Pacing up and down the aisles like a talk-show host, Barry Minkow exhorts his audience of accountants to stop cozying up to their corporate clients.
"You're perceived as the corporate cop," he tells them. But auditors aren't doing their job, he says, if they let someone like him create 20,000 phony documents and then sweet-talk them out of checking his records properly.
"When the auditor comes in, he's ready to fight," Minkow says as he jumps into a boxing stance. As a con artist, he says, he offers friendship to distract the auditor from diligently reviewing corporate financial records.
Minkow should know the routine. He's lived it.
At a time when the Charles Keatings were the saviors of the savings and loan industry and the Michael Milkens were the barons of Wall Street, there was the fresh face of youth and innocence in an enterprising kid named Barry Minkow.
As a 16-year-old, Minkow started the ZZZZ Best carpet cleaning business in the garage of his parents' Reseda home and built it into a public corporation worth $280 million.
But by the time he was 21, before the catastrophic collapses of the Keatings and the Milkens of the world, Barry Minkow was awash in one of the biggest financial scandals of the time. He had built much of ZZZZ Best on phony revenue, and he defrauded investors and lenders of $26 million. He was convicted in 1988, and spent the next seven years and three months in prison.
Now Minkow, only 29 and studying for a master's degree in divinity, is doing penance, trying to atone for his misdeeds by taking to the lecture circuit and hawking his autobiography, "Clean Sweep," as well as a boxed, three-tape video on fraud detection called "Fraudo-Dynamics."
Most proceeds from the sale of his book and tapes, as well as from his lectures, he said, go directly to a trust fund for ZZZZ Best victims. Proceeds from the movie rights to "Clean Sweep" go to his lawyer. Minkow is reimbursed only for out-of-pocket expenses and for pay he loses on the lecture circuit for missing work as a clerk at his lawyer's firm.
Since his release in April from a halfway house, the glib, charismatic Minkow has regaled about 30 audiences with revival-like preaching about the ways of con artists. Bankers, business executives, college students and law enforcement authorities around the nation have heard him.
Thursday in Irvine, about 100 accountants got an earful. At first skeptical, they became mesmerized during Minkow's hourlong talk at an all-day seminar put on by Cal Accountants Mutual Insurance Co., which specializes in insuring accountants.
CAMICO wants the auditors it covers to look more diligently at possible fraud, not only to halt possible losses to victims but to curtail insurance costs. The insurer has paid about $30 million on fraud claims since 1986, said Ronald B. Klein, the company's vice president of claims and loss prevention. So what convicted swindlers like Minkow have to say is important to a fraud detection program, he said.
Minkow takes up the challenge in showman-like fashion, playing the audience much like he did investors, bankers, lawyers and accountants in his heyday. His rapid-fire talk runs the gamut from bombastic exhortations to whispering advice and axioms: "Wealth-driven appetites are unsatiable."
He throws out questions about hypothetical auditing situations--"What would you do?"--and pats a few on their shoulders when they answer. "That's right, Paul," he says after a quick look at the name tag.
He admits his swindle upfront, but in a talk to auditors on fraud, he also points out how professional accountants could have caught him easily.
"Listen to me, folks," Minkow tells his audience. Closing his eyes, he paints a scene at a warehouse where an auditor is about to sample inventory to make sure a company has the products it says it has.
A 10-foot stack of boxes--sealed and ready to be shipped that day to a customer--stands alongside a container that the owner says is a sample of the products being shipped. The auditor checks the prepared sample and never opens the sealed stack, which is filled with rocks.
"We anticipate what you do and prepare a con for it," Minkow says. "Think outside the box" of files and documents accountants usually pore over.
"This stuff's happening," he said. "Don't give up objectivity for convenience."
Minkow displays a copy of a canceled check--front and back--payable to ZZZZ Best. A Van Nuys insurance appraisal firm was paying the carpet cleaning company $212,404.97 for restoration work. ZZZZ Best's auditor wants to see the check to verify the company's income, part of the auditor's typical sampling.
Minkow turns over a photocopy, telling the auditor that he photocopies all checks to help the auditing process go more smoothly and efficiently. The auditor accepts it.
Had the auditor gone to the bank to ask for a copy of the check, Minkow tells his audience, the auditor would have found that it didn't exist. The photocopy was a piece of artwork: a cut-and-paste job from several other checks.
"Fraud is the skin of truth stuffed with a lie," Minkow says.
ZZZZ Best did do restoration jobs, he said, but phony revenue from such projects is what built the company and attracted $15 million in an initial public offering and about $2 million in a private placement. It's what attracted bank loans totaling $9 million. But his company was little more than a Ponzi scheme, finally collapsing when he had no more funds from new investors to pay off old ones.
At his sentencing before U.S. District Judge Dickran Tevrizian, Minkow apologized to the victims of his fraud and vowed to repay them. In a spirited speech to the judge, he admitted that prosecutors "got the right guy" and that he deserved to be punished.
"El toro poo-poo, that's what I'm hearing," Tevrizian said then in sentencing him to prison for 25 years and ordering him to pay $26 million in restitution. "You're dangerous because you have this charisma, this gift of gab, this ability to communicate, but you have no conscience."
Minkow said he took to heart what the judge and others said about his wasted talents. He turned to Christian fundamentalism in prison, but says he's not a born-again-until-you're-out Christian. He earned three correspondence degrees from Jerry Falwell's Liberty University while in prison, and he's in training now as a minister at a nondenominational church in the San Fernando Valley.
Minkow served more time than fellow financial felons Michael Milken, Ivan Boesky and Leona Helmsley combined, and Tevrizian eventually sent a letter to prison officials saying Minkow had been behind bars long enough.
But while in prison, he met and became friends with such felons as Steven D. Wymer, whose Newport Beach companies bilked $105 million from cities from Orange County to Iowa, and Andrew Ligget, a convicted executive in Keating's Lincoln Savings & Loan scandal. Ligget's wife introduced Minkow to one of her friends, whom Minkow married earlier this year.
He said he didn't intend to write a book when he went into prison and didn't know how he was going to repay his victims. But in 1990, he started working on an autobiography, and his plans eventually evolved toward lecturing and writing about fraud.
As he moves along the lecture circuit at a clip of three or four appearances a week currently and works on a novel, Minkow is driven by another motive besides repayment and atonement. He wants to pave the way for Wymer and other white-collar felons who come out of prison to gain acceptance in society more easily and quickly.
"I admit what I did, and I don't care what people say about me," he said in an interview after his talk. "But others aren't so willing to speak out. It's tough coming back to society."