Barry Minkow, who became a teen-age millionaire after he launched a carpet cleaning company in his parents’ garage, was convicted Wednesday of 57 fraud counts for masterminding a sophisticated securities swindle that propelled his firm into a hot Wall Street commodity.
A federal court jury found Minkow, 22, guilty of all charges in an indictment that alleged that the ZZZZ Best carpet cleaning company bilked investors--including some of the most prestigious financial institutions in the country--out of more than $26 million in loans and stock offerings by bolstering its books with phantom earnings.
Prosecutors alleged that the charismatic, fast-talking young salesman engineered a classic sting operation--complete with faked documents, staged phone calls and even rented office space hastily outfitted as job sites--to persuade investors that ZZZZ Best was making $43 million a year restoring buildings that had been damaged by fire or flood.
Most Jobs Didn’t Exist
In fact, Minkow himself later admitted, 90% of the restoration jobs never existed. But Minkow said he was forced to go along with the scam by organized crime figures who had infiltrated ZZZZ Best.
The verdicts interrupted a last-minute round of plea negotiations, launched Wednesday morning at Minkow’s request over the objections of his attorney. Minkow reportedly had been talking from prison over the last several days with a “spiritual counselor” and had become determined to plead guilty, despite his lawyer’s belief that he might prevail, perhaps on appeal.
Minkow, who now faces up to 403 years in prison, sat quietly as the 57 guilty verdicts were read over a period of more than 20 minutes Wednesday afternoon, and apologized to reporters when his attorney would not let him speak afterward.
Throughout the nearly four-month trial, Minkow admitted his role in the ZZZZ Best fraud but claimed that he had no choice because various mobsters beat him and threatened him into cooperating in their criminal ventures once he began borrowing money from them.
“I was just a puppet,” he testified at one point, describing how several of the men held his head in a sink full of water and beat him until he vomited blood. “I was a front man for the mob.”
Even Minkow’s attorney admitted that the defense was a risky attempt to persuade jurors that Minkow had committed numerous crimes in fear of his life or the lives of his family over a period of several years. In order to acquit him, jurors would have had to conclude that he had no opportunity to escape from the men he said were threatening him from the time the fraud began in March, 1985, until ZZZZ Best folded more than two years later.
Ultimate Sales Job
For Minkow, the defense was perhaps the ultimate sales job, an attempt during nearly 10 days of testimony to persuade jurors that after three years of lies and double-dealing at the helm of ZZZZ Best, he was at last telling the truth.
“It’s easy to convince people of a lie, but to convince people you’re telling the truth is difficult,” he testified at one point.
Minkow’s past shadowed him throughout the trial, as prosecutors presented constant images--via videotapes, photographs and testimony--of the life style financed by the schemes he claimed were forced on him.
One witness testified about an elaborate, pool-side doghouse with vaulted ceilings he built on Minkow’s instructions. Another told of thousands of dollars Minkow spent hiring spectators to cheer on the women’s softball team he sponsored. A former New York financial officer related how she lost her job when she approved a loan for Minkow after he flew her to California and took her out to a romantic, seaside dinner.
Prosecutors played a videotape of Minkow’s televised anti-drug campaign--"My Act Is Clean. How’s Yours?"--then introduced evidence that Minkow had used cocaine himself and supplied money for employees to buy the drug.
The defense also was stung by a series of rulings from U.S. District Judge Dickran Tevrizian, who refused to allow evidence that one of the alleged organized crime figures Minkow claimed had engineered the fraud, Encino financier Maurice Rind, had been convicted of stock fraud in the past.
Tevrizian also barred the defense from presenting any evidence about previous racketeering and extortion convictions of many of those involved at ZZZZ Best, as well as evidence that they had threatened other ZZZZ Best employees. The result, defense lawyer David Kenner said, was that jurors never had a fair chance to evaluate whether Minkow’s fear of his associates was reasonable.
