From Ponzi to Insider Trading – the Life of Barry Minkow

The boy wonder business sensation of the 1980’s, convicted con man, confidential informant, celebrated fraud buster, and church pastor – Barry Minkow – is set to plead guilty to allegations of securities fraud in South Florida.

The ex-con turned fraud crusader stands accused of defaming homebuilder Lennar Corp. and using his status as an FBI informant to get insider information that was later used in stock trades for his personal benefit.

Barry Minkow, 44, of San Diego, has been charged with conspiracy to commit securities fraud by buying Lennar stock short, then releasing damaging information, causing the stock to drop, according to the federal complaint. Investors who “short” a stock make money when the stock’s price falls.

Charged by criminal information rather than indictment, Minkow has agreed to plead guilty to the charge, filed in Miami, and will “take responsibility for what he did,” said Alvin Entin, his attorney.  He faces a maximum of five years in prison.

Lennar CEO Stuart Miller issued a statement Thursday morning:

“The criminal activity described in the government’s filing has been a continuing assault on our company for several years. We are pleased that the government is pursuing the responsible parties. We intend to cooperate fully with the government’s ongoing investigation.”

Minkow’s latest actions cloud a tale of redemption that began with a federal prison stint for orchestrating the ZZZZ Best stock scam two decades ago.  Following his release, Minkow was credited with uncovering numerous instances of corporate fraud through his Fraud Discovery Institute and with becoming a church pastor. 

The complaint filed Thursday revealed that Minkow had become a “confidential human source” for the Federal Bureau of Investigation.  His allegations prompted the FBI to open a federal investigation into Lennar, although the complaint filed have now proven the assertions “false and misleading.”

The U.S. Attorney’s Office for the Southern District of Florida accused Minkow of pressuring Lennar into paying off a disgruntled business partner, identified as “Conspirator A,” by releasing damaging information. The complaint stated:

“The purpose of the conspiracy was for the defendant and his conspirators to artificially manipulate and depress Lennar’s stock price to induce Lennar to make payments of cash and common stock to Conspirator A and to otherwise unjustly enrich the defendant and his conspirators. …

“In late 2008, Conspirator A hired BARRY MINKOW to induce Lennar to pay Conspirator A the money allegedly owed. According to the shared unlawful plan, MINKOW would apply economic pressure on Lennar by, among other things, artificially depressing the price of Lennar’s common stock.”

Minkow’s allegations were widely distributed in news releases, on the Internet, on YouTube and by emails, calling Lennar “a financial crime in progress” and likening Lennar to Enron by calling it “Lenn-Ron.”

Minkow and his company, the Fraud Discovery Institute, accused Lennar of defrauding small developers it was associated with.  He also accused Jonathan Jaffe, a top Lennar executive, of getting a virtual payoff when taking out a $5 million home loan on his Emerald Bay home.  Minkow alleged that Jaffe’s home was “over-encumbered.”

Lennar sued, saying that Minkow’s “false” allegations caused a 58 million-share sell-off of Lennar’s stock and a 20 percent price drop.  A Florida judge sanctioned Minkow last year for filing false documents in that suit and ordered him to pay damages and attorneys’ fees to Lennar for “litigation misconduct.”

The case was another dramatic twist in an improbable career.

Minkow became a teenage millionaire as founder of the carpet-cleaning company ZZZZ Best, which made a splash on the stock market. But much of the company’s purported revenue was derived from imaginary clients.  In a 1996 Washington Post profile, Minkow recounted how he fooled auditors by fabricating checks with a razor blade and correction fluid.

The scam was revealed when ZZZZ Best claimed it was doing work in a five-story office building in a town where no building was taller than two stories.

After spending several years in federal prison, Minkow embarked on a new career trying to expose financial scams, creating a business called the Fraud Discovery Institute.

He taught courses in fraud detection and worked closely for a variety of law enforcement agencies, including the Federal Bureau of Investigation, the Securities and Exchange Commission, the Internal Revenue Service, and for federal prosecutors. 

In 2005, Minkow released an autobiography titled, “Cleaning Up: One Man’s Redemptive Journey Through the Seductive World of Corporate Crime.”

“Before he was even old enough to drink, he had bank accounts, a Ferrari, a mansion, a multi-million dollar corporation, and a desperate little secret . . . it was all a lie,” the description at says. “Cleaning Up is Barry Minkow’s comeback story — a powerful a tale of redemption and inspiration, of second chances and setting things right.”

In the 1996 Washington Post profile, Minkow said he had turned his life around.

“If you don’t have a change of heart, you are always going to go right back to what you did before,” he said. “In my case, that was fraud.”

At Minkow’s Community Bible Church in San Diego, they indicate he has resigned as pastor.

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