“ZZZZ Best company” was founded by 16-year old Barry Minkow. The core activity of company was carpet cleaning. As he began doing business, Minkow soon realized that carpet cleaning was a difficult way to earn money because customers always complained and vendors demanded payments. Soon Minkow started seeking for financing but realized that bank were not willing to lend him money due to his age and low profitability of his business. That’s why he came up with the idea of forgeries and thefts from his insurance company. Later on, making friends he asked the insurance claim adjuster - Tom Padgett to confirm from time to time that Minkow’s company received occasional insurance restoration contracts on remodeling works on properties damaged by fire, storms and other catastrophes. Soon he realized that there was no need in development of carpet business because the main “income” was obtained by restoration operations.
Then, Minkow decided to go public and for that purpose he hired independent auditor – George Greenspan. By that time Minkow had established fake insurance company and Padgett had got the top position in it to confirm fraudulent restoration contracts, so Greenspan didn’t notice any problems with those sites. By the end of the year he was dismissed and Minkow retained “Ernst & Whinney” to enhance creditability of his operations on restoration contracts. “Ernst & Whinney” agreed to provide 4 types of services to “ZZZZ best company”: review the financial statement of the company for the 3-month period ending July 31, 1986; assistance in the preparation of a registration statement to be filled with the SEC; a comfort letter to be submitted to company’s underwriters and full scope audit for the fiscal year. But the full scope audit was never completed because “Ernst & Whinney” resigned due to growing concerns about fraudulent restoration contracts that