# ZZZZ Best: Barry Minkow's Notorious Ponzi Scheme Unraveled

## What Was ZZZZ Best?

Barry Minkow founded ZZZZ Best as a carpet cleaning and restoration company, which was actually a front for a [Ponzi scheme](https://www.investopedia.com/terms/p/ponzischeme.asp). It went public in December 1986 and was valued at over $300 million. Just seven months after its [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO), ZZZZ Best went bankrupt, and its assets were auctioned for about $64,000.

### Key Takeaways

*   ZZZZ Best was a carpet cleaning company serving as a front for Barry Minkow's extensive Ponzi scheme, which led to its rapid valuation and subsequent bankruptcy.  
    
*   Founder Barry Minkow engaged in numerous fraudulent activities, including insurance scams, check kiting, and setting up fake companies to deceive financial institutions.  
    
*   The fraudulent operations were uncovered due to a homemaker's persistence in investigating an overcharge, eventually drawing media attention and leading to Minkow's legal downfall.  
    
*   Minkow's ability to manipulate financial statements misled auditors, showcasing the challenges in detecting financial fraud without diligent oversight.

## Inside the Operations of ZZZZ Best

 Barry Minkow started ZZZZ Best in his parents' garage. The struggling business faced frequent customer complaints and supplier demands. At 15, to make the business appear profitable, Minkow resorted to crimes like [check kiting](https://www.investopedia.com/terms/k/kited.asp), theft, insurance scams, and fraud to keep it running.

Within a few years of ZZZZ Best's inception, Minkow launched fictitious insurance restoration and appraisal businesses. ZZZZ Best was involved in a credit card scheme with over $70,000 in fraudulent charges. Minkow blamed contractors and employees but repaid all victims except one: a homemaker defrauded of a few hundred dollars.

## How the ZZZZ Best Fraud Unraveled

Minkow and associate Tom Padgett founded a fake company, Interstate Appraisal Service, to defraud banks of millions. Padgett, an insurance adjuster, conspired with Minkow to forge documents crediting ZZZZ Best for restoration work and using Interstate to verify claims. Increasingly, investors and bankers developed an interest in ZZZZ Best based on fraudulent [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) produced by Minkow’s firm.

> **Fast Fact**
>
> Barry Minkow claimed his fraudulent actions were driven by a need to repay organized crime.

As the Ponzi scheme continued, ZZZZ Best experienced significant [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) problems. As a solution, Minkow planned to acquire KeyServ, Sears' authorized carpet cleaner, for $25 million. According to Minkow, the revenues from KeyServ would provide enough cash flow to end the Ponzi scheme. Before the deal was closed, the jilted homemaker sparked a campaign against ZZZZ Best that would expose more than the fraud committed against her.

The _L.A. Times_ featured her story, which caused ZZZZ Best's stock price to decline sharply. Lenders began to call their loans and more investigations commenced, unraveling Minkow's dark web of deceit and fraud. Eventually, the truth behind the fictitious companies was revealed and the Ponzi scheme was exposed.

## Tactics ZZZZ Best Used to Mislead Auditors

To launch an IPO, the Securities and Exchange Commission (SEC) requires a firm to compile a [prospectus](https://www.investopedia.com/terms/p/prospectus.asp), which must include a set of audited financial statements. Independent [certified public accountant](https://www.investopedia.com/terms/c/cpa.asp) (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. 

Assuming an independent third party provided the paperwork, the CPAs used false appraisal documents to perform its audit. When the CPA firm requested to visit a building refurbishing customer site, Minkow and his associates rented a building and created a bogus customer job site.

## Barry Minkow's Life and Legal Troubles Post-ZZZZ Best

In January 1988, Minkow and 11 other company insiders were indicted by a grand jury on counts of racketeering, money laundering, securities fraud, embezzlement, mail fraud, bank fraud, and tax evasion. Separately, Minkow was also indicted on counts of credit card fraud. Approximately a year later, Minkow was found guilty on all charges, was sentenced to 25 years in prison, and was ordered to pay over $26 million in restitution.

