UPDATE: In March 2011, Barry Minkow pleaded guilty to once charge of insider trading related to Lennar Corp., and was later sentenced to prison. I had no knowledge of any of his bad acts relating to Lennar or any other company, and I did not participate in any bad acts. I stand behind all of the work that I did for Mr. Minkow.
I’ve had enough of critics calling Barry Minkow a “self-professed” fraud investigator. These critics act as if there is no evidence that Minkow has successfully investigated fraud… thus he is a “self-professed” fraud uncoverer.
I know from firsthand experience that Barry has successfully investigated many frauds. (Full disclosure: I have been paid by FDI for work I have done related to their investigations, but none of these cases are shown below.) But what if I didn’t know about his investigations? Could I go to third party, independent sources to verify his track record (or lack thereof, as the critics imply) in uncovering fraud?
I’ve got a few letters after my name… CPA, MBA, CFE (Certified Fraud Examiner), and CFF (Certified in Financial Forensics). Certainly my talents could help me (and all those reading) to get to the bottom of exactly what Barry Minkow and FDI have been up to over the last few years. Have they really uncovered fraud?
It wasn’t even all that difficult. I found independent evidence of the cases Minkow and FDI have investigated. They are credited with uncovering numerous frauds over the last five years and assisting law enforcement in pursuing these cases.
The results speak for themselves. Below is a graph that shows the cumulative amount of fraud that Barry Minkow and Fraud Discovery Institute have uncovered. Below that is the independent corroboration of those amounts. The evidence includes excerpts from articles, court case filings, and third party correspondence to verify the dollar value of the fraud schemes.
My little “audit” of Barry’s fraud investigation results could be done by anyone with the time and desire to do so. They can easily confirm what I’ve found.
And what I’ve found is that indeed, Barry Minkow and Fraud Discovery Institute have uncovered significant fraud, totaling over $1.8 billion.
In other words, no matter what one believes about the current case involving Lennar Corporation (NYSE:LEN), the facts are indisputable: Barry Minkow and FDI are not “self-professed” fraud uncovers. Rather, they’re responsible for stopping frauds in progress totaling billions of dollars. Uncovering those frauds likely saved other investors and potential victims millions more dollars. Those are the facts, and no spin can change them.
Click graph to see it full size.
1. Case: Edward Showalter
A Shot at Redemption: White-Collar Crook Now Helps Authorities Uncover Scams
Wall Street Journal
By Jeff D. Opdyke
Mr. Minkow’s efforts at rooting out potential fraud are highlighted in court papers the SEC filed earlier this year in a continuing case with Edward R. Showalter, a California businessman. The SEC in 1998 accused Mr. Showalter in a civil case of devising two fraudulent schemes to raise money for a now-defunct Florida restaurant company. The SEC in 2001 won a roughly $900,000 default judgment in this case against Mr. Showalter.
In court filings, the SEC specifically notes that Mr. Minkow provided new evidence-including voice mails from Mr. Showalter and a packet of information for a new business he is pitching to investors to import cement from the Ukraine. That, the SEC told the court, “causes us a lot of concern, and we don’t want to be in a position where this is a fraudulent enterprise being used to pay our
2. Case: MX Factors
Former Head of MX Factors Is Charged With Fraud : FDI Uncovers Ponzi Scheme, then does 12 month surveillance in Mexico to help nab escaped promoter of Ponzi Scheme
Wall Street Journal
September 11, 2007
By Keith J. Winstein
Federal authorities arrested Richard M. Harkless, former head of MX Factors LLC, and charged him with operating a Ponzi scheme that bilked investors out of more than $39 million.
Authorities credited a San Diego private investigator, Barry Minkow, with identifying MX Factors as a Ponzi scheme and helping to pursue Mr. Harkless. Mr. Minkow originally brought MX to the government’s attention in 2003, said Timothy France, a U.S. postal inspector. Mr. Minkow arranged for surveillance of Mr. Harkless in Mexico, Mr. France said, “since we as law enforcement cannot really go down into Mexico.” A tip from Mr. Minkow led indirectly to Mr. Harkless’s discovery in Arizona, Mr. France said.
