Ex-convict urges hard time for corporate crime
By Simon Avery
Associated Press
LOS ANGELES — More than seven years behind bars with murderers and other violent criminals makes Barry Minkow something of an authority on what works to stop corporate fraud.
Associated Press
The former entrepreneur and executive insists tough prison sentences like his will have a lot more effect than other political and regulatory efforts.
Barry Minkow delivers a sermon on materialism at the Community Bible Church in San Diego while wearing his prison jump suit. Minkow, the former chief executive of ZZZZ Best carpet cleaning company, received a 25-year sentence in 1989 for defrauding investors, one of the stiffest sentences given to a white-collar criminal.
"The criminal justice system isn't sending a message to white-collar criminals. It never has — with the exception of my case," said Minkow, who was 22 when he received a 25-year sentence in 1989 for defrauding investors in his ZZZZ Best carpet cleaning company.
He started the company as a teenager in the garage of his family's San Fernando Valley home, and wound up convicted of 57 counts of securities, credit card and mail fraud in a scheme that prosecutors said cost victims more than $100 million. Others involved in the scandal received shorter sentences.
His sentence remains one of the stiffest ever given a white-collar criminal. Although he served only 7 1/2 years, he spent most of that time in maximum and medium security prisons, at one time sharing a cell with a convicted murder.
Two of the most notorious white-collar convictions in recent years involved bond trader Michael Milken and financier Ivan Boesky in the late 1980s. Milken served nearly two years after pleading guilty to six felony security violations. Boesky also served nearly two years after pleading guilty to one criminal count involving insider trading.
Last week, after a wave of scandals that has cost investors in Enron, Global Crossing, WorldCom and other companies billions of dollars, President Bush called for longer prison terms for corporate executives guilty of fraud. He also announced a new task force for the pursuit and prosecution of corporate criminals.
Minkow, 36, remains on probation and likely will spend the rest of his life paying back $26 million in court-ordered restitution.
He is now a fraud-detection consultant and a pastor at Community Bible Church in San Diego.
He said senior executives have too much to gain and not enough to lose by misleading or even lying to investors and regulators. In most fraud cases, executives succumb to the temptation of reporting fictitious financial data or hiding information because they think the act is just a temporary plan while they improve their operations.
They don't think they are committing fraud and they don't think they will get caught, Minkow said.
The temptation to break the rules won't disappear unless punishment is severe, he said. His recommendation: a minimum seven years of hard time.
ZZZZ Best claimed to be making a fortune restoring water- and fire-damaged buildings. Investors were given badges and hard hats and taken on tours of alleged restoration projects in abandoned buildings with which ZZZZ Best had no connection.
Minkow said his plan was to survive long enough to publicly trade his stake in the company to repay investors.
Instead, he drew a particularly tough judge and a sentence that even surprised those who arrested him.
"We almost fell over when they pronounced his sentence," said David Nesbitt, an FBI agent at the time. He is now a director of forensic accounting in Los Angeles with the consulting firm KPMG.
Minkow spent 11 months in solitary confinement at Terminal Island Federal Prison in Los Angeles, locked in a cell 23 hours a day for much of his first year. "They thought I was an escape risk," he said.
Young, athletic and pumped up on steroids when he was sentenced, Minkow said he was bench-pressing 380 pounds in the prison gym.
"Not a lot of people were picking on me," he said.
But the situation would be very different for any of the senior executives in the middle of high-profile corporate scandals today.
"They'd be preyed upon," Minkow said. "They'd be paying for protection."
