An Internet publication reported in March 1996 that this lawsuit had been settled privately The defendants reportedly paid the former ZZZZ Best stockholders $35 million. However, the contribution of each defendant to the settlement pool was not disclosed. Note 5 of the balance sheet discusses joint ventures and two restoration contracts. These contracts are fictitious as are the bookkeeping entries to support their validity Interstate Appraisal Service did not let such contracts although they confirm their existence. The same is true for the alleged $7,000,000 Sacramento contract and the $40—100 million contracts with Interstate.
When he wasn’t directly stealing money, he was raising it fraudulently, with a little help from his friends, a bizarre crew of retainers. He helped set up Interstate Appraisal Services, a fake company that verified ZZZZ Best’s business dealings, and installed his weird buddy Thomas Padgett as owner and operator. Mr. Minkow convinced bankers and investors that he had won large contracts from insurance companies to restore buildings damaged by fire and water. Mr. Padgett, a gun-collecting body builder with a fondness for Hitler and SS jewelry, confirmed the jobs, while a ZZZZ Best vice president forged all the documents and contracts.
A final twist to the ZZZZ Best scandal was an anonymous letter received by Ernst & Whinney exactly one week after the firm resigned as ZZZZ Best’s auditors. On that date, no one other than Ernst & Whinney and ZZZZ Best’s officers was aware of the firm’s resignation. The letter, shown in Exhibit 4, detailed a number of allegations suggesting that the ZZZZ Best financial statements were fraudulent.
- The bank, in question, filed suit against Ernst & Whiney but was unsuccessful.
- Minkow has spoken to groups of CPAs, educational institutions, and, most notably, the FBI Academy at Quantico, Virginia.
- Notwithstanding, it took the company opening up to the world before the fraud was found so there is a contention that exists that Minkow was very skilled with his accounting.
- Inside just seven months of the initial public offering , be that as it may, ZZZZ Best was bankrupt and its assets were unloaded for around $64,000.
According to Minkow, the revenues from KeyServ would provide enough cash flow to end the Ponzi scheme. Before the deal was closed, the jilted homemaker sparked a campaign against ZZZZ Best that would expose more than the fraud committed against her. The business performed poorly and 15-year-old Minkow was often inundated with customer complaints and supplier collection requests.
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This enchantment follows the trial court docket’s sustaining of the demurrer of respondent/defendant Ernst & Young (“E & Y”)1 to the second amended criticism (“SAC”) of appellant/plaintiff Union Bank (“Bank”). The SAC contained causes of action for fraud, conspiracy to defraud, negligent misrepresentation and professional negligence. • What the auditor failed to uncover is that the contracts were not at arm’s length . • Those contracts would have provided better evidence had a third party prepared them.
Therefore, apart from these, there are no particular standards that require an auditor to perform. • For example, the arrangement prohibited the auditors from obtaining any evidence or confirmation from outside parties to support any questions or irregularities arising during the audit process. • The audit includes an opinion that the client’s financial statements have been prepared in accordance with GAAP and that the financial statements materially reflect the client’s financial status. ZZZZ Best was a carpet cleaning and restoration company founded by Barry Minkow that served as a front for a famous Ponzi scheme.
It also highlighted the need for stronger regulations and oversight to prevent such fraud from occurring in the future. There are several key elements that should be included in a research assignment template. This should clearly state the goals and objectives of the project, and outline the expected outcomes or results. There was a Barry Minkow film made in 2011 that was eventually released in 2018, named Con-Man. During the recording, Barry was captured and conceded to insider trading charges. In January of 2022, a docuseries named King of the Con was released on Discovery+.
The company opened up to the world in December 1986 and was immediately valued at more than $300 million. Inside just seven months of the initial public offering , be that as it may, ZZZZ Best was bankrupt and its assets were unloaded for around $64,000. A review of the condensed consolidated financial statements for the comparative period of the prior year was not made. Mr. Greenspan, I am interested in the SEC Form 5-1 that ZZZZ Best Company filed with the SEC….
Besides his pastoral duties, Minkow presents lectures and seminars across the United States on how to prevent and detect financial fraud. Minkow has spoken to groups of CPAs, educational institutions, and, most notably, the FBI Academy at Quantico, Virginia. Many of the anecdotes included in Minkow’s presentations are drawn from his autobiography Clean Sweep, which was published in 1995 by Thomas Nelson Publishers. Finally in 1996, Minkow began hosting a syndicated radio talk show in which he discusses his personal views on financial and spiritual matters. By late 1997, approximately forty radio stations scattered across the nation broadcast Minkow’s talk show. The electric generators which appear on the balance sheet under Note 6 as being purchased for $1,970,000 were purchased for scrap for less than $100,000 thru intermediaries of ZZZZ Best and resold to ZZZZ Best at the inflated value.
Intermediate Accounting
According to the congressional testimony, Ernst & Whinney forwarded this letter to the SEC on June 17, 1987. Ernst & Whinney argue subsequent that even if the bank did depend on its report in making the loan such reliance was unreasonable as a matter of legislation. Ernst & Whinney base this argument on the report’s disclaimer which specifically states Ernst & Whinney did not audit ZZZZ Best’s financial statements and expresses no opinion as to those statements. As to reliance, Ernst & Whinney argue the information pled within the complaint show the financial institution did not rely on Ernst & Whinney’s evaluation report in extending credit score to ZZZZ Best. Ernst & Whinney level out the bank carried out an intensive investigation before making the mortgage. The SAC, insofar because it considerations E & Y, is based upon the central allegation that E & Y was retained by ZZZZ Best Co.