3. Case: Financial Advisory Consultants
State, feds investigating SoCal investment firm: Company that claims extraordinary profits has no license, records show
December 11, 2003
By Don Thompson
Financial Advisory Consultants, an Orange County-based investment firm, claims to have generated extraordinary profits for its clients over 20 years, but records indicate it has not registered with state and federal agencies that regulate financial advisers and investment funds.
The company’s annual reports to clients give no details on the companies it says it has bought and sold, nor the investments it says produced an average annual rate of return of 38.8 percent from its growth fund and 18.9percent from its income fund since 1983.
But state and federal regulators have begun probing what at least one whistle-blowing client fears may be returns too good to be true. Regulators are examining documents provided by Barry Minkow, a convicted felon turned anti-fraud investigator for San Diego-based Fraud Discovery Institute.
Minkow’s client, who would not let his name be used, said he has invested about $150,000 and other members of his family about $500,000 with the firm over about five years. He said he has been able to withdraw substantial sums, but with a two-month delay after he asked for his money — as outlined in a company document that warns “the right of redemption is at the sole discretion of the Funds Manager, James P. Lewis Jr.”
Investors fear they’ll lose millions in alleged Ponzi scam
December 25, 2003
By Don Thompson
Their financial future came crashing down this week, when a federal judge froze the company’s assets and the FBI carted away documents and computers from Lewis’ three-room Orange County office suite.
No charges have been filed, but the FBI alleges Lewis was operating a “Ponzi scheme,” in which early investors are paid with money from later investors. The federal Securities and Exchange Commission says the “fraudulent scheme” involved $813 million from more than 5,200 investors.
“It’s a house of cards,” said Barry Minkow, himself once imprisoned for seven years for defrauding investors through his ZZZZ Best carpet cleaning company. “It will go down as the longest-running Ponzi scheme in history, and the mutual fund that didn’t exist.”
Minkow, who now works as an anti-fraud investigator for San Diego-based Fraud Discovery Institute, provided state and federal regulators with documents questioning Lewis’ legitimacy, also prompting an investigation and story by The Associated Press earlier this month.
4. Case: Par Three Financial
Laws open door for schemes ‘Straw’ officers in companies lead to shady deals
Las Vegas Sun
October 14, 2005
By Steve Kanigher
“It’s an incredible loophole and it allowed Par Three to operate,” said Barry Minkow, a former white-collar criminal who appears regularly on television as a commentator on Wall Street scandals. “It’s a major fraud technique. It allows the perpetrator of an illegal activity to hide his position. I can’t believe the laws in Nevada are the way they are.”
Minkow is chiefly responsible for Par Three’s demise. It was his Fraud Discovery Institute in San Diego that launched the initial probe because of a concerned investor.
During that time, Par Three collected more than $8 million from 120 investors nationwide, according to the Securities and Exchange Commission. Advertising in newspapers such as the Los Angeles Times, San Francisco Chronicle and Seattle Times, Par Three operated a password-protected Web site and promised returns on investments of at least 24 percent annually.
The SEC and the California Department of Corporations stepped in after Minkow’s outfit found that Par Three was not registered to sell securities, had unlicensed brokers and did not have financial statements prepared by certified public accountants.
5. Case: Ware Enterprises
NFL Warns Players About Florida Investment Program
Dow Jones Newswire
By Phil McCarty
The National Football League has warned players about investing with Florida-based Ware Enterprises and Investment Inc., which promises a 10% monthly return.
The Florida Office of Financial Regulation uncovered possible criminal activity after looking into Ware Enterprises and turned over its findings to the FBI in September, a person close to the probe said.
A San Diego private investigator, the Fraud Discovery Institute, also has investigated Ware Enterprises and Warren Ware, and charged that Ware Enterprises has made “proclamations that the fund is endorsed by the NFL.”
The Fraud Discovery report was produced by Barry Minkow, the group’s co-founder who was imprisoned for seven years for defrauding investors through his ZZZZ Best carpet-cleaning company. Minkow, now an antifraud investigator, in early December uncovered an $800 million Ponzi scheme in Orange County, Calif., involving a firm called Financial Advisory Consultants.
