Corporate Failure Essay

1505 Words7 Pages
Case 1—ZZZZ Best Carpet Cleaning In 1982, at age 16, Barry Minkow started the ZZZZ Best Carpet Cleaning business in his basement. Four years later, the company’s assets totaled a reported $240 million. ZZZZ Best started as a carpet cleaning company. Barry Minkow founded ZZZZ Best in his parents’ garage in 1982 when he was only sixteen years old. Due to high competition in the industry, low enter barriers, and bad internal control, this young entrepreneur started to have cash flow problems, and a shortage of working capital. Pressure Leads to Fraud, under financial pressure, Minkow started to commit fraud. He forged credit card applications, staged theft, used bogus financial statements, and used his networking skills to entice wealthy investors. One year after that, Barry was in prison, serving a 25-year sentence for perpetrating a $100 million fraud on the firm’s investors. So bold and audacious was this fraud that it spawned a book, Faking It in America. ZZZZ Best, Barry’s legitimate carpet cleaning business, never made a profit and borrowed constantly. To support the loan requests, Barry created a fictitious business, purportedly engaged in restoring buildings damaged by fire and flood. The company also went public; and in short order, its stock price rose from 5 cents to $18 per share. Ultimately, the restoration “business” accounted for 80% of ZZZZ Best’s reported earnings, the only catch is that its revenues came from recorded receivables that were entirely fictitious. Barry and his two accomplices pulled off the fraud primarily by concocting fake sales invoices and customer remittance checks. The phony documents were skillfully produced using photocopying equipment and were accepted by the company’s auditors as evidence that sales/receivables transactions actually had occurred. The scam also involved payments to fictitious vendors and kiting checks back and
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