ZZZZ Best Company Fraud: Case Study

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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. This insight of the industry allowed Minkow to understand that the carpet cleaning industry was one which had very few barriers to entry, no licensing requirements, and required only a small amount of capital to enter. Also, because of these few barriers to entry, the industry has historically attracted a larger number of faulty startups in comparison to other industries. At 16 years old, Minkow started his carpet cleaning company under the name of ZZZZ Best Company. Right away he had a difficult time with customer complaints, stringent competition, and the inability to collect all checks, and vendors insistent on collecting payments. These all combined together prevented ZZZZ Best from becoming anything but marginally profitable, which was a red flag for banks who wouldn’t lend Minkow money. The fraud started when Minkow started to come up with his own innovative ways to finance his business, including: check kiting, credit card forgeries, and the staging of thefts to fleece his insurance company. Minkow was smooth and had charm which allowed all of these false financing options to be possible. Minkow’s success at beating the system encouraged him to further exploit fraudulent activities in different areas. Minkow befriended numerous friends whom aided his fraudulent activities, including an insurance claims adjuster. Minkow promised to pay this adjuster $100 per week if he would confirm to banks that ZZZZ Best was the recipient of occasional insurance restoration contracts. Minkow used these phony insurance restoration contracts to generate the paper profits and revenues that were needed to convince bankers to loan his business money. Minkow also created phony financial statements in order to complete these loans. Soon, insurance

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