Tuesday, March 22, 2011
The Wall Street Journal recently reported that Barry Minkow has been indicted on insider trading charges. I’m familiar with Barry Minkow’s story. He schemed up a fraud during the mid-1980s with a name like zzzz carpet cleaning. The company eventually raised millions of dollars from investors and then collapsed as a typical Ponzi scheme. Minkow received a lengthy prison term for his role as a principal in the fraud.
Barry Minkow is Jewish, but while serving his sentence he converted to become a born-again Christian. He studied theology through a correspondence school and upon his release from the federal prison camp at Lompoc, he secured a job as a pastor in a San Diego church.
I know all of this because I read an autobiography that Minkow published. He called it Cleaning Up. The book irked me when I read it because it didn’t quite harmonize with the humble, moral life that Minkow wanted to project.
I recall reading about a dot-com venture he led that raised numerous red flags while he simultaneously tried to lead his church. Then Minkow made headlines with his efforts at helping corporations and investors uncover fraud. As it turns out, Minkow couldn’t restrain himself from a scheme to profit from the ostensible fraud that he seemed to be orchestrating rather than uncovering.
According to the Wall Street Journal article, Minkow accepted a commission to uncover fraud at Lennar Homes, a publicly traded South Florida builder. He wrote a report that had an agenda of pushing the stock price lower. Before publishing the report, however, Minkow purchased $20,000 worth of options that would profit him handsomely if the stock dropped. As expected, the company’s stock dropped precipitously upon publication of Minkow’s report.
Minkow’s case is like a classic case from what I described in my books Lessons From Prison and Ethics in Motion as The Fraud Triangle. When the delta of 1) capacity, 2) pressure, and 3) rationalization come together, fraud frequently ensues.
As a consultant who could influence markets, Minkow had the capacity to take advantage of others. He may have felt pressure to reward himself. He may have rationalized his action with delusions that he was on the side of the good guys.
Being on the side of good guys, however, doesn’t excuse anyone from illegal conduct. And it’s illegal to make trades in public markets on inside information. Minkow is pleading guilty to securities fraud charges that will expose him to several years in prison.
It saddens me when I read of people who serve time in prison, then emerge to continue in the cycle of crime. Through my work I help people understand the importance of making values-based decisions. I strive to help individuals prepare for struggles they may have with the criminal justice system so they emerge stronger than when they went in. Call me. I’m JP and I can help.