Barry Minkow, the mastermind behind the ZZZZ Best fraud, will plead guilty to one count of insider trading, according to the WSJ. Minkow spent seven years behind bars for his crimes related to the ZZZZ Best fraud, and since serving his time has worked as a minister for a California church and as a fraud buster. Minkow has received accolades from the FBI for his role in exposing a number of frauds. To fund his fraud busting operation, Minkow would short the stock of the companies he investigated just prior to publicly releasing his reports on the questionable activity of those companies. In one of those cases, it appears that Minkow traded on privileged information.
While the news outlets covering the story haven't had a lot of details about the case, it sounds like this is a case of carelessness as opposed to something more malicious. Apparently, Minkow bought about $20,000 of stock options in Lennar Corp. and took a short position just prior to releasing his report on Lennar Corp. According to the LA Times, Minkow's lawyer claims that Minkow did not profit from the decline. However, Minkow does appear to have traded on non-public information.
If this was simply neglect by Minkow, I think it would be unfortunate for him to return to prison. He should have been more careful, and the story changes if he did something more egregious. However, Minkow has contributed significantly to the exposure of frauds. Also, Minkow likely did not profit personally from his work in uncovering frauds, as he continues to pay back the victims of the ZZZZ Best fraud.
Perhaps I am biased. As Sam Antar said recently on twitter, "Memo to crooked CEOs: If you show that you are charitable, they won't think you are a crook." I may be undeservedly giving Minkow the benefit of the doubt. I may also be paying too much attention to what Minkow has done elsewhere and downplaying the potential gravity of his recent crime. However, regardless of his motives, Barry Minkow has helped expose numerous frauds and I think it would be a shame to lose someone with his ability for uncovering fraud if indeed his insider trading was simply an act of carelessness.
In 2010, I meet Barry Minkow while I was working on a master's degree in accounting at San Diego State University. He spoke about his ZZZZ Best fraud, his current businesses and money making schemes. In addition to his somewhat questionable investigate-short-bring-down-and-cash-in business, he runs a church, and recently had a movie made about his life. What a character.
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