Minkow’s Latest Chapter Marks a New Low

GUEST BLOGGER

Scott Patterson, CFE
ACFE Senior Media Specialist

Barry Minkow has been sentenced to prison for five years for committing fraud. Again. The former entrepreneurial whiz kid is no stranger to running afoul of the law, using financial trickery to make money under false pretenses. He did it during his reign as a teenage business owner with ZZZZ Best Carpet Cleaning in Southern California. Years later, after being “reformed” in prison, Minkow fell again when he lied about Lennar Corp. in investigative reports he produced through his Fraud Discovery Institute. His latest conviction, however, is not related to those noteworthy cases.

This time, it’s different.

This time, the victims of Minkow’s schemes welcomed him into their homes, into their family circles. They trusted Minkow with more than just money – they prayed and worshiped with him, following him as members of San Diego Community Bible Church. Minkow served as the church’s head pastor, claiming to have found redemption while in prison and becoming a self-avowed man of God. Through his new vocation, he also found another way to ingratiate himself to people who would willingly give him money for all sorts of important causes, such as a nonexistent hospital in Africa.

When all was said and done, according to prosecutors, Minkow had enriched himself to the tune of $1.6 million. Read more about this discouraging story on ABC News, or in one of the many other news articles covering Minkow’s latest fall from grace. 

Did I mention there is a movie in the works about him? The film is being created as a feature piece starring none other than Minkow (playing himself, naturally), along with other names from Hollywood including James Caan and Ving Rames. See the movie’s trailer – it appears to be a rather ambitious telling of Minkow’s story, and it will now need some major revisions, obviously. His latest conviction should see the tale take a winding, perhaps unexpected turn to reveal the falseness of Minkow’s redemption.

For some fraudsters, prison becomes a familiar place. In September 2012, The Fraud Examiner e-newsletter included a video feature “Hard Time for Fraud.” The video above showcases excerpts from interviews with several repeat offenders, Minkow among them (along with Kenneth Kemp, Steve Comisar and Barry Webne).

Minkow was interviewed in prison by ACFE founder and Chairman Dr. Joseph T. Wells, CFE, CPA, for “Cooking the Books: What Every Accountant Should Know About Fraud,” a video/workbook course published in 1991. At the time of the interview, Minkow was serving his first sentence for the ZZZZ Best scandal. In the video, Minkow explains that he had problems “being an egomaniac.” He discusses learning accountability in prison, and his plans for righting the wrongs he has committed “as long as I keep the ego out of it, can learn from my past mistakes, can be involved in helping future people (who) make my mistakes, and run perhaps some kind of entity where I could earn money legitimately, help society and pay back those people that I hurt…”

So much for that plan.

March Badness: Last Month’s Biggest Fraud Stories

AUTHOR'S POST

Mandy Moody
ACFE Social Media Specialist

Reformed fraudster falls off the wagon
Former entrepreneurial whiz kid and convicted fraudster, Barry Minkow, struck a deal with federal prosecutors over his most recent fraud scheme involving Lennar Corp. Minkow’s first appearance in the spotlight was when he founded his wildly successful carpet cleaning business at just 16. He then reappeared in 1988 after after it was discovered his business was Ponzi scheme and sentenced to seven years in prison. Upon his release, Minkow claimed to be reformed, established the Fraud Discovery Institute, helped out the FBI and became a minister. However, his reformation was short-lived, as we witnessed his public fall from grace last week. Read more.

Judge denies dismissal of Texas brothers’ fraud suit
Brothers Charles and Sam Wyly are accused of using offshore entities to hide stock transactions involving four of their companies, thus breaking SEC reporting requirements and profiting more than $550 million over 13 years. U.S. District Judge Shira Sheindlin swiftly rejected the requests for dismissal and declared the show must go on. Read more.

Stewardess can’t handle the weight of coin fraud
The assistance so kindly offered by a customs official to a Lufthansa flight attendant struggling to lift her suitcase at a German airport led to the discovery of an international coin fraud ring totaling more than $8.4 million. Six people were arrested and are suspected of rebuilding smuggled coins that had been taken out of circulation and were disposed of as scrap metal. The investigation is ongoing while the operation has been grounded…for now. Read more.

Read more fraud news at FraudInfo.com.

Are there any stories I missed? Leave your comments below.

What Can Baseball Teach You About a Background Check?

GUEST BLOGGER

Brian Willingham, CFE
President, Diligentia Group
Brewster, N.Y.

