July 21st, 2011
11:44 PM ET

Crime & Punishment: Once-reformed con man pleads guilty to securities fraud conspiracy

(CNN) - Back in the 1980s, California teenager Barry Minkow seemingly had it all: a Ferrari, a mansion and a carpet cleaning business valued at nearly $300 million. He started Zzzz Best at age 16 in the basement of his parents' San Fernando Valley home, eventually hiring them to work for him. He appeared on Oprah, in his own TV commercial and became a young entrepreneurial darling of Wall Street.

"The banks threw money at him and the investors threw money at him," says former U.S. District Court Judge Dickran Tevrizian. Former federal prosecutor Gordon Greenberg recalls "Barry made it easy for people to believe in him. He had that unique ability of getting people focused, and it was audacious."

Audacious because, according to court records and Minkow's own admissions, nearly 90-percent of Zzzz Best's business was fraudulent. He was accused of engineering a massive Ponzi scheme where he used phony contracts for carpet cleaning jobs, as well as fire and water damage repair in large commercial buildings, as collateral for bank loans.

"The jobs were make-believe jobs. They did not exist," said former U.S. Attorney Robert Bonner in 1988, while announcing Minkow was being indicted on 57 counts of fraud. He was convicted the next year, sentenced to 25 years in prison, and released for good behavior after a little more than seven years.

"It started with spraying water instead of Scotchgard on carpets, and it started with a $200 theft of a money order out of a liquor store when I couldn't make payroll at age 16," Minkow told CNN in an interview in 1996, shortly after his release from prison. "I spent 87 months in prison with south central L.A. gang members. My roommate was in for murder. I didn't get away with anything. I paid a heavy price for my crime."

He emerged from prison professing to be a changed man, with college degrees and a conversion to Christianity. He agreed to help the FBI and bankers catch other con men, gave lectures, wrote books and hosted a fraud-busting radio show. One of his guests was the prosecutor who helped put him behind bars.

"I actually had great hopes for him. I truly wanted him to be reformed," Greenberg says. "But my gut, it was worrisome because I was worried that he had a personality type that we call sociopaths."

Minkow married, had a family and became pastor of Community Bible Church near San Diego. He did provide information that helped authorities uncover other cons. He also started several businesses, including the Fraud Discovery Institute, which initially targeted penny stocks. Minkow would expose reports of alleged fraud on the internet and report them to authorities.

"I've been asked what I think of Barry Minkow and I've always said the jury is still out," said Tevrizian, the judge who sent Minkow to prison in 1989. "Well now the jury has come back and Mr. Minkow is at it again."

Minkow's Fraud Discovery Institute began targeting larger companies, including Miami-based homebuilder Lennar. But prosecutors say, this time, Minkow wasn't exposing fraud, he was committing it. According to court filings, Minkow spread false information about Lennar on the internet while profiting from short sales of the company's stock, which at one point lost more than $400 million in value. In March, Minkow accepted a plea bargain– pleading guilty to a single count of conspiracy to commit securities fraud. He is expected to be sentenced to as much as five years in prison Thursday. He must also cooperate with authorities investigating his crimes.

Minkow, through his attorney, would not comment on the case, or the claims of other alleged victims, including a woman we'll call "Mary," a regular worshiper at Community Bible Church, the church Minkow pastored before resigning earlier this year. Mary says she lent Minkow nearly $300,000, mostly from her home equity line of credit, to help finance several business ventures, including a movie about his life. "I knew his background as far as what happened with ZZZZ Best, but he seemed like he had reformed," she said. "Since it was a loan and it was the pastor, I felt like I could trust him."

Now Mary says she is left with worthless promissory notes and checks from Minkow, and she fears she may lose her house.

"He's a very good con man. He's very convincing. He was my friend, I thought." Still, Mary said she has no plans to sue.

Why did so many people, over such a long period, believe in Barry Minkow?

"He was able to take people, no matter their background and interests, whether it was large law firms, accounting firms, even people who were on the periphery of organized crime, and make them believe that he cared about them and that he would do what was in their best interest," Greenberg says.

It appears Minkow may have tried with the judge who sent him to prison, autographing a book he wrote with this message: "Dear Judge Tevrizian: You are the best judge ever seated on a federal bench. You have my love and respect always. Don't be fooled by all the good press. I am a liar and a thief saved by God's grace."

To that Tevrizian says, "Ha, that's my laugh of the day."

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