Minkow said he interviewed several investors in Ware Enterprises and that many “immediately knew and could sometimes name NFL players that are participants in the fund.”
According to Minkow’s report, Ware Enterprises has more than 1,000 investors with a total of at least $100 million invested.
6. Case: Financial Solutions
Judge Freezes Assets of Alleged Ponzi Scheme
November 5, 2004
Los Angeles Times
By E. Scott Reckard
Hashimoto, 44, of Riverside, president of Financial Solutions and a related company, Ohana International Inc., raised at least $8 million, Gok said. Sales-pitch documents said his goal was to raise $150 million, she added.
The SEC suit said Hashimoto had begun to expand nationally, alleging that Financial Solutions agents made a sales pitch in Chicago last week to prospective investors. They were told the company was financing an unnamed government contractor who was building “invisible walls” for the FBI, SEC attorney Peter F. Del Greco said in an affidavit.
The alleged scam came to the notice of authorities via a tip from Barry Minkow, who as a teenager founded ZZZZ Best, a Reseda carpet-cleaning company that perpetrated a notorious fraud on Wall Street investors. Having served a lengthy prison sentence, Minkow is now the pastor of a San Diego church and helps operate a private company that investigates suspected frauds.
Minkow said he and Juan Lopez, a private investigator who works for Minkow’s Fraud Discovery Institute, posed as investors to meet with Financial Solutions. His 15-page report, addressed to Del Greco and dated June 17, was attached to the SEC’s filings with Timlin.
7. Case: TC Enterprises (Triple Crown Enterprises)
Thoroughbred investment firm skips hearing, denies it’s a scam
October 7, 2004
By Don Thompson
Although California regulators shut it down in July after accusing it of bilking investors out of $15 million, a Tennessee company claiming to invest in thoroughbred racehorses is continuing to operate under a different name as its lawyers say company did nothing wrong.
TC Enterprises LLC or Triple Crown Enterprises is still doing business as Thoroughbred Champions Enterprises LLC, but it will no longer sell horses in California to comply with the July desist-and-refrain order by the California Department of Corporations, said attorney Gayle Mayfield-Venieris.
The state investigation began after disgruntled investors contacted Barry Minkow, a former federal convict turned fraud investigator who turned over his findings to the Department of Corporations. Mayfield-Venieris’ letter attacked Minkow, who has helped federal and state agencies uncover several Ponzi schemes over the last year. One, Orange County-based Financial Advisory Consultants, allegedly swindled investors out of more than $814 million.
8. Case: Chicago Development & Planning
SEC alleges real estate firm was running investment scheme
May 4, 2004
By Gary Gentile
A federal court froze the assets of a real estate investment company Tuesday after regulators alleged it was misleading hundreds of clients by promising sky-high returns but paying them off instead with money from newer clients.
Since January 2001, Chicago D&P has raised at least $10 million from several hundred clients, according to the SEC’s complaint. The fund has raised about
$2 million in the last month alone and since October has paid $3.2 million to its clients.
The SEC filed the request for a temporary injunction Tuesday after examining documents provided by Barry Minkow, a convicted felon turned anti-fraud investigator for the San Diego-based Fraud Discovery Institute.
The court granted the request, freezing assets in all accounts owned or controlled by Morgen and her son. A hearing to consider a permanent injunction is scheduled for Monday.
Minkow said he started his probe after being approached in March by a prospective client.Morgen said she has not received complaints from any of her clients, who she described as “very happy.” The SEC also has not received complaints, but Fagel said that wasn’t unusual.
“When you get in there when the scheme is still running, then it’s typical that investors are still happy because they are getting their money,” he said.
9. Case: Rainmaker Managed Living
Rainmaker Shoots Off a Vengeful E-Mail
New York Post
August 28, 2005
By Richard Wilner
Talk about chutzpah.
The lawyer for the Manhattan investment group accused of defrauding clients to the tune of $3.75 million lashed out at the man who fingered the alleged fraud, telling him the company’s executives wouldn’t rest until he was behind bars.
