Convicted conman Barry Minkow, a famed carpet cleaning entrepreneur who served prison time for fleecing investors out of millions in the 1980s, pleaded guilty Wednesday to a new fraud charge that potentially cost homebuilder Lennar Corp. more than half a billion dollars in lost stock value.
In hopes of reducing his possible five-year prison sentence, Minkow is also cooperating in an FBI investigation into a California developer allegedly involved in the Lennar scheme, according to Minkow's lawyer Alvin Entin.
"It's real, it's substantial," Entin said at a plea hearing in federal court. "We have already turned over thousands of pages of documents to the government."
Following his first prison stretch, Minkow became a pastor in San Diego and also a valued FBI informant who helped ferret out phony business deals through the Fraud Discovery Institute he founded.
The developer in the Lennar case, identified in court papers as Nicolas Marsch III of San Diego, has not been charged. Through his attorney, Marsch said he had no knowledge of Minkow's attempt to manipulate Lennar's stock price but insisted he was hired only to investigate purported Lennar misconduct.
According to court documents, Marsch in 2006 began a campaign to force Lennar to pay him some $39 million stemming from a California land deal. This included writing letters to Lennar's board of directors _ among them, University of Miami President Donna Shalala _ claiming Marsch would "air (Lennar's) dirty little secrets" if the money wasn't paid.
After Minkow was brought on board, according to court papers, he was able to issue press releases, emails and YouTube videos claiming Lennar was beset by fraudulent accounting, misappropriation of company funds and other corporate malfeasance. One Internet site used the name "lenn-ron" in an attempt to compare Lennar to the failed and corrupt Enron Corp.
All false, Minkow admitted in court Wednesday, and geared to pressure the company to pay Marsch.
The anti-Lennar campaign caused a 20 percent drop in the Miami-based homebuilders stock, translating into a loss as high as $583.5 million, said Assistant U.S. Attorney Ryan O'Quinn.
U.S. District Judge Patricia Seitz asked Minkow, 45, why he got involved in the scheme.
"I'm not too wise, ma'am," he replied.
"You need to work on your soul, sir," she said.
As a teenager in the 1980s, Minkow became famous for founding the ZZZZ Best carpet cleaning company in Southern California and at age 21, becoming the youngest person in U.S. history at the time to take a company public. But the company turned out to be hollow, and Minkow was eventually convicted of 57 fraud counts for claiming it was involved in numerous fire and water restoration projects that did not exist. Investors in that case lost $100 million.
Lennar CEO Stuart Miller praised the Justice Department and said the company would cooperate in the ongoing probe.
"Many innocent people were hurt as a result of the criminal activity by Mr. Minkow and his conspirators," Miller said.
Entin said he will seek a lenient sentence for Minkow based in part on allegations that Marsch and others "deluded" Minkow and took advantage of him while they actually played the main roles in the Lennar conspiracy. Sentencing was set for June 16.