ZZZ Best

The modern business heavily relies on ethical practices which are crucial for the normal organizational performance of companies and cooperation between companies. In actuality, it is practically to develop effective business relations without being confident in the reliability of partners and contractors. In such a context, fraudulent practices are extremely dangerous because they not only affect companies involved in business relations with a fraudulent company, but they also undermine the general stability in the market and increases the distrust of companies. As a result, investors and companies grow unconfident in the reliability of their partners, while traditional ethic principles do not work effectively anymore. In such a situation, the market needs certain time to recover from the fraud. In this respect, the case of ZZZ Best is particularly noteworthy because it was one of the most daring and unexpected frauds in the market.

On analyzing the case of ZZZ Best, it should be said that its founder, Barry Minkow get used to fraudulent practices, which became a norm for him. Since the beginning of his entrepreneurial activities, he amply used frauds to get cash and extra money to maintain his business. For instance, even before he entered the Wall Street, he had already practiced frauds. To put it more precisely, in 1985 he opened a merchant’s account in the local bank, which allowed him to accept credit card payments. For the next few years, whenever he needed money, he would add bogus charges to his customers’ credit card accounts and received ready cash from the bank[1].  If a customer complained, Minkow blamed the forgeries on crooked employees, paid up and carried on.

Later, as his business grew and ZZZ Best became a fast growing company, Minkow set up Interstate Appraisal Services, a fake company that verified ZZZ Best’s business dealings. Moreover, Minkow convinced bankers and investors that he had won large contracts from insurance companies to restore buildings damaged by the fire and water. In 1986, the company entered the Wall Street, but in 1987 it faced severe cash shorts from paying investors for nonexistent restoration projects[2]. In such a situation, Minkow needed another cash infusion and he had it when he heard that Key Serv., the authorized carpet cleaner for Sears, was up for sale by its British parent. Although it was double the size of ZZZ Best, the two companies quickly agreed on a $25 million deal in which ZZZ Best would be the surviving company. The merger would have made Minkow the president of the largest independent carpet-cleaning company in the USA[3]. However, Minkow and his company had failed because he had blamed fraudulent credit card charges on unscrupulous subcontractors and employees and paid back most of the victims. Eventually, the scandal and Minkow’s frauds resulted in the ruin of the company and his imprisonment[4].

In fact, ZZZ Best could not survive because its basic financial ratios were absolutely irrational (see Table 1 and Table 2). The company could not maintain stable marketing performance since its expenses and liabilities consistently outpaced its revenues. At the same time the analysis of basic ratios of the company can help to reveal the fraud. In this respect, it is possible to refer to basic ratios and indexes which are irrational and such a combination of indexes and ratios can be met in a company which conducts its business legally and ethically correct. For instance, ZZZ Best’s Day’s sales in receivable index was[5]


Its growth margin index was


Its asset quality index was


Its sales growth index was



Obviously, Minkow conducted business absolutely unethically and his actions are unacceptable in the contemporary business environment. His actions undermine confidence of businessmen in the relevancy of ethical norms and principles in the modern business. In this respect, it is possible to refer to some propositions that can help better understand Mnkow’s actions and their ethical consequences.

Firstly, ethical conflicts and choices are inherent in business making. Obviously, Minkow had an ethical choice either to avoid frauds, as his company grew more successful and renowned or keep fraudulent practices. Such an ethical choice is practically inevitable in the modern business because businessmen have an opportunity to use similar schemes as Minkow used, but, for this, they need to make ethical choice and it is very important to make the correct, ethical choice, otherwise their business faces a high risk of being ruined affecting business of honest entrepreneurs[6].

Secondly, proper ethical behavior exists on the plane above law. Obviously, Minkow managed to deceive many companies because, a priori, they relied on Minkow’s ethic since without the mutual trust to each other they could not develop business successfully. Furthermore, mangers should be familiar with a wide variety of ethical standards.

