Going Public
At the suggestion of a friend, Minkow took the company public in January 1986, garnering a spot on NASDAQ. The accountant who audited the company before it went public didn't visit the insurance restoration sites himself. Had he done so, he would have discovered that they were mailboxes located throughout the San Fernando Valley. Minkow retained a 53 percent controlling interest, making him an instant millionaire on paper. Going public seemingly offered him a way to cover up his fraudulent activities. Under securities law of the time, he had to retain his personal shares for two years. He planned to sell a million of his shares to the public in January 1988, believing this would give him enough money to pay everyone off and go completely legitimate.
In order to obtain more financing, Minkow was persuaded to raise $15 million of capital through an initial public offering of ZZZZ Best stock. When accountants wanted to inspect ZZZZ Best's operations, Minkow borrowed fake offices for a tour of "Interstate Appraisal Services" and used an incomplete building to present a fake restoration job. Mark Morze, ZZZZ Best's financial consultant, tricked the accountants sent to perform the necessary due diligence by faking thousands of documents. The public offering closed in December, and Minkow became the youngest person to lead a company through an IPO in American financial history.
Minkow launched a massive television advertising campaign portraying ZZZZ Best as a carpet cleaner that Southern Californians could trust. He owned a Ferrari and a BMW, and bought a mansion in the wealthy Valley community of Woodland Hills. He had ambitions of making ZZZZ Best "the General Motors of the carpet-cleaning industry."
There were problems on the horizon, but investors chose to ignore them. The company's chief financial officer, Charles Arrington, was accused of running up $91,000 in fraudulent charges against customers of his florist business. When the Feshbach brothers, a pair of short-sellers, learned that Minkow still stood behind Arrington, they did further investigating and discovered ZZZZ Best's claimed $7 million contract to clean carpets in Sacramento was likely a fraud. The Feshbachs and other short-sellers began taking positions, anticipating that ZZZZ Best's stock would fall. Additionally, none of the company's four outside directors had any experience running a public company.
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