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. What are examples of inherent risk?

    Explore two famous examples of inherent risk with the collapse and ultimate bankruptcy of Lehman Brothers and the downfall ...
  2. What is the difference between wash trading and insider trading?

    Explore the differences between two trading practices, wash trading and insider trading, and find out why these practices ...
  3. 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, ...
  4. Who are the most famous people convicted of insider trading?

    Learn about some famous people who were convicted of illegal insider trading and find out about the reasons for their criminal ...
RELATED TERMS
  1. Financial Action Task Force (FATF)

    An intergovernmental organization that designs and promotes policies ...
  2. Banker Trojan

    A malicious computer program designed to gain access to confidential ...
  3. Black Market

    Economic activity that takes place outside government-sanctioned ...
  4. Bear Raid

    The illegal practice of ganging up to push a stock's price lower ...
  5. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  6. Financial Shenanigans

    Acts or actions designed to mask or misrepresent the true financial ...

You May Also Like

Related Articles
  1. Stock Analysis

    A New Economic Threat: State-Sponsored ...

  2. Investing News

    Will Bitcoin And Walmart Force Western ...

  3. Active Trading

    What Is A Pyramid Scheme?

  4. Trading Strategies

    What Is The Difference Between After-Hours ...

  5. Stock Analysis

    Bernie "Made-off" With Banks' Billions

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!