Barry Minkow and Nicolas Marsch III Conspired and Manipulated FBI to Ruin Lennar Stock; Feds Reveal Details
Barry Minkow, mastermind of the ZZZZ Best carpet cleaning fraud 25 years ago who claimed redemption as a fraud buster and pastor after leaving prison, conspired with a San Diego developer to "artificially manipulate and depress" national home-builder Lennar Corp.'s stock in an attempt to get cash payments out of the company, the U.S. Attorney for the Southern District of Florida said Thursday.
In an official "information" document, U.S. Attorney Wifredo A. Ferrer said Minkow in 2008 was hired by "Conspirator A," who is known to be Nicolas Marsch III, to get Lennar to pay developer Marsch money he insisted he was owed. Minkow then lured the FBI, IRS and SEC into his scheme:
They hatched what the document released today calls a "shared unlawful plan" whereby Minkow in 2009 would apply pressure to Lennar, including "artificially depressing the price" of the company's common stock.
Minkow began that campaign in January of 2009 in a media blitz that included press releases, Youtube.com videos, the Internet and mail communications to promulgate "false and misleading statements" about Lennar, the federal claims say.
The statements by Minkow alleged widespread financial improprieties by the company, and personally attacked Lennar's managers, the information document says: "These false and misleading statements about Lennar and its management (were made) with reckless disregard for their truth with the intent of artificially depressing Lennar's stock price."
Minkow, the U.S. Attorney says, abused his preexisting relationships with law enforcement including the FBI, by reporting "false allegations of criminal conduct" he claimed was committed by Lennar managers.
Once law enforcement -- using his false and misleading report -- opened a criminal investigation, Minkow used that information and traded Lennar stocks.
Minkow, as the Weekly first reported March 15, has agreed to plead guilty to a felony count for his role in the conspiracy. He faces five years in prison.
The information said Minkow specifically furthered the conspiracy by sending a copy of his scathing report on Lennar by his Fraud Discovery Institute to the FBI, IRS and SEC on Jan. 7, 2009, followed two days later by posting "false and misleading" statements alleging fraud by Lennar on a website, www.lenn-ron.com.
He later that month posted a Youtube video comparing Lennar to a "Ponzi scheme" and falsely stating that "Lennar is a financial crime in progress."
In March 2009, Minkow followed up with an email to the FBI and IRS confirming that he knew he was "precluded ...from shorting (Lennar) stock" -- that is, betting it would drop in value. But three days later he "misappropriated material nonpublic information" the FBI had entrusted to him and purchased Lennar stock options anyway.
The report Minkow issued on Lennar in January 2009 sent the housing company's stock tumbling $500 million over two trading days.
Lennar immediately added Minkow to a libel and extortion case it had previously filed against Marsch due to threats the company alleged Marsch had made in the midst of a financial dispute with Lennar over money Marsch said he was owed from a San Diego development project.
A judge later ruled there was no merit in that case, or another brought by Marsch against Lennar.
In December, the judge tossed out Minkow's defense, saying that in the libel and extortion case he had methodically worked to "deceive" the court by lying, destroying or discarding key evidence, and concealing material evidence, and ordered him to pay sanctions estimated in the millions of dollars.
Minkow is expected to plead guilty to the charge of conspiracy to commit securities fraud next week, his attorney has said. That crime carries up to five years in prison.
Because he has agreed to plead guilty, the information document released this morning is in lieu of a grand jury indictment, and lays out the outlines of the charge and conspiracy.
A source tells the Weekly that Minkow was facing a far lengthier sentence for securities violations, possibly up to life, and that he therefore agreed to plead guilty to the one count. The source said it is expected the government now will go after Marsch.
On January 30, Minkow's Community Bible Church in Mira Mesa was broken into. More than $50,000, mostly in checks, was stolen, and the offices were extensively damaged. Minkow denied any involvement.
Minkow had widely and successfully touted himself as reformed from his days at ZZZZ Best, where he later admitted he had staged burglaries to collect insurance money to finance the business. He has resigned as pastor of the Mira Mesa church.
For further reading please see:
LA Weekly breaks the story of Minkow's apparent fall from grace, "Minkow 2.0."
A judge rules that Minkow destroyed evidence and lied.
A judge slams Minkow with huge new sanctions.