Ensuring that employees and other stakeholders can anonymously report suspicious activities can be a critical deterrent to fraudulent behavior. This newfound legitimacy lent the company an air of credibility, which further attracted investments and helped inflate the bubble Minkow had created. He charmed the media, and his story of a young entrepreneur making it big became widely publicized. Barry Minkow guaranteed his fraudulent activities were driven by a need to repay organized crime. While praising the Los Angeles office of the SEC, Bonner said SEC procedures in some regions make no provision for automatically referring cases for criminal prosecution.

In particular, thesubcom�mittee was interested in whether Greenspan had discussed the insurancerestoration contracts with the new auditors. Shortlyafter Greenspan completed his audit of ZZZZ Best�s April 30, 1986, fi�nancialstatements, Minkow dismissed him and retained Ernst & Whinney to per�formthe following year�s audit. Apparently, ZZZZ Best�s investment brokerrequested that Minkow obtain a Big Eight accounting firm to enhance thecredi�bility of the company�s financial statements. About the same time, andfor the same reason, Minkow retained a high-profile Los Angeles law firm torepresent ZZZZ Best as its legal counsel. Barry Minkow’s company ZZZZ Best committed serious fraud and is one of the most mind-blowing realized Ponzi schemes ever. Even however Barry was released from jail early, he wasted the second chance and eventually ended up in a lot greater difficulty and ended up back in jail.

With reference to ZZZ Best case, doyou believe that auditors

In the process of creating the fraud, Minkow was able to dupe the auditors, Ernst & Whinney (now EY), into thinking the insurance restoration business was real. In addition, Greenspan performed variousana�lytical procedures to determine that the company�s key financial ratioswere in line with industry averages. The congressional subcommittee was surprised,if not alarmed, that he had not personally visited at least a few of the jobsites. Following the fraud scandals in large companies like Enron, WorldCom, and Xerox, investors’ concern about fraud in general and fraudulent financial reporting in particular increased and is on the rise. In response to these concerns, auditing standards setters have issued fraud standards that have expanded what is required of the external auditors in relation to fraud detection. However, regardless of these efforts, academic research studies indicate that more efforts are still needed from audit regulators and external auditors.

Procedures Performed by Larry Gray to Verify ZZZZ Best’s Restoration Projects:

The company’s financial statements showed massive revenues from these projects, and the allure of high returns enticed many investors and financial institutions. Thecongressional subcommittee was alarmed that forty-five days passed be�fore thecharges of fraudulent misrepresentations in ZZZZ Best�s financial state�mentswere disclosed to the public. By the time Ernst & Whinney�s exhibit letterwas released to the public, ZZZZ Best had filed for protection from itscreditors under Chapter 11 of the federal bankruptcy code. During the periodthat elapsed between Ernst & Whinney�s resignation and its filing of the8-K exhibit letter, ZZZZ Best obtained significant financing from severalparties, including $1 mil�lion from a close friend of Minkow�s.

However, it was actually a front to attract investment for a massive Ponzi scheme. ZZZZ Best collapsed in 1987, costing investors and lenders $100 million in one of the largest investment frauds ever perpetrated by a single person, as well as one of the largest accounting frauds in history. Despite independent audits that certified the authenticity of the company’s financial statements, nearly 85% of ZZZZ Best’s business was a complete fabrication, according to Rep. John Dingell (D-Mich.), chairman of the House Energy and Commerce Committee. The Times reported in May that ZZZZ Best had rung up $72,000 in false credit card charges from November, 1984, to March, 1985. The company laid the blame on a half-dozen subcontractors and six of their employees.

High-end butter is the latest ‘little luxury’ Californians can’t give up despite economic uncertainty

• Eventually, the truth behind the fictitious companies was revealed and the Ponzi scheme was exposed.
• A review of the condensed consolidated financial statements for the comparative period of the prior year was not made.
• By the time Ernst & Whinney�s exhibit letterwas released to the public, ZZZZ Best had filed for protection from itscreditors under Chapter 11 of the federal bankruptcy code.
• He was also placed on five years’ probation and ordered to pay $26 million in restitution.

