It Takes One To Know One

Former Con Artist Goes Undercover To Expose Possible Scam

This story originally aired on May 22, 2005.

If you were going to start a Hall of Fame for con men, Barry Minkow would have to be one of the first inductees. He was one of the most famous stock swindlers of the '80s, and certainly the youngest. At 20, he was the boy wonder of Wall Street, and CEO of a $300 million company. At 22, he had been convicted of 57 counts of fraud, and was off to federal prison.

Now 39, Minkow is back in the spotlight, not for committing fraud, but for exposing it. He says he is seeking redemption by going undercover to help federal law enforcement agencies crack a number of important cases, proving that when it comes to con men, it takes one to know one. reports.

Nineteen years ago, Minkow perpetrated a con so audacious, it's still taught as a case study in business and accounting schools. He founded ZZZZ Best Carpet Cleaning when he was just 16, then franchised it into a chain, and finally took it public.

On paper, he was worth $100 million. He drove a Ferrari, and even appeared on Oprah Winfrey, touting himself and his stock.

"I started with the best of intentions, really I can say that," says Minkow. "And when economic pressure reared its ugly head and I couldn't make payroll. I lied and stole and cheated."

Minkow borrowed money from the mob, cooked the books for accountants, and lied to investors about tens of millions of dollars in insurance contracts to restore buildings damaged by fire and water.

"We were claiming to be doing restoration jobs totaling in excess of $50 million. We weren't doing any," says Minkow. "None. Well, I mean, like I did some toilet overflows at Mrs. Jones' house. But that certainly didn't constitute $50 million."

"How did you manage to convince bankers and lawyers, investors that this was on the up-and-up?" asks Kroft.

"By getting an auditing firm and getting them the paper work," says Minkow. "And much to our shame, creating documents that would support earnings and contracts -- 22,000 documents. … cutting and pasting. White Out."

When a major accounting firm finally demanded to see one of their restoration jobs, Minkow found a brand new building in Sacramento, paid off a guard, and brought the auditors in on a Saturday morning.

"We'd give the guard $50 bucks to recognize us. We'd bring the auditors in. They'd say, 'Hi.' And we'd walk in and say 'Yeah, we just did all this,'" says Minkow. "We put signs about ZZZZ Best. It was like a Hollywood production. And we went to great lengths to fool and to deceive."

"But it worked," says Kroft.

"Temporarily," says Minkow. "You know, most frauds, that's the way they are. I call it the second law of fraudo-dynamics. They go from order to disorder. They work, but it's not if you're gonna get caught, but when."

When it did collapse, he left investors holding the bag for $26 million, wiping out life savings and ruining lives. Minkow spent seven years and four months behind bars. And it was in the "hole" at Terminal Island in Los Angeles that he had an epiphany.

"When I was 1988 in prison, Thanksgiving dinner, I'm sitting there with a bank robber. His name is John Hensley, great guy -- 57 some odd years old. He's got spider web tattoos," says Minkow. "They feed me Thanksgiving dinner through a hole in the door. And they nuke it, the salad and everything. … I look at Hensley. I look at the nuked Jell-o, I look at the toilet, I look at the door that don't open, and I'm thinking, 'You know, maybe it's me. Maybe there's something wrong with me. Maybe when they go to all this trouble to put you in a place like this, you better do some changing.'"

And he did. Minkow earned master's degrees in religion and divinity, and is now preaching to 1,400 parishioners at his community Bible church in San Diego. But he doesn't go near the collection box.

"Evangelism has been known to be a refuge for con men," says Kroft.

"Oh yeah," says Minkow. "Our church, we're not like that. We tell people who are visiting not to give. We're not a TV ministry. We don't say, 'If you don't send me money, I'm gonna die.' It's not that kind of a ministry at all."

But not all his preaching is done in church. He founded a company called the Fraud Discovery Institute, and lectures business students, law enforcement officers, and corporate executives on white-collar crime. Minkow actually began investigating white-collar crime two years ago, when a friend asked him to check out a questionable investment.

"I looked at the thing. It was volumes of information and Web sites. And I thought to myself, 'If I was a crook, what would I do to pull this off?' And I thought, there is a unique approach," says Minkow.

He quickly discovered the company, MX Factors, was operating without a business license and appeared to be a scam. So he wrote up a report and sent it off to a federal postal inspector named Tim France.

"He urgently asked me to look into it," says France, who adds that it turned out to be a big fraud - "$35 million in losses."

"And you wouldn't have known about this unless Barry Minkow had brought it to you," says Kroft.

"That's absolutely right," says France. "I probably would not have known about it until it collapsed."