A Millionaire by 18, In Federal Prison by 23

Notorious TeenVestor turned Conman, Barry Minkow.

By the time he was 16 years old, Barry Minkow had already started his own carpet–cleaning business, ZZZZ Best. By age 18, he was a flashy Ferrari–driving millionaire living in a big house in California’s San Fernando Valley. By his twenty–third birthday, he was serving a 25–year sentence in a federal prison for 57 counts of fraud and conspiracy for billing insurance customers for bogus carpet restoration work.

While incarcerated, Minkow became involved in the Christian ministry, and upon his release in 1995 after having served approximately seven-and-a-half years in prison, he went to work at San Diego Community Bible Church (SDCBC).

Barry seemed to embody the worst of the 1980s. He was arrogant, flashy, greedy and unscrupulous. Minkow started out his business like any other young entrepreneur. But when he found financing hard to secure for his overly ambitious business goals, he turned to loan sharks. He also fraudulently overcharged his credit–card customers for work he never did.

The most incredible part of the Barry Minkow story is that he even managed to hoodwink jaded Wall Street investment bankers. By the time he was caught in 1987, Barry had swindled $100 million from investors and had used a good portion of this money to finance his lifestyle.

Barry’s story did not end after his early release from prison for good behavior. In 1997, Minkow became the pastor at SDCBC and soon thereafter founded the Fraud Discovery Institute (FDI), a for-profit entity that allegedly was aimed at the detection and prevention of fraudulent business practices. Through the work of FDI, Minkow soon garnered national media attention as a fraud detection expert, and his turn-around story was profiled on ‘’60 Minutes’’ in August 2006.

Yet even while working through FDI to detect fraud, Minkow was engaged in manipulating the stock prices of the companies he was investigating. Most prominently in 2009, Minkow released a report accusing major homebuilder Lennar of massive accounting irregularities and fraud. In the wake of this report, Lennar’s share price was sliced in half—from $11.57 a share to $6.55 a share. According to court records, unbeknownst to the public, Minkow shorted Lennar stock in advance of the issuance of his report. Based on these transactions, Minow was charged with conspiracy to commit securities fraud, and on March 30, 2009, he pled guilty in Miami to conspiring to manipulate Lennar’s share price, for which he was sentenced to serve five years in prison and to pay $583.5 million in restitution to Lennar.

Though currently in prison, he was recently charged with stealing money from the SDBC congregation. As part of his guilty plea, Minkow admitted to a long list of improper conduct, including opening unauthorized bank accounts on behalf of the SDCBC, forging signatures on SDCBC checks, using funds drawn on legitimate church accounts for his personal benefit, and charging unauthorized personal expenses on church credit cards. In addition, Minkow confessed to diverting SDCBC member donations for his own benefit and embezzling money intended as church donations. In all, Minkow admitted stealing—and concealing from the IRS—at least $3 million from SDCBC’s parishioners and lenders. As described in court documents, Minkow’s conduct continued for over a decade. On April 28, 2014, he was sentenced to 5 more years in prison.

I tell this story because I think you should be aware of what can happen when ambition and greed goes haywire. In addition, I want to point out to you that young entrepreneurs are also susceptible to the lure of the good life just like some of the stereotypical Wall Street tycoons you see on television. Yes, indeed, TeenVestors can be crooked, too. However, I also believe that they can be taught business ethics at an early age before problems manifest themselves. The lessons of course, begin at home.

 

More on how parents can promote good business ethics will follow.