Case Study : The Best Company, Inc.

Minkow 's business had been clearly a Ponzi scheme. He promised investors highly returns on the insurance restorations business, but in reality, investors were being repaid with money from new investors. Some of the loans were negotiated at outrageous rates of interest so that they were obtained fast enough to pay off earlier loans. ZZZZ Best did operate its carpet-cleaning business which differed itself from a typical Ponzi and the carpet-cleaning division won high marks for its quality.iii However, its insurance restoration division was totally a phony department and little real business existed.

There were two external auditors mentioned in the case that dealt with ZZZZ Best. The first was not a firm that was included in the Big Eight accounting firms at the time. George Greenspan was the sole practitioner who performed the first full-scope independent audit for ZZZZ Best. Greenspan insisted that he had properly audited Minkow’s company, and testified that while planning the audit he had performed various analytical procedures to identify unusual relationships in ZZZZ Best’s financial data. Greenspan’s procedures reportedly included comparing ZZZZ Best’s key financial ratios with its industry norms. Greenspan identifies “unusual relationships” but does not go into detail in order to explain these unusual relationships. This shows that Greenspan did not show enough professional skepticism while conducting the audit and just blew off these unusual relationships. Also Greenspan testified that he had obtained and reviewed copies of all key documents that pertained to the false insurance restoration contracts. It would have been hard for Greenspan to uncover the fraud through the contract paperwork because Minkow and Morze went through such great detail in creating false documents in order to cover the false contracts, but finer details were overlooked by Greenspan. A journalist found one of these finer details which caused the domino effect leading to the destruction of ZZZZ Best. This shows that the first auditor,

repay $3.1 million from a healthcare fraud scheme. He reportedly filed fake insurance claims, according

ward off further allegations by showing that he did not accrue personal profit, and (3) launch a political

amounts of food to just to recoup the money he had spent and to gain enough profits to make it

they had to borrow some from these “moneylenders”. This could have, and did, become an

… and he used to lend money to his friends without interest; but when the time

Jimmy became a respectable shoe shop owner when he was released from prison. He sold shoes and made an honest profit. Jimmy showed me that he had reformed his ways and that he wanted to change. I think it was smart of Jimmy to open a business

millions of dollars of structured settlements at a discounted price so that he could generate

In May 1987, a disgruntled customer came to the L.A times with allegations that Minkow had overcharged her credit card and refused to repay. Over the subsequent

In theory, the reason is that these investments are more difficult to sell to clients.

Although the banks never checked to see if he would be able to pay his debts they still offered him more and more money. Once his limits grew he was able to spend more, which caused his payments to increase as well. Why did he have so many credit cards? Well, what he was doing was taking out new cards in order to pay off others. As time when on, he started receiving numerous letters and telephone calls threatening legal action. Unfortunately he didn’t see a way out of this out of control debt and decided to end his life as evidenced by the February 2005 issue of Daily Mail.

led to more and more people calling him, a better income and more motivation to

He had started his business with a loan of $200, but within months he had two offices in Boston with a staff of dozens of employees processing sales, and he bought a modest mansion for $35,000. Of course, there were no actual profits, Ponzi had not actually bought the IRCs, and he paid early investors with the funds derived from later investors. This only worked well for him because of the rapid payments made to investors. People saw what he could do and they wanted in, so he was selling the IRC’s quickly and convincing people to reinvest their funds, he was able to postpone his financial obligations even longer. By the time the scheme collapsed his income was estimated at $1M per week, and late coming investors were defrauded of between $7 - $15M. The downfall started from some investigative journalism, this led to the District attorney getting involved and Ponzi being charged. Most of Ponzi's gains were seized in an involuntary bankruptcy hearing, and what little remained was spent in his subsequent legal battles. Ponzi’s scheme was exposed by newspaper reports in 1920 and despite his claims of innocence, a federal audit confirmed his operation was bankrupt, owing almost $4 million or more to investors. After investigation, Ponzi was charged with 86 counts of mail fraud and sentenced to five years in federal prison, and while incarcerated on federal charges he

He acquired it at a good price with everything was already in place: existing customers, available resources, financing records, and a cost free goodwill. The Comfort Homes business is already a proven entity so the risk factor is low; it’s often easier for James to obtain financing for Comfort Homes established operation since he can look at the business’s record to determine its financial stability. Furthermore, the business has a transportable homes product that is presently being produced, distributed, and sold. The equipment needed for production is already available and its limitations and capabilities are known for him in advance (SMBSC 2006). Those factors have facilitated the success of his venture in an extremely short period of time. However, his business still needs a plan to sustain its performance and continues growth. A business plan is a written document that describes the current state and the presupposed future of an organization (Honig & Karlsson 2004). A plan is required when seeking to secure contracts from large customers or suppliers and to assist the management of business venture. Market and customer examination should be considered before the development of any future business plan. Yet, most of small firms do not possess formal written business plans (Unni 1984), and many entrepreneurs lack of business planning skills (Posner 1985). Comfort Homes didn’t have a formal business plan