He was also placed on five years’ probation and ordered to pay $26 million in restitution. District Court Judge Dickran Tevrizian described Minkow as a man without a conscience, rejecting his plea for a lighter sentence as “a joke” and “a slap on the wrist” zzzz best financial statements for someone who had manipulated the financial system. The SEC subsequently banned him from ever serving as an officer or director of a public company again. He served under seven and a half years, most of them at Federal Correctional Institution, Englewood.

Whenthe extremely negative and revealing article regarding Minkow appeared in the LosAngeles Times in mid-May 1987, the collapse of ZZZZ Best was proba�blyinevitable. Several years earlier, a homemaker had fallen victim to Minkow�scredit card forgeries. Minkow had added a fraudulent charge to the credit cardslip the woman had used to make a payment on her account. The woman never forgotthe insult and industriously tracked down, and kept a record of, the individualswho had been similarly harmed by Minkow. At the urging of this individual, are�porter for the Los Angeles Times investigated her allegations. Thewoman�s diary eventually became the basis for the Los Angeles Times articlethat, for the first time, cast doubt on the integrity of the �boy wonder�who was the talk of Wall Street.

Using a spreadsheet program and the ZZZZ Best financial statements provided in Tables 5C-1 and 5C-2,

Morse was well versed in the building history and in the work scope for ZZZZ Best. The tour was beneficial in gaining insight as to the scope of the damage that had occurred and the type of work that the Company can do. We were informed that the damage occurred from the water storage on the roof of the building.

Exhibit 2 presents the memorandum Gray wrote describing his tour of thebuilding�a memorandum that was included in Ernst & Whinney�s ZZZZ Bestworkpapers. After his early release in 1995, he became an ordained minister and served as a pastor of a church in California. The scandal underscored the need for strong regulatory oversight of financial markets. Enhanced regulations and stricter auditing standards can help prevent such fraud from occurring in the future. The ZZZZ Best scandal had far-reaching implications, leading to increased scrutiny and regulatory changes for public companies and those aspiring to go public.

How one bad deal derailed this prominent L.A. financial services firm

Although this case dates back over 30 years, it does serve as an example of what can happen when auditors do not look too hard to find fraud. Robert C. Bonner, U.S. attorney in Los Angeles, said auditing firms ought to be required to contact law enforcement authorities when suspicions arise. Minkow was 15 when he founded ZZZZ Best in his parents’ garage in suburban Los Angeles, 18 when he made his first $1 million and 21 earlier this month when he and 11 others were charged with swindling nearly $70 million from banks and investors. Minkow, who was convicted by a federal court jury Dec. 19 on 57 fraud counts, is scheduled for sentencing Feb. 21. Even before he hired an attorney, Morze said, he began contacting ZZZZ Best board members, notifying them that the insurance restoration work was a hoax and offering to make reparations. Restoration work previously announced by ZZZZ Best include contracts in Tempe, Ariz., Oakland, and Dallas.

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• On that date, no one other than Ernst & Whinney and ZZZZBest�s officers was aware of the firm�s resignation.
• ZZZZ Best, founded by Barry Minkow, serves as a cautionary tale in financial history as one of the most notorious Ponzi schemes.
• Although the building had not been damaged and insteadwas simply in the process of being completed, the sting operation went off asplanned.
• Lenders started to call their loans and more examinations initiated, unwinding Minkow’s dark web of duplicity and fraud.
• Finally in 1996, Minkow began hosting a syndicatedradio talk show in which he discusses his personal views on financial andspiri�tual matters.
• During the past month several class-action suits have been filed against Minkow and ZZZZ Best alleging that the company made misleading statements in its stock prospectus last December.

Independent certified public accountant (CPA) firm Ernst & Whinney (now Ernst & Young) audited ZZZZ Best’s financials to provide an opinion as to whether the financial statements were free of material misstatement. Barry Minkow was convicted on 57 counts of securities fraud, embezzlement, money laundering, and other charges. In 1988, he was sentenced to 25 years in federal prison and ordered to pay $26 million in restitution.

Stuck with a Question?

There was a Barry Minkow film made in 2011 that was eventually released in 2018, named Con-Man. In January of 2022, a docuseries named King of the Con was released on Discovery+. It is the story of a 15-year-old boy from Reseda, California, who was driven to be successful, regardless of the costs.