ZZZZ Best company Inc. Summary ZZZZ Best company was founded by 16-year old Barry Minkow.

The core activity of company was carpet cleaning. As he began doing business, Minkow soon realized that carpet cleaning was a difficult way to earn money because customers always complained and vendors demanded payments. Soon Minkow started seeking for financing but realized that bank were not willing to lend him money due to his age and low profitability of his business. Thats why he came up with the idea of forgeries and thefts from his insurance company. La ter on, making friends he asked the insurance claim adjuster - Tom Padgett to confirm from time to time that Minkows company recei ved occasional insurance restoration contracts on remodeling works on properties damaged by fire, storms and other catastrophes. Soon he realized that there was no need in development of carpet business because the main income was obtained by restoration operations. Then, Minkow decided to go public and for that purpose he hired independent auditor George Greenspan. By that time Minkow had established fake insurance company and Padgett had got the top position in it to confirm fraudulent restoration contracts, so Greenspan didnt notice any problems with those sites. By the end of the year he was dismissed and Minkow retained Ernst & Whinney to enhance creditability of his operations on restoration contracts. Ernst & Whinney agreed to provide 4 types of services to ZZZZ best company: review the financial statement of the company for the 3-month period ending July 31, 1986; assistance in the preparation of a registration statement to be filled with the SEC; a comfort letter to be submitted to company s underwriters and full scope audit for the fiscal year. But the full scope audit was never completed because Ernst & Whinney resigned due to growing concerns about fraudulent restorat ion contracts that accounted for, approximately, 90% of all revenues of the company. When Ernst & Whinney insisted on visiting restoration sites, Minkow tried to refuse because none of them actually existed. The auditor insisted on visiting restoration site in Sacramento, so Minkow had to agree. For that purpose, he sent his managers to Sacramento to find a premise that might have looked like one mentioned on papers. Managers found one and arranged everything the way that it actually belonged to Minkows company. By chance, the buil ding chosen by the managers was the same one the auditor identified for himself as the most probable variant. But, in fact, the auditor didnt check the permit for restoration or papers for ownership as they signed an agreement on not making any phone calls to any individuals involved in building restoration. Finally, Ernst & Whinney resigned because it found out about involvement of Minkow in credit card forgeries (the story was published in The Los Angeles Times); also, ZZZZ Best Company issued a press release with recorded profits and rev enues, without notifying the auditors; third, evidence was found that all restorations contracts were fake (the information was submitted by anonymous party). According to rules, ZZZZ Best Company had 15 days to issue 8 -K form mentioning all concerns of the previous auditor, which wasnt done. The SEC required former audit to perform the letter about accuracy and completeness. In those times, auditor firms had 30 days to file the letter to send it to the SEC and Congressional subcommittee and by the time it was written and sent, ZZZZ Best Company had filed for protection from its creditors. The article, published in The Los Angeles Times, made many people alert about creditability of the ZZZZ Best Company and forced Minkow to make several wrong moves that cost him even more creditability. In court, the judge pointed to several points Ernst & Whinney overlooked in the financial statement and stated that investm ent banks couldnt fully rely on the issued review report because it hadnt published the o pinion about the company. But, later on, stockholders of the company settled a private lawsuit against the auditor firm, the investment banker and the former law firm and won. Barry Minkow spent several years in prison and was released in 1994. It looked like he changed his life and turned into really religious person and even taught others how to investigate fraudulent activities. In 2011 he was sentenced again and pleaded guilty for conspiracy to commit security fraud.