“I think the court had to wrestle with some very difficult legal principles, and I think these principles will be reviewed (on appeal),” Kenner said, adding that neither he nor Minkow were surprised by the verdicts.
“I think Barry was realistically aware of the fact that the nature of the duress defense made an acquittal unlikely, given the state of the evidence” permitted by the court, he said.
But he said the jurors’ verdict against Minkow on all 57 counts “means they listened to the argument. I told the jury that Barry was either guilty of everything, or not guilty of anything.”
Prosecutors belittled the duress defense, indicating that they were armed with nearly a dozen former ZZZZ Best employees and associates who were ready to testify that Minkow was calling the shots and enjoyed relatively friendly relations with many of the men he claimed to fear, regularly sitting around in his underwear with one of them, smoking cigars.
During closing arguments, the prosecution characterized Minkow as a “natural predator” and a “pathological liar” whose motivation was not survival but power, prestige and money.
“I think what we can rely on is what the jury said 57 times: no duress,” Assistant U.S. Atty. Gordon Greenberg said after the verdicts.
The co-prosecutor in the case, Assistant U.S. Atty. James R. Asperger, said the government was pleased with the verdict and plans to seek a “substantial” jail term for Minkow at his sentencing Feb. 21.
After the verdict, jurors continued deliberating on a second defendant in the case, Marina del Rey accountant Norman Rothberg, 52, accused of accepting a $25,000 bribe for recanting information about the ZZZZ Best fraud that he had given to the company’s outside accountants.
Besides Minkow and Rothberg, 10 others were charged by a federal grand jury with assisting in the fraud at ZZZZ Best. All 10 pleaded guilty.
Minkow had appeared to be a classic American success story. He was widely portrayed in print and on television as a working-class youth who built a carpet-cleaning empire from scratch through determination and hard work, the “Rocky of Rugs.”
At 15, he started ZZZZ Best in his family’s Reseda garage with three employees, four phones and $6,200 saved from evening and summer jobs. He said he picked the name “ZZZZ Best” so there was one “Z” for each of the four children he ultimately planned to have.
As his business grew, so did Minkow--literally. Angered by the bullying he had to endure as a young man, Minkow said, he became a serious body builder, working out at the San Fernando Valley gymnasium where he eventually met two of the men who would later go on to participate in the ZZZZ Best fraud.
He was portrayed by associates as a vain, self-conscious young man who surrounded himself with expensive cars and beautiful women, and insisted that all employees--even his mother--call him “Mr. Minkow.” He promoted his success story through a self-published autobiography, a public relations firm, large contributions to charity and participation in anti-drug campaigns. He also became something of a public figure by starring in his company’s television ads--promoting ZZZZ Best as a “clean” alternative to dishonest carpet cleaners.
In late 1985, Minkow began to display his growing wealth. He paid $698,000 for a large Mediterranean-style home in a gated community in Woodland Hills and drove a red Ferrari.
In January, 1986, ZZZZ Best became a public company and in early 1987, with its reported revenue soaring, the firm’s stock rose from $4 a share to more than $18. Its rapid rise created paper fortunes for many, including its founder. Minkow’s holdings alone were valued at more than $103 million by the time he reached the age of 21.
The company grew to have 21 offices and 1,030 employees in California, Nevada and Arizona.
But banks and others who had loaned ZZZZ Best money began scrutinizing the company after The Times disclosed in May, 1987, that it had overbilled customers by $772,000 by inflating their credit card charges.
Minkow resigned, ZZZZ Best entered Chapter 11 bankruptcy proceedings in July, 1987, and the remaining board of directors sued Minkow and some of his associates, alleging fraud and theft.
That same month, Los Angeles Police Chief Daryl F. Gates told a news conference Minkow’s company was under investigation for laundering drug profits for East Coast organized crime families. None of the ZZZZ Best defendants in the federal indictment were charged with this, however.
Federal and local authorities have said that they are continuing what they call the organized crime phase of the ZZZZ Best case.