After his early release in 1995, he became an ordained minister and served as a pastor of a church in California. Minkow informally investigated and reported other Ponzi schemes. From this success, he formed the fraudulent Fraud Discovery Institute.

In 2011, he was again convicted for fraud and sentenced to five years in prison. It was discovered that while filming and producing his biography, he simultaneously was using his anti-fraud company to short stocks of companies he was investigating. A few years later, Minkow was sentenced to an additional five years in prison for defrauding his church and tax evasion. His restitution balance has increased ten-fold to $612 million.

## What Accounting Procedures Did ZZZZ Best Fail to Follow?

ZZZZ Best failed because it was a Ponzi scheme so, in essence, the company followed almost no proper accounting procedures. However, it took the company going public before the fraud was discovered so there is an argument that exists that Minkow was quite skilled with his accounting.

## How Was the ZZZZ Best Fraud Discovered?

Minkow was visited by his past when a homemaker who was overcharged just a few hundred dollars by Minkow tracked down a few others who Minkow had defrauded. When the homemaker located the others, she passed her findings onto the Los Angeles Times. The newspaper then ran a story exposing Minkow's relatively minor fraud. This caused a domino effect and ZZZZ Best was quickly outed as a Ponzi scheme.

## When Did Barry Minkow Get Out of Prison?

Barry Minkow was released from prison most recently in 2018 after serving time for insider trading and embezzlement from his church. Before that conviction, he served a significant jail sentence from 1989 to 1995, being released only six years into his 25-year sentence.

## Is There a Barry Minkow Movie Being Made?

There was a Barry Minkow movie made in 2011 that was eventually released in 2018, titled _Con-Man_. During the filming, Barry was arrested and pleaded guilty to insider trading charges. In January of 2022, a docuseries titled _King of the Con_ was released on Discovery+.

## The Bottom Line

ZZZZ Best, founded by Barry Minkow, serves as a cautionary tale in financial history as one of the most notorious Ponzi schemes. Initially valued at over $300 million, it quickly unraveled due to fraudulent practices, leading to its bankruptcy. Minkow's criminal acts included insurance scams and check kiting, which left a trail of deceit until the fraud was exposed by a vigilant homemaker.

Despite being released early from his initial prison sentence, Minkow continued to engage in fraudulent activities, leading to further convictions. This case underlines the importance of due diligence and skepticism in financial dealings, highlighting how even seemingly thriving businesses on paper can collapse due to unethical practices.

> **Article Sources**
>
> 1.  Yahoo Finance. "[This Day In Market History: The Liquidation Of Corporate Fraud ZZZZ Best](https://finance.yahoo.com/news/day-market-history-liquidation-corporate-105000999.html)."
>     
> 2.  The New York Times. "[Nothing But ZZZZ Best](https://www.nytimes.com/1990/02/25/books/nothing-but-zzzz-best.html)."
>     
> 3.  MoneyWeek. "[Great Frauds in History: ZZZZ Best](https://moneyweek.com/503094/great-frauds-in-history-zzzz-best)."
>     
> 4.  Global Financial Data. "[Worst and The Frankenstein of Fraudsters](https://globalfinancialdata.com/zzzz-worst-and-the-frankenstein-of-fraudsters)."
>     
> 5.  The Los Angeles Times. "'[Like the 3 Stooges’ : ZZZZ Best: How the Big Bubble Burst](https://www.latimes.com/archives/la-xpm-1989-03-30-mn-622-story.html)."
>     
> 6.  FBI. "[Conman Turned Pastor Sentenced to Five Years](https://www.fbi.gov/contact-us/field-offices/sandiego/news/press-releases/notorious-conman-turned-pastor-barry-minkow-sentenced-to-five-years-in-prison-for-bilking-congregation-of-more-than-3-million)."