Carpets, Markets And Rackets

Recent events brought back memories of a chapter I once read (or rather heard in an audio book) from A Random Walk Down Wall Street by Burton Malkiel. First published in 1973, Random Walk has been revised many times. One of the later editions included an interesting Walk Street saga. This is the story of child prodigy Barry Jay Minkow. I regard him as a legend of sorts and as the Chinese would say, 真服了他. Want to know why? Read on.

Barry Minkow was born to a Jewish family on March 22, 1966 in Inglewood, California and he was raised in Reseda, Los Angeles. When he was 9, he was already familiar with the carpet cleaning business as he often followed his mother to the shop where she worked. He was so interested in the business that at age 10, he was already earning some money cleaning carpets. At the age of 15, while a sophomore at Cleveland High School, Minkow had saved up $6,000 from his summer jobs and he did something unthinkable for most teens. He bought some steam cleaning equipment and started a carpet cleaning company called ZZZZ Best (pronounced “Zee Best”) in his parents’ garage. As he was too young to drive, he had friends drive him to collect and deliver his customers’ carpets. He later hired delivery men.

Minkow worked very hard, but unsurprisingly, the going was tough initially. Banks closed his accounts and refused to deal with minors. He was also not able to sign contracts. Undeterred, Minkow hired his parents and worked a punishing schedule. He struggled and surprised the doubters by not only surviving but thriving after 5 years into the business. By age 18, he was a millionaire. A friend then asked him to list his company on NASDAQ!

Minkow launched a massive TV advertising campaign portraying ZZZZ Best as a carpet cleaner that Southern Californians could trust. He seized every opportunity for publicity and self promotion. He designed a logo, bought a red Ferrari and a BMW emblazoned with it, attracting attention everywhere he went. He even bought a mansion in the wealthy Valley community of Woodland Hills. He wrote a book entitled Making It In America in which he pointed out that most teens couldn’t do what he could because they were too lazy. He would later announce that he had ambitions to make the company “the General Motors of the carpet-cleaning industry.”

An audacious declaration like that spun off more news coverage and made Minkow a very famous man. When ZZZZ Best went public in December 1986, it had a market capitalisation of $200 million and 1300 employees on its payroll. Minkow appeared on Oprah as the boy genius of Wall Street and eagerly volunteered to record anti-drug messages with the slogan: “My act is clean. How’s yours?”

Minkow went further. He boasted that his company was better run than IBM. He told Wall Street that he would fire his own mother if she stepped out of line and made no apologies about running his company with an iron fist. Anyone who argued with him was instantly fired. The market loved it. At it’s height, shares of ZZZZ Best were trading at 100 times earnings. A few analysts even pronounced that investors won’t go wrong with this stock.

The very next year in 1987, ZZZZ Best shocked the market. Investigators revealed that the company was not only cleaning carpets but also laundering money for the mob! Further investigations opened more cans of worms. In fact, ZZZZ Best was never profitable. In the beginning, Minow had financed his business via check kiting, stealing and selling his grandmother’s jewellery, staging break-ins at his offices to claim insurance and running up fraudulent credit card charges. After graduating from high school in 1985, Minkow got a loan from Jack Catain, a Los Angeles businessman who had ties to organised crime. Other organised crime figures turned up as Minkow’s advisers and his employees got worried. For instance, a major shareholder, Maurice Rind, had been convicted of securities fraud in 1976. Minkow was also a business partner with Robert Viggiano, a convicted jewel thief and reputed loan shark.

To cover up his tracks, Minkow also created a fictitious company, Interstate Appraisal Services, to issue documents that fraudulently confirmed that ZZZZ Best was hired to do refurbishing work for buildings that had suffered fire and water damage. The appraisal company generated documents to create the appearance that insurance companies had hired ZZZZ Best to perform the restoration work and made money from it. Both investors and bankers developed an interest in ZZZZ Best based on fraudulent financial statements produced by Minkow’s shadow firm.

Upon conclusion of the investigations in 1989, Minkow was convicted of fraud and sentenced to 25 years in prison. It was a shocker. The judge ignored his plea for leniency, pointing out that Minkow’s gift of the gab, his lack of conscience and his media savvy nature made him a dangerous man. During his time in prison, Minkow turned from fraudster to fraud buster and informant. He began to research and uncover other businesses that were doing business fraudulently and informing the federal government. Based on the dollar amount of fraud he eventually uncovered and the number of fraudsters he helped prosecute, Minkow’s sentence was reduced to just over seven years. While in prison, Minkow also converted to Christianity. He studied theology and earned himself several degrees. When he was released in 1994, he became a church pastor (later senior pastor) at Community Bible Church in California.

This could have been a wonderful ending to a story of someone turning over a new leaf, but there’s more. As expected, Minkow drew huge congregations to his church. His followers listened to his preaching with rapt attention and were practically mesmerised by his evangelical style. He continued to write books and was even hired as special adviser for the FBI as a fraud spotter. His former prosecutor later made a public remark that Minkow has made a drastic turnaround and uncovered more fraud that he had ever perpetrated. He again appeared on Oprah, this time as a reformed man and repeated the same tune on 60 Minutes. Just as with his business success, the public went crazy, driven to tears by Minkow’s story. In 2010, a movie entitled Minkow was shot with Minkow starring as himself. It was touted as a powerful tale of redemption and inspiration.

The “final” (or latest) twist occurred in 2011 when Minkow was sentenced to 5 years in prison for securities fraud and insider trading. The makers of Minkow the movie scrambled to make changes to the movie before its released. In 2014, while still in prison, he was found to have embezzled a total of $3 million from San Diego Community Bible Church from various individuals by various means. His theft included stolen donations and an unauthorized church loan. He pleaded guilty and was sentenced to a further 5 years in prison. Many of the victims, by then in shock by his extreme hypocrisy and total lack of remorse, felt that the punishment was inadequate but the court argued that it was all part of a plea bargain. Let’s all look forward to Barry Minkow striking again with another impressive performance when he is released, perhaps in 2018.

© Chan Joon Yee

Dewdrop Books