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Fraudbuster Busted?

LA Weekly reports that Barry Minkow is still having trouble with truth telling.

Barry Minkow, the former con man turned pastor turn fraud investigator turned Wall Street watch dog, is once again under the heat of the Los Angeles press. It was the investigative journalism of a couple of reporters who tore down the curtains of Minkow's 1980s stock market swindle. Now, LA Weekly claims that "court records going back nearly two years show that Minkow is again not to be trusted. ... A Miami judge in one of those cases says Minkow has no credibility, that he ‘will lie, plain and simple.' "

I wrote about Minkow for CT in 2006. At the time, he had uncovered roughly a billion dollars of fraud, much of it being perpetrated against Christians. And much of it was ongoing. In the Bernie-Madoff-type schemes he was uncovering, the scheme was still ongoing. People hadn't yet lost money, and no one had called the police. Minkow heard about these scams, saw his fingerprints on them, and investigated the deals while turning his findings over to the police. They, in turn, appreciated his work and highly recommended him.

Minkow was making a comeback, but he always knew that patience with an ex-con ran thin. "One and done," he said, knowing that one screw up would cost him years of trust rebuilt.

Beth Barrett's LA Weekly piece suggests Minkow should now be considered done. The heart of their accusation is the way he has characterized a handful of companies. In the press and through his own publicity, Minkow claims that diet supplement company Herbalife, homebuilder Lennar, and other businesses are operating frauds or ponzi schemes.

But, the Weekly says, Minkow is lying in order to profit by betting against the companies' stock. Minkow has been upfront about the fact that his Fraud Discovery Institute makes its money by betting against the stock prices of the companies it investigates. Minkow isn't alone. Other organizations do the same. As long as Minkow isn't lying about the companies he bets against, it's perfectly legal.

But LA Weekly says he is lying. After Lennar sued Minkow for his public statements about the company, a judge said, ""There is no evidence of fraud or diversion of funds to other projects." And Barrett explains, "The judge's decision meant that damaging allegations made public by Minkow on Marsch's [his client] behalf in January 2009 had been weighed in a court of law and found to have no basis in fact."

Among other things, the lawsuit also found that although Minkow testified under oath that "he'd never bet against Lennar's stock by buying put options before leveling allegations against the company ... Minkow was forced to admit that he had indeed shorted Lennar's stock, twice." (Note: Technically, buying put options and shorting the stock are two different, unique ways of making money off a falling stock price.)

The court records show that Minkow also made other false claims during the trial. He also lied on more than one occasion about his absences from the proceedings. The paper reports:

On Aug. 2, the day Minkow was to travel from Los Angeles to Miami to testify in Lennar's lawsuit, he told the court he'd missed a red-eye flight because he had been hospitalized in an emergency room for assorted ailments, including nausea, anxiety, kidney stones, food poisoning and a migraine.

When the judge ordered him to produce hospital records, Minkow was forced to concede that he had lied. Under oath, Minkow admitted that he had not visited the ER but instead stayed at the Ritz-Carlton in Marina del Rey and sought treatment the next day from an anti-aging doctor in San Diego.

Judge Freeman said that Minkow "seems to have absolutely no sense of responsibility for telling the truth," and had exhibited "misfeasance and fraudulent conduct."

"The truth is whatever he decides is important to the moment," Freeman said.

The piece then goes on to blame the rest of the media industry's complicity in Barry Minkow's fake comeback from convict. Oddly, it neglects to mention former Los Angeles Times religion reporter William Lobdell, who went to work with Minkow, writing about the companies he investigated.

The story is painful to read, especially to me, as I got to know Minkow well when writing about him. It was clear that the desire to be a recognized success was still a powerful motivator for him. But he was also incredibly honest about his failings and eagerly erected support from friends and church members to help him where he was weak.

It's also clear that Minkow has gotten quite carried away in his side gig profiting from his investigation of public companies while pastoring a church. He's lied to a judge, and while maybe he has not defrauded investors again, he has caused a significant loss of money based upon his making untrue statements. He may be sanctioned by the Securities and Exchange Commission. I'm hopeful Minkow and his accountability partners can reign him in. According to this LA Weekly piece, his demons still have some power. He could be a fantastic pastor because he's a gifted man. I pray those gifts will be directed toward kingdom building.

Update: Minkow has responded.

Rob Moll is a Christianity Today editor at large.

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