ZZZZ Best started as a carpet cleaning company. Due to high competition in the industry, low enter barriers, and bad internal control, this young entrepreneur started to have cash flow problems, and a shortage of working capital. Pressure Leads to Fraud:
This project was just the most recent of a series of largerestorationjobs obtained by ZZZZ Best pronounced "zee best". Under the directionof Barry Minkow,the extrovertedyear-oldwho founded the company and ini-tially operated it out of his parents' garage,ZZZZ Best experienced explosivegrowthin both revenuesand profitsduring the firstseveralyearsof its existence.
When 72ZZ Bestwent public in ,Minkow and severalof his close associatesbecamemultimillionairesovernight. The youngestchief executiveofficer in the nationenjoyedthe"goodlife;which includedan eleganthome in an exclusivesuburbof LosAngelesand a fire-enginered Ferrari.
Minkow's charm and entrepreneurialgeniusmadehim a sought-aftercommodityon the televisiontalk show circuit and causedtheprintand visualmediato touthim asan exampleof whatAmerica'syouth couldattainif they would only apply themselves. Tried and convicted on 57 counts of securities fraud,Minkow had been exposed as a fast-talkingcon artist who swindled his closestfriendsand Wall Streetout of millions of dollars.
The company thatMinkow founded was, in fact,an elaborate Ponzi scheme. The reported profits ofthe firm were nonexistentand the large restorationcontracts, imaginary.
As onejournalistreported,ratherthan building a corporation,Minkow createda hologramof a corporation. The SEC,a largeand reputableWestCoast law firm thatservedas the company'sgeneralcounsel,aprominentWall Streetbrokeragefirm,and an internationalpublic accounting firmall failed to uncover Minkow's daring scheme.
Ultimately,the persistence of anindignanthomemakerwho had been bilked out of a few hundred dollars by ZZZZBestresultedin Minkow being exposedas a fraud. How a teenageflimflam artistcould makea mockery of the complex regulatorystructurethatoverseesthe U. Thatsubcommitteewas headed by RepresentativeJohn D.
House Committee on Energy and Commerce. TheZZZZBestprospectustoldthepublicthatrevenuesandearningsfrominsurancerestorationcontractswereskyrocketingbutdid not revealthatthe contractswerecompletelyfictitious.
Wherewere theindependentauditorsand theothersthatarepaid toalertthepublictofraudanddeceit?
Such fraudsare in the naturalorderof things,I suspect,as old and enduring as human needs. Although the greatmajorityof companies in the carpetcleaning industryare legitimate,the natureof the businessattractsa disproportion-ate number of shady characters. There are essentially no barriers to entry: A l6-year-oldyouth with a driver'slicense caneasily become what industry insiders refer to as a "rug sucker,"which is exactlywhat Minkow did when he founded ZZZZ BestCompany.
Minkow quickly learned that carpet cleaning was a difficult way to earn a liveli-hood. Customercomplaints,ruthlesscompetition,bad checks,and naggingvendorsdemanding paymentcomplicated the young entrepreneur'slife. Within months ofstrikingout on his own,Minkow faced the ultimatenemesisof thesmall businessper-son: Becauseof his age and the fact thatZZZZ Bestwas only marginally profitable,local banks refused to loan him money.
Ever re-sourceful,the brassyteenagercame up with his own innovativewaysto finance hisbusiness: Minkow's age and personal charm allowed him to escape un-scathedfrom his earlybrusheswith the law thatresultedfrom his creativefinancingmethods. The ease with which the "system"could be beaten encouraged him toexploit it on a broaderscale.
Throughout his tenurewith ZZZZ Best,Minkow recognizedthe benefitsof havingan extensivesocial network of friends and acquaintances. Many of these relation-ships he developedand cultivatedat a Los Angeles health club.
After becoming afriend ofTom Padgett,an insuranceclaimsadjuster,Minkow deviseda schemeto ex-ploit thatfriendship.
Ostensibly,Minkow had obtained thesecontractsto clean and do minor remodelingwork onpropertiesdamaged by fire,storms,or other catastrophes. This and all subsequentquotations,unless indicated otherwise,were taken from the following source: Initially,Minkow usedthe phony insurancerestorationcontractsto generatethe paperprofitsand revenueshe neededto convince bankersto loan him money.
Minkow's phony financial state-mentsservedtheirpurpose,and he expandedhis operationsby openingseveralcar-pet cleaningoutletsacrosstheSan FernandoValley. Minkow soon realizedthattherewas no need to tie his future to the cutthroat carpet cleaning industry when hecould literallydictatethesizeand profitabilityof his insurancerestoration"business: Minkow's"thesky is the limit"philosophy drove him to be evenmore innovative.
The charmingyoungentrepreneurbeganusinghis bogus financial statementsto en-tice wealthyindividuals in his ever-expandingsocial networkto investin ZZZZBest. Eventually,Minkow recognizedthatthe ultimatescam would be to takehis companypublic, a move that would allow him to tap the bank accounts of unsuspectinginvestorsnationwide.
GeorgeGreenspan,the sole practitionerwho performed thataudit,confirmed the existenceof ZZZZ Best'smajor insurance restorationcontractsby contactingTom Padgett.
By thistime,Padgettwas an activeand willing participantin Minkow's fraudulentschemes. In testimonybefore the congressionalsubcommitteethat investigatedthe ZZZZBestscandal,Greenspaninsistedthathe had properly audited Minkow's company.
Greenspantestifiedthatwhile planning the audit he had performed variousanalyticalproceduresto identifyunusual relationshipsin ZZZZBest'sfinancial data. Regardingthe insurancecontracts,Greenspantestifiedthathehad obtained and reviewedcopies of all key documents pertaining to those jobs.Feb 25, · He helped set up Interstate Appraisal Services, a fake company that verified ZZZZ Best's business dealings, and installed his weird buddy Thomas Padgett as owner and operator.
Mr. ZZZZ Best Company Inc. Introduction This paper explores the ZZZZ Best Company which was begun by a 16 year old individual who was able to pull the wool over .
Case ZZZZ Best Company, Inc, 1. Ernst & Whinney audit firm suffered tremendously from the backlash of ZZZZ Best’s case. One of the issues stemming from ZZZZ Best’s case is the difference between a review and an audit as evidence by civil suit filed by a California bank against the firm.
ZZZZ Best Company Fraud Case Study 1) At an early age, Barry Minkow was introduced to the carpet cleaning industry by his mother who worked part time as a telephone solicitor for a small carpet cleaning company.
Greenspan contacted ZZZZ Best's "insurance company," ie: Padgett, who confirmed the existence of the fraudulent restoration projects.
Ernst & Whinney Became ZZZZ Best's auditor's in early Best Social Media Case Studies - The ascent of informing applications and new calculation changes to Twitter and Instagram in have changed everything about web-based social networking showcasing.
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