Michael K. Shaub, January 31st, 2014
Barry Minkow is a classic rags-to-riches American story. Or maybe it’s more like a rags to riches to orange jumpsuit to crime fighter to clerical collar to fraudulent short-seller to multimillion dollar church embezzlement story. He is currently serving a sentence for insider trading related to false accusations against homebuilder Lennar Corp. that drove its stock down while he shorted it. But he also pled guilty last week to embezzling $3,000,000 from the church he pastored, San Diego Community Bible Church. Even now, after all I have known about Minkow through the years, his chutzpah floors me. He was able to convince the court that he committed the Lennar fraud to fund his addiction to Oxycontin, potentially shortening his sentence because of his participation in a drug treatment program. If I was a guard, I would be checking his cell every thirty minutes.
About the time Minkow was pulling off his first major scam by taking the company he started as a teenager, ZZZZBest, public, I was busy in a Ph.D. program learning the ins and outs of accounting ethics and fraud. His very public fall, and the subsequent video interview he gave in prison to Joe Wells, helped to jump start Wells’s Association of Certified Fraud Examiners and the CFE designation. His folksy discussion of how easy it was to fool people, particularly auditors, brought home the need for serious attention to forensic accounting. He was the face of fraud for CPAs, giving a dry science a red-blooded American mythical character. And he was able to build on that reputation after he was released from prison by helping search out numerous frauds and founding the Fraud Discovery Institute. He also rebuilt his personal reputation by serving first as a pastor of evangelism in one church, and then as the senior pastor in the San Diego church.
And he wrote books. Oh, did he write books. Ever the self-promoter, Minkow was involved in numerous book projects that all told essentially the same story of his rise and fall. I found a number of copies of one of his books in a second-hand bookstore and gave several away to my graduate students to read. Of course, he was always the hero in the books, whether he was the bad guy pointing out how incompetent financial professionals were, or the repentant criminal mending his ways. Throw a little gospel in there and you broaden your audience. In fact, before the Lennar conviction, Minkow was the star in a motion picture about his own life that was about to be released. The movie co-starred James Caan, Mark Hamill (Luke Skywalker), and Talia Shire (Rocky Balboa’s wife). It is quite possible that he used church funds to support the Fraud Discovery Institute and church members to fund the movie.
I have to admit, even though I teach professional skepticism, I fell for some of his shtick after he got out of prison the first time. He spoke broadly, but I never invited him to class, in part because of the cost, and in part because of a nagging feeling about him. There are reasons for people to tell their failure stories, and I have found that my students are able to identify with what many of them have gone through. One speaker I had last spring gave what was clearly the most influential talk of the semester by sharing her story and accepting responsibility for her choices. But Minkow has always had a different feel to him; none of the others I have come across has been as obviously self-interested as he is.
Yet even now, after he has done untold damage to the two groups I most closely identify with, CPAs and Christians, I find it hard to be angry with him. I am not sure why that is true, because it seems like I ought to be very resentful. He has besmirched the names of many trusting people. He also loves to talk about himself, which must be extraordinarily irritating to those who have known him well.
But his career has paralleled mine, and it is like having the thread of a single life that is hopelessly intertwined with my own story. I was warned in graduate school about pursuing accounting ethics as my research emphasis because it would marginalize me in my field of accounting. But when I looked around at the choices I had for investing my intellect and my research skills, the only one that I could see holding my attention for decades was accounting ethics.
And that, indeed, has held true for me. I have dabbled in several other areas of research, even overinvesting myself in one or two of them in the hopes of being seen as more mainstream. But only accounting ethics has consistently awakened my passion for research, and it does so because of the complexity of the stories involved. Accounting ethics is at the nexus of rational markets and human failure, and studying it has invariably led to rich stories that are easy to make into parables. I suppose that I have a liberal arts flavor to what I teach that is largely unavailable to many of my business school colleagues.
Sometimes these stories play out as Greek tragedy and sometimes as farce, but the truth is that my life would be incomplete without the Barry Minkows of the world. While my faith always makes me hope for redemption in people’s lives, Minkow has already lived the cat’s proverbial nine lives. I have not seen the movie, but I am guessing it is both interesting and a lie. Its investors were only one more group of suckers Barry Minkow left in his wake. They should have known that it was a film that would never be completed. Because with a Barry Minkow movie, you can never really write an ending.