Michael K. Shaub, March 29th, 2011
Barry Minkow’s career has largely paralleled mine, and he has always been to me one of the most interesting personalities to intersect with my profession. His audacious ZZZZ Best fraud still stands as one of the preeminent examples of creating something out of nothing. Perhaps 80 percent of the sales for his public company were completely made up, and he managed to fool auditors and investors long enough that at one time the company had a market capitalization of over $240 million. When they liquidated the company, the total assets brought less than $60,000.
What fascinated me was the fact that Minkow did not slip quietly into oblivion, as so many fraudsters do. While he was serving seven years in federal prison, he was interviewed by Joe Wells, who founded the Association of Certified Fraud Examiners. That interview has been watched by tens of thousands of accounting students, including many of mine. Minkow was completely transparent about the ways he deliberately manipulated audit partners and their spouses to believe a lie and to embrace his media personification as a “boy wonder” entrepreneur. The video is instructive, and it has helped to better calibrate the professional skepticism of many people.
In the 1990’s, after his release from prison, Minkow rebuilt his life on the foundation of a conversion to Christianity and the pursuit of fraud performed by others. I followed this next chapter with interest as well, particularly as it seemed to validate the story of redemption which seems so central to men continuing to have hope after their inevitable failures. While spending 14 years as a pastor, Minkow also founded the Fraud Discovery Institute, and he worked undercover in multiple situations to root out fraud being committed by other companies. The judge who sentenced him was so impressed by the work that Minkow did that he removed all the conditions from his federal parole. Minkow worked closely with law enforcement and gained a reputation for his insights into fraudulent dealings. He even taught fraud courses for the FBI.
The one consistency across the years as a business owner, felon, and fraud detective has been Minkow’s tendency toward self-promotion. Never afraid of a camera, a willing story teller who seems to revel in revelations, he was never far from a press release or YouTube clip. In fact, a major motion picture biography of his life has been made recently, starring James Caan and Mark Hamill (Luke Skywalker of Star Wars fame). The movie’s release and, in fact, its ultimate ending, are uncertain now.
Last week The Wall Street Journal and The Washington Post reported that Minkow has agreed to plead guilty to a securities charge that could land him in prison for five years. He has been accused of falsely citing homebuilder Lennar Corp. with producing fraudulent financial statements, depressing the price of the stock, at the same time he was betting against the stock in the market on supposedly nonpublic information.
Many will write this off as the story of a man who never changed, but there seems much more to it than that. For my young auditors, I would warn them to always be professionally skeptical, and especially of those who tend to promote themselves or focus on themselves. You should not be surprised that these things happen, but you do not need to be cynical about people as a result. Many lives turn, stay turned, and finish well.
What I take to heart for my own life is that we are all vulnerable. Every indication is that Barry Minkow’s spiritual conversion was genuine, and that he has been a mentor to many men, as well as being a good husband and father. The price he will pay in his personal life, what he will have to give up, is much higher now than it was the first time. I need people to watch my back, and to point out to me when I am making myself vulnerable to a fall. I need to be accountable.
Finally, I need to be careful if I find myself drawn to the limelight. If what I want is approval and applause, the price can be very high. That siren call will draw my students as well, and I need to find ways to let them know in advance.
I am sorry to say that, until I become a better lighthouse, the wreckage of Barry Minkow’s ship on the rocks will have to be warning enough.