MIRA MESA, Calif. - Barry Minkow defines fraud as the skin of the truth stuffed with a lie.

He should know. He spent years living one of those lies as the boy wonder behind ZZZZ Best Inc., a carpet cleaning business he started in his parents' garage and manipulated into a publicly held company with a market value topping $250 million.

Along the way, he fabricated contracts, falsified sales and earnings, and took financing from organized crime.

After it all came crashing down in 1987, he was sentenced to 25 years in prison for racketeering and fraud and ordered to pay $26 million in restitution.

Minkow was paroled after 7 1/2 years. That's more time behind bars, he notes, than disgraced junk bond wizard Michael Milken, insider trading kingpin Ivan Boesky and tax cheat Leona Helmsley combined.

While in prison, Minkow earned bachelor's and master's degrees in church ministries. These days, he's senior pastor of Community Bible Church, a 1,100-member congregation in the San Diego suburbs.

He also co-founded the Fraud Discovery Institute, which lends its expertise to companies, regulators and law enforcement agencies.

Just last month, the Securities and Exchange Commission won a court order freezing the assets of Chicago D&P Inc., after examining information compiled by Minkow and his organization.

The SEC alleges that Chicago D&P, which purports to be in the real estate business, was using money from new investors to pay the returns promised to earlier investors. The agency said the "Ponzi scheme" took in $10 million.

The Fraud Discovery Institute also offers online training programs to help auditors, company directors and others in oversight positions.

Minkow and his fellow investigators use three main tests to spot trouble:

The first focuses on the sources and uses of a company's cash. How management raises and spends money can speak volumes about its intentions, Minkow said.

The second test revolves around what Minkow calls the "if, then" scenario. If the company is doing what it says it is doing, then evidence should be available through public records.

The third test is independent proof of profitability, such as seeing a piece of equipment or a facility that can generate the types of earnings a company is claiming.

"The presence of audited financial statements doesn't necessarily mean no fraud," he said. Auditors for a major accounting firm signed off on ZZZZ Best's books, Minkow noted.

Even legitimate companies can be led astray by executives or lower-level managers obsessed with achievement or wealth, he said.

"Nobody cares who you are - it's all about what you do," he said.

Minkow said the mind-set and methods of stock fraud artists have not changed much since the ZZZZ Best scandal, which resulted in the conviction of 11 other people.

"White-collar crime is still the ultimate selfish behavior," he said. "It's a heart problem."

In ZZZZ Best's heyday, he drove a red Ferrari and owned a mansion in the San Fernando Valley.

Now, Minkow drives a used Honda and lives with his wife and two children in a modest house in San Diego County.

He is off probation, and a judge recently waived the remainder of his restitution order. But he continues making monthly payments to a bank that was hurt by the ZZZZ Best fraud. And he said he has an obligation to help victims of other schemes.

"Somehow, I feel I owe them because of who I was," he said.

Reporter Christopher Carey
E-mail: ccarey@post-dispatch.com
Phone: 314-340-8291