“I am going to personally guarantee you that after I am through with you, I am going to send my chauffeur to take you to jail in a brand new Ferrari,” Alireza Dilmaghani, counsel to the investment group, Rainmaker Managed Living, wrote in the e-mail to Barry Minkow. Minkow, a convicted felon turned fraudbuster, who has fingered more than a dozen frauds in action, alerted the Feds to the Rainmaker case.
Rainmaker raised more than $7 million under the pretense of building assisted-living facilities and returning a guaranteed 25 percent investment return.
However, Dilmaghani, 41, and others pocketed $3.75 million, and Rainmaker hadn’t purchased any real estate, according to the charges filed by the Securities and Exchange Commission.
10. Case: Turning International and Derek Turner
The Million Dollar Con Man
Made-for Television Movie
Turner’s outlandish career began by overthrowing a company he wasn’t even an investor in and stretched to pitching to rebuild the World Trade Centre. His undoing came in February 2006 when he was convicted in a New York court of defrauding over 60 investors of $90 million. Now, as he sits back in his cell in the Nassau County Correctional Centre, still following the financial markets from a transistor radio, still claiming he will return to trading, Derek Turner can at least lay claim to one title – he is undoubtedly the “King of Con” from down under.
However, the good times would not last forever. Turner’s downfall eventually came from the most unlikely of people, an ex-con turned preacher by the name of Barry Minkow (played by Mark Fergusson).
“The Million Dollar Con Man” is interspersed with interviews from the people intimately involved in the case, from victims who lost millions, to FBI Agents, and even Turner’s un-doer, Minkow himself.
11. Case: SOCM Enterprises
State targets investment firm run by pastor
August 20, 2005
California regulators shut down an investment firm run by a pastor who allegedly promised congregants 5 percent monthly returns.
Steve O. Cooper, founder of Nu-Way Christian Ministries of San Diego, failed to seek permission to sell securities, as required by state law, the California Department of Corporations said.
The order, dated Monday, prohibits Cooper and his investment firm, SOCM Enterprises, from selling securities.
Barry Minkow, an evangelical minister and anti-fraud investigator who called the firm to the attention of state and federal authorities, estimated the Coopers recruited 15 to 25 church members and raised more than $1 million.
Minkow, who posed as a potential investor, once served time in prison for defrauding investors through the ZZZZ Best carpet-cleaning business he founded as a teenager. He has since co-founded the San Diego-based Fraud Discovery Institute.
12. Case: Citirise
SEC Files Civil Action and Obtains Asset Freeze in Connection With Widespread Real Estate-Based Offering Fraud
November 15, 2007
The Securities and Exchange Commission announced that today it filed a civil action in the United States District Court for the Southern District of Florida against James Thomas Webb and several companies that he owns and controls alleging that they engaged in a real estate-based fraudulent investment scheme that raised at least $8.4 million from more than 80 investors.
13. Case: Cornerstone and Hiram Damwijk
Sentencing September 22, 2008
It is ordered that the defendant shall pay restitution in the total amount of $756,220 pursuant to 18 U.S.C. § 3663A. Restitution shall be due during the period of imprisonment, at the rate of not less than $25 per quarter, and pursuant to the Bureau of Prisons’ Inmate Financial Responsibility Program. If any amount of th e restitution remains unpaid after release from custody, nominal monthly payments of at least $500 shall be made during the period of supervised release. These payments shall begin 30 days after the commencement of supervision. Nominal restitution payments are ordered as the court finds that the defendant’s economic circumstances do not allow for either immediate or future payment of the amount ordered. If the defendant makes a partial payment, each payee shall receive approximately proportion al payment.
14. Case: Ed Purvis and Nakami Chi Group Ministries International.
FBI, state investigating church group’s dealings
The Arizona Republic
September 10, 2006
By Robert Anglen
And federal investigators didn’t start questioning Nakami’s activities until four months ago, when Barry Minkow contacted them. Minkow is a former con man turned pastor who runs a private investigative agency in San Diego called the Fraud Discovery Institute. Federal authorities credit him with stopping more than $1 billion in fraud in the past two years.
