Barry Minkow confessed Tuesday to manipulating the stock of his ZZZZ Best carpet cleaning company and engineering a massive swindle that enabled the firm to claim more than $43 million in nonexistent revenues.
“It’s true I made those claims, and they were all lies,” said Minkow in a near whisper, taking the stand for the first time in his fraud trial in Los Angeles federal court.
But Minkow said he was coerced into the crimes by at least 14 mobsters who threatened him with violence unless he complied with their demands. “If I didn’t, I would’ve been killed, or my family would’ve been killed, or my girlfriend,” he testified.
Minkow’s testimony came at a crucial point in the 10-week-old trial as U.S. District Judge Dickran Tevrizian excluded much of the evidence supporting Minkow’s claims that he was forced into engineering the fraudulent transactions by thugs who had muscled into the company.
“It’s like somebody going up to Mr. Minkow and saying, ‘You read the book “The Godfather.” You saw what happened to the characters in that book. And if you don’t watch out, that’s what’s going to happen,’ ” the judge told Minkow’s attorney, David Kenner. “If that’s your duress defense, forget it.”
Tevrizian said the defense will have to demonstrate not merely that Minkow dealt with mob figures but will have to show “the who, what, when and where” of how he was intimidated by them.
Strategy Change Forced
The Tuesday rulings forced a strategy change for defense lawyers, who had hoped to call a series of expert witnesses on organized crime and a variety of reputed mobsters to show that Minkow was in fear of his life in the face of a Mafia campaign to take over his company.
In the wake of the rulings, the defense sought to introduce evidence that the 22-year-old entrepreneur was the victim of an attempted molestation and befuddled with massive doses of steroids and the mood-altering drugs Thorazine and Ritalin throughout his years at the helm of ZZZZ Best.
Defense lawyers also decided late Monday to call Minkow as a witness despite the fact that the move will allow prosecutors to cross-examine him. Testifying as the first witness for the defense, Minkow described how he stole jewelry from his grandmother to pay his company’s debts and went on to quietly admit most of the major charges in the 57-count fraud indictment returned by a federal grand jury earlier this year.
Reading from the indictment, Kenner noted that Minkow is accused of fraudulently obtaining tens of millions of dollars in bank loans and stock offerings by pretending his company earned more than $43 million repairing flood and fire damage to buildings for insurance companies. “Did you do that?” he asked.
Minkow frowned and shifted in his seat. “Yes,” he said.
“It is alleged that you committed securities fraud,” Kenner said, detailing allegations that Minkow generated the phony revenues to improve the company’s value for a public stock offering. “Did you manipulate ZZZZ Best securities?” Kenner asked.
“ZZZZ Best and many others,” Minkow replied, volunteering that he had “manipulated the stock” of at least six companies, including Art World Industries, Smart Card and Sunshine Mining.
Minkow, who was only 16 when he launched ZZZZ Best with a telephone and two steam cleaners in his parents’ Reseda garage, became a national celebrity when he turned the company into a $100-million enterprise that became one of Wall Street’s hottest commodities.
In his questioning Tuesday, Kenner sought to portray his client as a teen-age innocent who had flunked accounting in high school, but had a gift for salesmanship and a commitment to hard work.
But Minkow went on to allege that his company was controlled almost from the beginning by Daniel Krowpman, a reputed loan shark from Woodland Hills who had loaned him $1,600 to buy his first steam carpet cleaners, then demanded interest payments of up to $400 a week with threats of violence.
Krowpman, a former tool salesman who has pleaded guilty to a variety of charges in the case, befriended Minkow when the two worked out together in a San Fernando Valley gym, Minkow said.
“He was my idol,” Minkow recalled. “He had money, he had build, he had everything I didn’t have. . . . He was like the father I never had. I loved him.”
But Minkow said the relationship “wasn’t the same” when Krowpman and a husky friend named Steve showed up at the gym. “When him and Steve were together, it’d be like night and day,” he said. “They’d tease me about being puny. They used to throw me in the pool with my clothes on.”
Equipment Stolen, Minkow Says
Minkow said that he was overjoyed when Krowpman loaned him $1,600 to start up the business, but that Krowpman became angry when a burglar broke into the Minkow family garage in Reseda and stole the newly purchased equipment. In addition, his checks to Krowpman began bouncing, Minkow said.
Krowpman had been drinking and summoned the 16-year-old Minkow to his house, at one point pulling out a gun from under the sofa, Minkow recalled.
“He said that I’m causing him a lot of problems, and I needed to get it (the money) back to him, and as long as it was out--he used the term ‘out'--that I would have to start paying interest on it of $200 a week.”
“Did Mr. Krowpman make any advances toward you at that meeting, physical advances?” Kenner inquired.
Prosecutors objected to the question, and Tevrizian ruled out the inquiry. But a few moments later, Minkow injected the prohibited testimony.
“Were you paying $200 a week to Krowpman?” Kenner asked.
“After he made his attempted rape or before?” Minkow asked. “After he tried to molest me, yes.”
Minkow said Krowpman later increased the interest payments to $400 a week, and at one point “threw me against the wall” when he learned that Minkow did not have insurance to cover the theft of the carpet-cleaning equipment.
“I said I didn’t know what insurance was. . . . He cussed,” Minkow replied shyly.
Later, Minkow said, Krowpman threatened to “beat me up” if the payments were not made on time and told how he once had broken the legs of a Las Vegas man who had failed to repay a debt.
“He said I couldn’t hide because he had friends that were at the police,” Minkow said, adding that Krowpman later threatened to kill him and his family.
Minkow was expected to conclude his direct questioning sometime today, opening the way for prosecutors to cross-examine him.