This is important in regard to Minkow because he apparently proved to be unable to get familiar with any of ethical principles. Hence, he proved to be unable to develop business ethically correct. Fourthly, individual values are the final standard, though not necessarily the determinant reason for ethical behavior. In regard to Minkow, it is obvious that his values were absolutely unethical since he practice frauds from the beginning of his business and viewed it as a norm[7]. Fifthly, the moral tone of the organization is set by top management. Minkow’s unethical actions involved his “business partners” who assisted him in his operations managing fake organizations, which he used to convince investors and bankers to invest money in his company. Finally, every organization should a top level manager or director to be responsible for acting as an ethical advocate in the organization. Obviously, such top manager could prevent Minkow from his fraudulent practices.

Thus, unethical behavior persists in modern business, but the risk of such behavior can be prevented by the development of clear and effective ethical strategy and concern of the top-management of organizations with business ethics. Obviously, the unethical behavior of Minkow led his company to the failure, because his fraudulency undermined the confidence of investors and bankers in the reliability of his company. Moreover, his manipulations were illegal and, as the legal actions were to be undertaken, his company could not fail to be ruined, while the major cause of the ruin was unethical behavior of its owner, who violated ethical norms first and, being unable to stop, kept violating legal norms as well. In addition, irrational ratios of the company should warn investors and bankers that ZZZ Best was an unreliable company with uncertain future.




Akst, D. Wonder Boy, Barry Minkow ””The Kid Who Swindled Wall Street. New York: Scribner, 1990.

Ciulla, J.B. “Nothing but ZZZ Best.” New York Times, February 25, 1990. Retrieved on December 8, 2008 from http://query.nytimes.com/gst/fullpage.html?res=9C0CE4D9163DF936A15751C0A966958260

Knapp, M.  ZZZZ Best Company, Inc. Contemporary Auditing: Issues & Cases. Retrieved on December 8, 2008 from http://www.rohanchambers.com/Courses/Auditing/ZZZZ%20Best%20Company.htm

Matzer, M. “Barry Minkow,” Forbes, 15 August 1994, 134.

Wells, J. “Follow Fraud to the Likely Perp.” Journal of Accountancy. March, 2001. Retrieved on December 8, 2008 from http://www.journalofaccountancy.com/Issues/2001/Mar/FollowFraudToTheLikelyPerp.htm









Table 1

Exhibit 1: Selected Ratios From ZZZZ Best
1985 1986
Current ratio of assets to liabilities



Working capital: Total assets



Collection ratio



Asset turnover



Debt to equity ratio



Receivables turnover



Times interest earned



Cost of sales: Sales



Gross margin percentage



Return on equity





Source: Wells, J. “Follow Fraud to the Likely Perp.” Journal of Accountancy. March, 2001


Table 2

Exhibit 2: ZZZZ Best Financials
1985 1986



Cost of goods sold



Accounts receivable



Current assets



Total assets



Fixed assets



Accumulated depreciation



Net fixed assets



General expenses








Current liabilities



Notes payable””current



Income taxes payable



Working capital





Source: Wells, J. “Follow Fraud to the Likely Perp.” Journal of Accountancy. March, 2001

[1] Ciulla, J.B. “Nothing but ZZZ Best.” New York Times, February 25, 1990

[2] Matzer, M. “Barry Minkow,” Forbes, 15 August 1994, 134

[3] Knapp, M.  ZZZZ Best Company, Inc. Contemporary Auditing: Issues & Cases

[4] Wells, J. “Follow Fraud to the Likely Perp.” Journal of Accountancy. March, 2001

[5] Wells, J. “Follow Fraud to the Likely Perp.” Journal of Accountancy. March, 2001


[6] Wells, J. “Follow Fraud to the Likely Perp.” Journal of Accountancy. March, 2001

[7] Akst, D. Wonder Boy, Barry Minkow ””The Kid Who Swindled Wall Street. New York: Scribner, 1990

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