Minkow says he received calls about Nakami from church members in Arizona. He says he contacted pastors in Avondale and Chandler who rebuffed his concerns.
“This is a company that appears to be offering returns with no paperwork, no prospectus, no licenses,” Minkow says.
Minkow says his investigation of Nakami found ties to investments at churches in Texas in addition to Arizona and Missouri. He says he also found a California investor who says he gave Purvis almost $100,000 for an overseas gold mine operation.
15. Case: Money Growth Solutions
Money Growth Solutions FBI “Raid”: FBI raids area company that touted big returns
April 19, 2006
By Andrew McIntosh
FBI agents raided the offices of a Foothill Farms financial firm that has raised more than $2 million marketing investments that promised astronomical returns within weeks, according to court documents obtained by The Bee.
Barry Minkow, a convicted felon turned pastor and investment whistle-blower in San Diego, reported Money Growth Solutions to the FBI.
16. Case: Pinnacle Development and Planning
GA company faces probe over ads promising big returns
Wall Street Journal
September 21, 2006
By Zachary M. Seward and John Hechinger
California securities regulators are investigating an Atlanta company that has raised millions of dollars through a national advertising campaign promising fat returns investing in foreclosed properties, according to a person familiar with the matter.
The state is examining Pinnacle Development Partners LLC, whose ads tell investors they will receive a 25 percent return on their investments in 60 days. Capitalizing on investors’ thirst to strike it rich in a waning real-estate market, Pinnacle says it refurbishes foreclosed properties and then sells them at a hefty profit. However, real-estate records show the only buyers of the properties are located at Pinnacle’s address. A person familiar with Pinnacle said those buyers are related to the company.
Barry Minkow, a private investigator who runs Fraud Discovery Institute, a for-profit corporation in San Diego, says the apparent lack of sales raises “red flags” about financial wrongdoing. Mr. Minkow started investigating Pinnacle after an investor contacted his office. He says that the Federal Bureau of Investigation, at his urging, is looking into the matter.
The FBI declined comment. Mr. Minkow also sent a report to the Securities and Exchange Commission, which declined comment.
17. Case: 12 Daily Pro
SEC Alleges Internet Ponzi Scheme: Freeze of Assets is Sought After Offer of 44% Return for Looking at Online Ads
Wall Street Journal
February 10, 2006
By Mark Maremont
The Securities and Exchange Commission filed a court action seeking to freeze the assets of 12DailyPro, and the agency is accusing the Web site and its operator of running an Internet Ponzi scheme that the SEC said has raised more than $50 million from more than 300,000 investors who were promised huge profits on their money.
A key figure in the shutdown of 12DailyPro was Barry Minkow, a former carpet-cleaning executive who was convicted of securities fraud in the 1980s before he turned to helping regulators and investigators detect other frauds.
Report of Receiver Thomas F. Lennon
October 23, 2006
Total amount invested in 12DP system – $514,347,135
18. Case: AOB Commerce
SEC accuses Calif. man of fraud in alleged $45 million Ponzi scheme
July 16, 2007
The Securities and Exchange Commission charged a Southern California man with fraud for allegedly running a $45 million Ponzi scheme through investment firms that claimed to make loans to Asian companies.
A complaint was filed Thursday against Terchi “Nelson” Liao, 49, the SEC said. A judge also temporarily halted the activities of two firms he controls, AOB Commerce and AOB Asia Fund, and froze their assets, the agency said.
According to regulators, Liao took in at least $45 million since 2004 from hundreds of investors nationwide, promising them monthly returns as high as 5.5 percent.
Allegations were brought to the attention of authorities by Barry Minkow, a former federal convict turned anti-fraud investigator. Minkow is co-founder of the for-profit Fraud Discovery Institute in San Diego.
Fraud Discovery Institute Issues Report on Alleged $250 Million International Financial Fraud Involving the U.S. and China
February 21, 2007
The Fraud Discovery Institute, under the direction of Barry Minkow, has issued a 200 page detailed report of an undercover operation involving a possible $250 million international fraud with ties to China and an American public company; it was announced by Barry Minkow and posted on www.frauddiscovery.net.