Bill James revolutionized the way that people look at baseball players. Sabermatricians, as his followers would later be known, felt that there was a direct correlation between a player’s past and future performance. Instead of relying on the subjective judgments of baseball scouts, James compiled objective statistics and analysis to measure a player’s performance, thus helping to predict future performance.

“Brady Ball”

A great example of Bill James’ method happened in 1996, when Baltimore Orioles slugger Brady Anderson hit 50 home runs in 687 plate appearances (equivalent to one home run for every 13.7 plate appearances), while in his previous three seasons, he hit a total of 41 home runs in 1,846 plate appearances (one home run for every 45 plate appearances).  

It’s clear that Anderson’s past performance did not correlate with his breakout 1996 season, and sure enough, he regressed back to one home run every 40 plate appearances for the remainder of his career.

Anderson was long suspected of using steroids for the 1996 season, but those reports have never been confirmed. Without analyzing historical statistics, it would be difficult to see the uniqueness of that 1996 season.

Making a connection

Collecting and analyzing information based on a baseball player’s past performance is similar to what a private investigator does when conducting a background check. Objective information is collected about a person’s past through open sources and public records to help clients make more accurate predictions about the future. Historical bankruptcies, financial difficulties, criminal acts, a litigious past, misrepresentations and regulatory sanctions are all indicators of potential problems down the road.  

Past performance issues in a background check

There were many “past performance” issues that should have been major red flags in Bernard Madoff’s Ponzi scheme, including a two-person accounting staff overseeing a $50 billion firm, a highly secretive investment strategy and investment gains that neither Wall Street professionals nor Harry Markopolos, the Madoff whistleblower, could recreate.  

Other examples of “past performance” as an indicator of the future can be found in my recent post about 11 convicted Ponzi schemers who had already served jail time for other frauds or in the ACFE’s recent post about Barry Minkow's recent criminal charges.

Final thought

Just like in baseball, there is no one piece of information or statistic in a background check that can help predict the future. In fact, there are multiple layers of information over a period of time that must be analyzed to fully understand someone’s past behavior.  

When trying to learn more about a person’s background, if you think that a few reference checks, Google searches, a referral from respected members of the community or a couple of face-to-face meetings are the most reliable predictor of future performance, you need to take a page from the great Bill James and evaluate past performance.

Thanks to Seth Godin’s “Bill James and you” for the brilliant idea. Brian Willingham is a New York private investigator and president of Diligentia Group.

Barry Minkow Added to the List of Repeat Offenders

GUEST BLOGGER

Scott Patterson, ACFE Media Relations Specialist

Last week, when I read the news that Barry Minkow is expected to plead guilty to insider trading, it was with a streak of cynicism, perhaps, that my first thought was, “Here we go again.” Another “reformed” fraudster, another new chapter involving law enforcement, the courts and potential prison time.

This latest development with Minkow is a reminder that no matter what we see, hear or think we know about someone who has been convicted of fraud, there is never a guarantee that they are truly reformed. It’s just a refresher, really, because we’ve already seen fraud perpetrators demonstrate similar backslides.

Barry Webne was still giving fraud prevention presentations, calling himself a corporate crime consultant, while under investigation for committing his second accounting fraud. Webne was eventually sentenced to more than five years in prison for stealing $1 million from an Ohio communications firm. Read the news article here. Click on the photo to watch Webne's interview with the ACFE.

Kenneth Kemp described in an ACFE interview how, while serving as CFO for a small business, he wrote himself two $50,000 checks. He was prosecuted, but was offered a deal to pay restitution, which helped him avoid a conviction. With a clean slate, he moved on to a different company, where he committed the same crime.

Finally, who could forget Steve Comisar, aka “Brett Champion?” His book, America’s Guide to Fraud Prevention, is framed on the wall as part of the Fraud Museum here at ACFE headquarters. Not because of any fraud-fighting insight, mind you – but as a piece of fraud history. Comisar was a legendary con-artist described by the FBI as “the Jeffrey Dahmer of fraud.” He had been convicted and in and out of jail several times when he published his book as a sort of “coming out” as a reformed fraudster. Before long, however, Comisar was committing telemarketing scams, followed by extortion and threats – resulting in another trip to prison, where he now sits.

If Minkow does plead guilty, I hope that – after he serves whatever punishment he is given – he is able to make the most of his third chance.

Can fraudsters truly be reformed? Leave us your comments below.