ANTHONY H. CATANACH JR. is an associate professor in the School of Business at Villanova University, as well as the Cary M. Maguire Fellow at the American College Center for Ethics in Financial Services. His professional experience includes five years as an audit manager with KPMG and six years in the financial services industry. Dr. Catanach has received numerous awards for his publication, teaching, and curriculum innovation efforts. He has authored numerous articles on a variety of accounting, finance, and management issues, as well as several business education texts..
A couple of weeks ago, we examined the interesting case of Barry Minkow, who seemed to have reformed after his ZZZZ Best escapades, but instead he disappointed us with a new incident of securities fraud. Sentencing was scheduled for June 16, but this has been postponed to July, in part to allow the judge more time to study the issues. In particular, we find interesting Minkow’s objections to the presentence investigation report.
First, Barry Minkow through his attorney objects to a restitution amount of $583 million payable to Lennar. He argues, correctly we believe, that the “victims of this offense were the stockholders of Lennar, not Lennar itself.” The distinction is important because the stockholders at the time of Minkow’s crime may not be the same stockholders that exist today because of trading activities. Minkow points out that the stockholders “were the only victims if they had sold their positions in Lennar at a time Minkow and Marsch had caused the stock to drop, and not after it had recovered once the fraud became public” because the stock price would have recovered its value. In a world with mostly efficient markets, this comment is correct.
Minkow further argues that the government has the burden to identify these shareholders, and we disagree. The court could create a trust fund and disburse money to those persons and corporations that could prove they were stockholders at the time of Minkow’s fraud and sold shares of Lennar before the fraud became public.
Second, Barry Minkow asks for leniency because of his “health history and current health needs,” including “high cholesterol, kidney stones, migraine headaches, ADD, and an inability to produce an adequate amount of hormones.” He also chronicles a history of drug abuse. To this we scratch our heads and ask the relevance of these details. The health problems did not cause him to undertake securities fraud, so they are extraneous to the sentencing decision. Besides, if health concerns are legitimate for consideration, the court also should investigate the health consequences to investors who suffered the drop of stock prices because of his fraudulent behavior.
A third argument is that Mr. Minkow assisted the FBI and other law enforcement agencies in identifying and analyzing financial frauds. The brief claims that he “had uncovered approximately 22 frauds, totaling over $1.4 billion, and impacting over 300,000 people.” If these claims are factual, then they do call for leniency. The question for the judge is how much leniency.
Fourth, Minkow admits that he is guilty of securities fraud and claims that he is truly sorry for this act and to those harmed by his actions against Lennar. Even if true, we outsiders must ask whether he is remorseful of his fraud or sorry that he got caught. We cannot read his heart and so cannot evaluate the degree to which he is really contrite.
Fifth, he points out that he has a wonderful wife and he has twin sons who need him because they have severe ADHD and dyslexia. Again, what is the relevance of this? If he didn’t want to go to prison, he should have avoided the securities fraud. Perhaps we are not very compassionate; but then again, Mr. Minkow was not very compassionate of those he defrauded.
In general, society will stem the occurrence of securities fraud only to the extent it vigilantly ferrets out the criminals and it metes out punishment that will deter possible copy cats. If we don’t investigate the evil acts and enforce the laws, white collar crime will grow more and more. Further, if society dispenses weak punishments, it will aid and abet future criminals.
On the other hand, we do recognize that Minkow may have played a significant role helping out various law enforcement agencies. For this reason—and this reason alone—the judge should consider some degree of leniency. But not too much clemency, for Barry did this with eyes open, heart brazen, and bank account awaiting augmentation. His admitted guilt calls for some punishment.
POSTSCRIPT: On July 21, 2011, Judge Patricia Seitz sentenced Mr. Minkow to prison for five years and required restitution to Lennar Corporation for $583 million. Sentence is to begin in 60 days.
This essay reflects the opinion of the authors and not necessarily the opinions of The Pennsylvania State University, The American College, or Villanova University.
J. EDWARD KETZ is an associate professor of accounting in the Smeal College of Business at Pennsylvania State University. He has a bachelor’s degree in political science, a master’s degree in accountancy, and a Ph.D., all from Virginia Tech. Professor Ketz has been a member of the Penn State faculty since 1981. He also has taught at the University of Connecticut and the University of Maryland. Professor Ketz has authored and edited 17 books including Hidden Financial Risk (Wiley, 2003) which examines the corporate culture and the institutional setting that engendered recent accounting scandals. Dr. Ketz has been cited in the popular and business press, including The Wall Street Journal, The New York Times, The Washington Post, Business Week, and USA Today. He also has appeared as an accounting commentator on CNN, National Public Radio, and Bloomberg Radio.
Funny… You’ve left out consideration of all of the other victims, primarily his church congregants, who have not only had their lives impacted financially by Barry’s fraud, but have been devastated by abuse of their trust and confidence placed in him. I for one, had Barry abscond with a sustantial gift made to the church, designated for Samitan’s Purse in memory of my recently-passed wife. How can restitution be made there? Shameless.
Minkow’s crimes involving his church are not relevant to the Lenar case.
Those allegations should be investigated and prosecuted separately.
“…Minkow may have played a significant role helping out various law enforcement agencies. For this reason—and this reason alone—the judge should consider some degree of leniency.” I may be cynical, but I think he was just doing research on how to avoid detection.
Call me a cynic, but fool me once, shame on you. Fool me twice, shame on me. Mr. Minkow still owes millions in restitution to those back in his ZZZZ Best days. Adding another $500 million to that pot, there isn’t one person who is going to be renumerated by Mr. Minkow’s frauds. I think the judge is granting too much leniency. He only served 8 years of his original 25 year sentance. Perhaps if he had served the full time, this event would not have taken place. I think our judicial system needs to make repeat offenders, especially of the same crimes, do the full time given.
Barry Minkow is a fat slob thief. He cares for no one except himself. He was caught for this crime once, let out of prison early and went right back into posing as someone who helps the disadvantaged, whist stealing from them again and again.
He is a life long criminal; a sociopath unable to empathize with his victims and a narcissistic fool who feels entitled to coast through life without working. He is quick to take advantage of others and a cry baby when caught.
He deserves no leniency at all. Second time caught at the cookie jar — put him away for the rest of his life. He is a scumbag
ZZZZ Best is a fascinating case and I have used it as a case study for a variety of reasons. Had it been the case that Minkow had learned the error of his ways, it would have been just an interesting case of a young man getting away with something fantastic for a while. However, Minkow is a serial offender who will hug and kiss you while dipping his hand into your wallet and finish by saying, “Praise the Lord”.
I am sorry but society need to be kept away from that man and his schemes.
Duncan