The 200 page report, issued to the FBI and Securities and Exchange Commission, details an undercover operation into AOB Commerce, Inc., a California-based company that claimed to fund bridge loans to businesses in China and the US, and allegedly offered investors 3% monthly returns and an in-perpetuity residual income for investors who referred new clients to the AOB Commerce, Inc investment opportunity.
19. Case: James Duncan and Total Return Fund
Desert company cuts back business: Sunburst says it has no connection to MX Factors, which is under investigation
October 23, 2003
By Devona Wells
A Palm Desert firm has sent its employees home and stopped accepting investments after plagiarizing marketing materials from an Inland company that is being investigated.
Sunburst Financial Systems also dismantled a Web site that “plagiarized sales and marketing information out of MX Factors,” said Sunburst general manager Christopher Oetting by phone Wednesday. He declined to say why biographical information on one of Sunburst’s managers mirrored that of Richard Harkless, the owner of MX Factors.
Sunburst shut down its Web site and let go of its seven employees for a week, said Oetting. He said he was acting on the advice of company lawyers after he received a call Tuesday from Barry Minkow, an investigator with the Fraud Discovery Institute.
Minkow, jailed in 1988 for securities fraud, said he has been checking into Sunburst for two weeks and turned over information he uncovered to a postal inspector and the Securities and Exchange Commission. Minkow also shed light on MX Factors and gave his research to the Better Business Bureau and has since shared it with investors.
Sunburst saw MX Factors’ literature and loved it, said James Duncan, a Sunburst consultant. On its Web site, Sunburst advertised a 17 percent yearly return to investors who put in at least $20,000. The money would be used to finance other companies by purchasing accounts receivable, a practice called factoring – the arrangement MX Factors offered its investors.
Securities and Exchange Commission
Complaint February 27, 2008
Between April 2004 and February 2006, Duncan made an unregistered offering of securities using an entity called the Total Return Fund, LLC (“TRF”). Through TRF, Duncan raised over $1.2 million from at least 20 investors by offering “preferred membership units” to the public. TRF’s promotional materials falsely stated that 95% of investor funds would be invested in real estate, business assets, or accounts receivable. Instead, funds generated by the TRF offering were commingled with and used to perpetuate a second, larger offering fraud Duncan and his co-defendants made through an entity named Pacific Wealth Management, LLC (“PWM”). Funds obtained from investors in TRF preferred units were misappropriated and used to pay mortgage and other expenses related to PWM, and to provide operating funds for TRF and PWM and its affiliates. Finally, in a Ponzi-like scheme, funds from TFW investors were used to pay returns to other TRF investors
20. Case: James Duncan and Pacific Wealth Management
Commendation letter from Attorney Richard D. Ackerman
July 24, 2007
By way of introduction, my name is Richard Ackerman and I am lead counsel for the plaintiffs in the Pacific Wealth Management case which is a fraud of approximately 100 million in losses and hundreds of victims. I am writing this letter to convey my thoughts and appreciation concerning the Fraud Discovery Institute’s involvement in assisting me and hundreds of investors in the Pacific Wealth Management fraud case. Your help in bringing this case to the attention of the FBI, SEC and other local authorities is greatly appreciated – yet to date, has gone surprisingly unreported by the media. This letter is designed to supply put your long-time cooperation on the record.
21. Case: Will James Equity
Preacher helps find an alleged con man: Ex-swindler aids feds in the arrest of a former Freeport man accused of fleecing the elderly of $16M
June 19, 2007
By Robert E. Kessler
Barry Minkow rides again.
The boy California confidence man-who turned into an evangelical preacher and tracker-down of confidence men in his spare time – has helped federal agents catch another alleged area swindler.
This time Minkow – who as a teenager masterminded a $300-million swindle and now heads a church in San Diego – recently assisted the U.S. Postal Inspection Service and FBI agents in highlighting the activities of an alleged confidence man, Wilson James Baston Jr. of Manhattan , who formerly lived in Freeport .
Baston, 45, was arrested last week on charges of fleecing victims, many of them elderly, out of $16 million. The charges are based partly on a report Minkow prepared on Baston’s activities.