A:

At 18, Barry Minkow was the youngest CEO to ever take a company public. At 20, he was the youngest CEO to be indicted for securities fraud.
Barry Minkow ran a carpet cleaning company, became the youngest person to take a company public, and very nearly merged it into the largest carpet cleaning company in the country. Although this sounds like a page out of the American dream, it unraveled to become another scandal in a decade that saw Ivan Boesky, Michael Milken, and Charles Keating go down.

Minkow started his carpet cleaning business, ZZZZ Best, at the age of 16 and was in debt troubles from the beginning. In order to meet payroll and equipment needs, Minkow used check kiting and resorted to private loans that were rumored to be connected to the mafia. Facing mounting problems, Minkow began fudging invoices for insurance restoration services for which ZZZZ Best was neither licensed or contracted. Parlaying this paper cashflow into more debt, ZZZZ Best was able to expand even while it was financially unstable. In hopes of finding a way out of debt, Minkow decided to take ZZZZ Best public.

Through various methods of deceit, including fake books, false offices, and claiming the work of other companies as his own, Minkow passed the independent audits and became the youngest person to undertake an IPO in 1986. The IPO made Minkow a paper millionaire but did little to solve the fraud the company was built on. Minkow tried to break into legitimacy by merging with a larger carpet cleaner, but the high profile of Minkow and the deal proved his undoing. Ties to the mafia, allegations of money laundering, reams of paper fraud, and years of operation without an actual profit brought ZZZZ Best crashing down.

Minkow went from owning $100 million of a $300 million company to facing jail time as the result of concurrent SEC and FBI investigations. Minkow served time in prison and is still paying reparations to the investors who lost over $100 million as a result of his fraud. In an ironic twist, Minkow has went on to work for the Fraud Discovery Institute to catch people running schemes similar to his own. (Read about other fraudsters in our article The Pioneers Of Financial Fraud)

This question was answered by Andrew Beattie.

RELATED FAQS
  1. Why was the accountant responsible for auditing ZZZZ Best unable to determine that ...

    Find out why the accountant responsible for auditing ZZZZ Best couldn't determine that the company was engaged in a Ponzi ... Read Answer >>
  2. What was "Operation Wooden Nickel"?

    On November 19, 2003, the Commodity Futures Trading Commission (CFTC) and the FBI announced the completion of an 18-month ... Read Answer >>
  3. What is accounting fraud?

    Learn what accounting fraud is, why a company commits account fraud and some types of accounting fraud that misrepresent ... Read Answer >>
  4. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    Learn the effects the Sarbanes-Oxley Act has on corporate governance in the United States, including strict disclosures, ... Read Answer >>
  5. Does identity theft or credit card fraud also occur with cash-on-delivery?

    Understand the process of cash on delivery (COD) as well as where identity theft and fraud may occur and some techniques ... Read Answer >>
Related Articles
  1. Insights

    The Ghouls And Monsters On Wall Street

    Learn about some of the creepiest cases of fraud and the characters behind them.
  2. Insurance

    What is Insurance Fraud?

    Fraud exists in every type of insurance, although the stakes tend to be highest with life insurance.
  3. Retirement

    What Social Security Fraud Costs You

    Taxpayers lose billions of dollars every year, according to Social Security fraud statistics. What to look for.
  4. Insights

    How to Protect Yourself From Credit Card Fraud

    Credit card fraud is sharply up. Learn the worst types and how to protect yourself.
  5. Insights

    Detecting Financial Statement Fraud

    Find out how to tell if a company is manipulating its financial data, so you don't invest in the next Enron.
  6. Insights

    4 History-Making Wall Street Crooks

    Find out how these Wall Street high-rollers landed themselves in hot water.
  7. Insights

    The Most Common Types Of Consumer Fraud

    You’re less likely to become a victim of consumer fraud if you know about these common scams and how to avoid them.
  8. Insights

    Baby Boomers Beware: Financial Fraud That Targets Seniors

    Unfortunately, you can never retire from being the target of financial scams.
  9. Investing

    6 Things You Think Add Value To Your Home - But Really Don't

    Even though you may enjoy the improvements you make to your house, it doesn't mean that they'll increase its value.
  10. Retirement

    Are We Looking At A Retirement Age Of 70 Soon?

    Other countries have been hiking their retirement age. What would make the U.S. government go in that direction?
RELATED TERMS
  1. ZZZZ Best

    A company owned by Barry Minkow in the 1980s. Through such means ...
  2. Fraud

    Fraud, in a general sense, is an intentionally deceptive action ...
  3. Tax Fraud

    Tax fraud occurs when an individual or business entity willfully ...
  4. Association Of Certified Fraud Examiners

    An organization that was created to combat fraud and deception ...
  5. Mortgage Fraud

    Intentionally falsifying information on a mortgage loan application. ...
  6. Insurance Fraud

    An illegal act on the part of either the buyer or seller of an ...
Hot Definitions
  1. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  4. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  5. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
  6. Custodian

    A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. ...
Trading Center