Professional Documents
Culture Documents
Barry Minkow wasnt just another shady character in the carpet cleaning industry, he was
the king of shady. Sixteen year old Barry Minkow, was a thief, a liar, and a fraud who
successfully managed to pull off the ultimate con when he took his company public. Minkow
originally started a carpet cleaning business but soon realized insurance restoration contracts
were more profitable. From 1984 to 1987 Minkow exploited the system and conned investors
and creditors out of hundreds of millions as the owner and CEO of ZZZZ Best Company. In just
three short years, Minkow went from working out of his parents garage to driving Ferraris,
living in a mansion and personally owning stock in his company valued in excess of $100
million. However, 90% of ZZZZ Best reported profits were based on insurance restoration
contracts that werent worth the paper they were written on. Minkow ultimately discovered his
the skys the limit motto, as it related to ZZZZ Best Company, did in fact have a limit. In 1988
Minkow was tried and convicted on 57 counts of securities fraud.
Barry Minkow, with the help of few friends, managed to convince banks to loan him
money to fund his carpet cleaning business by fabricating insurance restoration contracts. Once
Minkow realized that he could facilitate the profits and growth of the insurance restoration
company he placed the carpet cleaning business on the backburner and fully focused on the
restoration side of the business. ZZZZ Best Company was able to go public after receiving a
green light on its financials from CPA, George Greenspan. Greenspan maintained he properly
audited ZZZZ Best financials by performing analytical procedures, comparing financial ratios to
industry norms, and obtaining and reviewing copies of key documents. However, Greenspan
failed to validate the existence of the insurance restoration sites via personal inspections.
Greenspan stated he wasnt required to inspect the sites and was satisfied by various sources
including receipt of payments. Although, receipt of payment verifies a payment was received, it
does not validate the existence of the contracts. Had Greenspan conducted site visits and/or
obtained sufficient and appropriate evidence to support completeness of the jobs, Minkow may
have never went public. Greenspans actions, as they related to ZZZZ Best audit, were
investigated but AICPAs ruled Greenspan had not violated its Code of Professional conduct.
ZZZZ Best Company, now a publically traded company, acquired a high profile law firm
to represent them and one of the Big Eight accounting firms, Ernst & Whinney, to bolster
credibility. Ernst & Whinney engagement was to include a review, assist with registration
statement, prepare a comfort letter, and full-scope audit for fiscal year ending April 30th, 1987.
Ernst & Whinney resigned from ZZZZ Best Company engagement 11 months later and never
completed an audit for 1987 financials. A review of financial statements as of July 31, 1986 was
conducted and relied on by at least one banking institution. The bank, in question, filed suit
against Ernst & Whiney but was unsuccessful. The judge, presiding over the ZZZZ Best case,
ruled in favor of Ernst & Whinney, as a review not only offers limited assurance but the report
specifically declined to express an opinion and repudiated rights to rely on its content. Had Ernst
& Whinney conducted an audit, where they expressed an opinion giving reasonable assurance
that no material errors or illegal acts were detected in the financial statements, they would have
been liable for damages. However, a review was conducted, and did not require Ernst &
Whinney to test controls, test account records, obtain corroborating evidence, and/or make
external inquiries. The firm of Ernst & Whinney was accused of overlooking at least 10 red
flags when reviewing ZZZZ Best financials but maintain there was no wrong doing on their part.