ZZZZ Best, Carpets and Cleaning Out Pockets

“In 1986, shortly after graduating from high school, Minkow took ZZZZ Best public. This raised over $11 million for ZZZZ Best after fees and costs, but even this wasn’t enough to pay off all the debts Minkow had accumulated while building his business. One problem going public created was that Minkow had to provide audited accounts to comply with SEC rules. Minkow got around this by having Tom Padgett forge fake invoices, fake bank statements, fake business correspondence, and creating a paper trail that was impressive on the surface as long as no one investigated the actual activities of the company. Since the accountant who audited the ZZZZ Best’s books never visited the insurance restoration sites the company owned, he never discovered they were nothing more than mail boxes. In 1986, shares issued to an officer could not be sold for two years. Once the two years were up, Minkow could sell his shares, cover his criminal tracks and achieve the American Dream of being a successful multi-millionaire entrepreneur. ZZZZ Best was like a Ponzi scheme in that the company had to continually get new investors to put money into the company to cover the debts Minkow had built up from previous investors. Minkow borrowed from Peter to pay Paul. Minkow just had to stay afloat until the two years were up, he could pay everyone off and be clear of his past. The initial public offering of ZZZZ Best stock raised $15 million, making Minkow the youngest person to lead a company through an IPO in the history of Wall Street. Flush with cash, Minkow wanted to make ZZZZ Best “the General Motors of the carpet-cleaning business.” Minkow used a massive television campaign (the commercials can be found on You Tube) to expand his business across California and into Arizona and Nevada. As a result of the company’s continual expansion, by 1987, ZZZZ Best had over 1000 employees. The stock price climbed to $18 a share, giving ZZZZ Best a capitalization of $280 million and making Minkow worth over $100 million. Nevertheless, ZZZZ Best still had cash flow problems since the legitimate side of the business only generated 15% of the company’s revenues. A potential solution to Minkow’s cash flow problems was to buy KeyServ, the authorized carpet cleaner for Sears, from its British parent. KeyServ’s carpet cleaning business was a cash cow and would provide a much needed cash infusion to ZZZZ Best to tide him over until the two year share restriction expired. KeyServ was twice the size of ZZZZ Best, but this didn’t stop the company from moving forward with the $25 million purchase of KeyServ. Minkow went to Drexel Burnham Lambert to issue junk bonds to fund the acquisition. With the KeyServ acquisition, Minkow could cover his tracks, pay off his ill-begotten debts and become the CEO of a legitimate and successful business. Minkow’s ambitions didn’t end there. After absorbing KeyServe, Minkow planned to take over ServiceMaster, the leader in the industry, in a hostile takeover, and to expand into the United Kingdom. He even began discussions to buy the Seattle Mariners. Just as in a Shakespearean tragedy, with the KeyServ deal only days from being completed, Minkow’s past came back to haunt him and all his dreams of success and legitimacy collapsed. In the course of a couple weeks, Minkow went from being a multi-millionaire to being both broke and a criminal.”

All readings above are provided from Global FInancial Data.

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