an operation he had believed was legitimate.
‘He Was Only 21’
Minkow “told (him) that he would get off easy because he was young, he was only 21, and he would come out of this smelling like a rose,” Asperger said.
“Now it’s up to you decide whether the blame should be laid on others, and whether defendant Barry Minkow should come out of this smelling like a rose,” Asperger told the jury.
Kenner conceded that the evidence to be presented in a trial expected to span the next three months “will show that the ZZZZ Best experience, if you will, was from the very outset, almost, a fraud of gigantic proportions. . . .
“But I suggest to you that it was not Mr. Minkow who was either the architect or even a willing participant in the ZZZZ Best fraud.”
Minkow, growing up in a family with little money, learned the telephone sales business early from his mother and took easily to salesmanship, Kenner said.
Offered a Deal
The turning point, he said, was when a man he had met at a local gym, Daniel Krowpman, offered him $1,600 to start his own carpet cleaning company, charging interest of $200 a week, plus half the profits.
Krowpman, who has pleaded guilty to securities fraud, bank fraud and tax charges, needed large amounts of cash to support a bookmaking operation, but Minkow began having trouble meeting the interest payments on the loan, Kenner said.
“It was in early ‘83, the first time he was late in the $200-a-week payments, that Mr. Minkow received his first beating from Mr. Krowpman,” the defense attorney said.
Krowpman, Kenner said, told Minkow he was “connected” to an organized crime figure who “had killed people for less than the $1,600 Mr. Minkow owed Mr. Krowpman. . . . He was told for the first time in his young life that it was not only himself that was in danger, but his mother and father as well.”
When Minkow resisted a credit card billing scam that Krowpman started, Krowpman introduced him to “Mel,” a 6-foot, 8-inch man weighing 300 pounds, who moved into Minkow’s offices, Kenner said. Mel, he said, “told Barry what pleasure he derives from making sure people do what Mr. Krowpman tells them, and that people don’t go to the police.”
In the spring of 1985, Kenner said, the late reputed mobster Jack M. Catain Jr. began moving in on the company, introducing Minkow to two associates who loaned Minkow $25,000 cash to help him make his payments to Krowpman--this time charging 5% a week of their own.
It was about that time, Kenner said, that Catain proposed the phony insurance restoration jobs to make the company look prosperous and attract investors.
“Barry’s reaction to that was, ‘No. Emphatically no. I will, No. 1, get caught and, No. 2, it can’t be done,’ ” Kenner said. “What Barry got for his reluctance was a beating the likes of which Barry never saw before.”
Others Move In
Yet another group was moving in on the company about that time, investors Robert Viggiano, Maurice Rind and Richard Schulman, all of whom were connected to organized crime, the defense attorney said. Rind had a history of securities scams of the kind that ZZZZ Best was engaged in, Kenner said, while both Schulman and Viggiano had been arrested in the past on extortion and other charges.
Los Angeles police have alleged that Rind and Schulman were the key figures in transforming ZZZZ Best from a privately owned company to one whose stock was publicly traded, earning large profits for them and Minkow. But neither they nor Viggiano have been charged, although they remain under investigation, according to police.
Both Rind and Schulman have denied any organized crime ties and say they simply were investors in ZZZZ Best who advised Minkow.
In his argument to the jury, Kenner said it was Viggiano who advised Minkow of the decision to create a paper company called Interstate Appraisal Services to help carry out the phony restoration jobs, he said.
“Barry’s reaction to that was ‘No, no way,’ ” Kenner said. “Mr. Viggiano tells Barry to get in the car, they’re going to go for a ride.”
Serious Threat
Viggiano drove the car to the end of the block, drew a gun and pointed the barrel in Minkow’s mouth, Kenner said. “Barry is told that the next time he gives them any trouble, the next time he resists, how very easy and simple it would be to pull the trigger.”
Three bodyguards, one of them a reputed Mafia figure, moved into Minkow’s home, Kenner said.
At one point, he said, when Minkow threatened to go to authorities, he was introduced to “Michael,” whom he described as “an enforcer for Schulman,” who “grabbed Mr. Minkow by the back of the hair, punched him in the stomach and repeatedly smashed his face into the kitchen table until Barry rolled off the table.”
Later, knowing that Minkow has “an inordinate fear of water,” the mobsters held his head underwater in a kitchen sink “until, gasping for breath, his final will to resist was overcome,” Kenner said.
“Barry Minkow became a victim of the battered wife syndrome.”
Also on trial before U.S. District Judge Dickran Tevrizian is accountant Norman Rothberg, who is accused of accepting $25,000 from Minkow to lie about the phony insurance jobs.
Of the 10 former ZZZZ Best associates who entered guilty pleas, only one has been sentenced. Thomas G. Padgett, who headed Interstate Appraisal Services, received a term of eight years in federal prison.