So, Minkow had a friend who he’d appointed his head of a firm that supposedly provided his company with referrals, rent a building and make it look like a work site. Barry Minkow learned the carpet-cleaning business from his mother and proceeded to establish his own company, ZZZZ Best Co., at the tender age of 16. However, the capital was a major issue and he soon started undertaking credit card forgeries alongside other frauds that provided his initial capital. As a charismatic individual, he was able to make friends with many professionals including Tom Padgett who was a claims adjuster.
In December 1986, ZZZZ Best went public and was valued at more than $300 million. Its were worth a fraction of the initial $300 million valuation when they were auctioned (just $64,000). Instead, zzzz best inc 1986 Mr. Minkow focused his talents on getting capital for his company in any way he could. When he needed cash in 1984, he forged $13,000 worth of money orders from a Reseda liquor store.
Auditing Concepts: ZZZZ Best Company, Inc Case Essay Example
Located in the San Fernando Valley of southern California, ZZZZ Best had begun operations in the fall of 1982 as a small, door-ta-door carpet cleaning operation. CONCLUSION Defendant E Y’s motion for summary adjudication is hereby GRANTED only as to the issue of the elimination of Plaintiffs’ aider and abetter claims in Count III. He was even a guest on the Oprah Winfrey Show. Rodriguez, Lowey Dannenberg, Bemporad Selinger, P. A review does not assess control risk, tests of accounting records and responses to inquiries by obtaining validating evidence through inspection, observation or any other audit procedure. ZZZZ Best was an industrial carpet cleaning company started in 1982 by a 16 year old American high school student named Barry Minkow. The company struggled from the very beginning and Barry tried to keep it afloat with bogus credit card charges, stealing from relatives and staging burglaries in order to collect the insurance money. Minkow convinced bankers and investors that he had won large contracts from insurance companies to restore buildings damaged by fire and water.
The woman never forgot the insult and industriously tracked down, and kept a record of, the individuals who had been similarly harmed by Minkow. At the urging of this individual, a reporter for the Los Angeles Times investigated her allegations. The woman’s diary eventually became the basis for the Los Angeles Times article that, for the first time, cast doubt on the integrity of the “boy wonder” who was the talk of Wall Street. Earnings reported by ZZZZ Best are being reported as Billings In excess of costs and estimated earnings on restoration contracts. This can be confirmed directly by contacting the alleged insurance carriers as well as physical inspections as to the existence and extent of the contracts.
Markets
Prior to the arrival of Larry Gray and an attorney representing ZZZZ Best’s law firm, Minkow’s subordinates visited the site and placed placards on the walls at conspicuous locations indicating that ZZZZ Best was the contractor for the building renovation. No details were overlooked by Minkow’s lieutenants; they even paid the building’s security officer to greet the visitors and demonstrate that he was aware in advance of their tour of the site and its purpose. Although the building had not been damaged and instead was simply in the process of being completed, the sting operation went off as planned. Exhibit 2 presents the memorandum Gray wrote describing his tour of the building—a memorandum that was included in Ernst & Whinney’s ZZZZ Best workpapers.
The independence of Tom Padgett is at stake and a clash of interests can be identified when he knowingly seeks his interests at the expense of issuing true opinion of ZZZZ Best restoration contracts. He also acted unethically more so in his involvement in misrepresenting banks and other creditors that relied on his opinion to advance credit to the company. In 1987, ZZZZ Best went public and Minkow, who was the company’s CEO, claimed that the company was generating millions of dollars in revenue from contracts to clean and restore buildings that had been damaged by fire or water. However, these claims were later found to be fraudulent and Minkow was eventually convicted of securities fraud and other charges in 1988.
At the time, SEC registrants were allowed fifteen days to file the 8-K auditor change announcement. After waiting the maximum permissible time, ZZZZ Best reported the change in auditors but, despite Ernst & Whinney’s insistence, made no mention in the 8-K of the fraud allegation that had been subsequently recanted. The SEC’s rules that were in effect at the time also required a former audit firm to file an exhibit letter to a former client’s 8-K commenting on the 8-K’s accuracy and completeness. Former audit firms were given thirty days to file the exhibit letter, which was the length of time Ernst & Whinney waited before submitting its exhibit letter to the SEC. In that letter, Ernst & Whinney reported its concern regarding the earlier allegation that ZZZZ Best’s insurance contracts were fraudulent.
After becoming Padgett’s friend, Minkow thought of using his friendship with him to make profit in his business. He convinced Padgett to simply confirm over the telephone to banks and any other interested third parties that ZZZZ Best was the recipient of occasional insurance restoration contacts. Minkow made a deal with Padgett that he will pay him $100 every week for doing this. Padgett did what Minkow wanted him to do and this was the first success of Minkow in his big fraud scheme.
He was involved in credit card forgeries prior to starting his own carpet cleaning business “ZZZZ Best Company”. Minkow began his business with small carpet cleaning jobs and he became a multimillionaire in a very short period of time. Among the parties most criticized for their roles in the ZZZZ Best scandal was Ernst & Whinney. Included in the congressional testimony into the ZZZZ Best fraud was a list of ten “red flags” that the audit firm had allegedly overlooked while examining ZZZZ Best’s financial statements . In testifying before the subcommittee, Leroy Gardner, the West Coast director of accounting and auditing for Ernst & Whinney, maintained that when all the facts were revealed, his firm would be totally vindicated.