Lennar Case Leads to a Second Prison Term for Former Fraud Investigator
Barry Minkow, who earlier this year pleaded guilty to defrauding Lennar Corp. in a scheme that cost the home builder more than $580 million in market capitalization, was sentenced to five years in federal prison by a Miami judge on Thursday.
Mr. Minkow was hired by a Southern California real-estate developer, who had several soured deals with Lennar, to investigate the company.
In early 2009, Mr. Minkow, now 45 years old, released an online report accusing Lennar of being a Ponzi scheme. Lennar’s stock plummeted and in a matter of days the company had lost more than half a billion dollars in equity value.
The company has since recovered; on Thursday, its shares closed up 24 cents, or 1.3% at $18.63.
Mr. Minkow’s sentence also includes three years of supervised release and $583,573,600 in restitution, according to Alicia Valle, a special counsel working for the U.S. attorney’s office in Miami.
Mr. Minkow’s sentence is slated to begin in 60 days. Alvin Entin, Mr. Minkow’s lawyer, said he expects the sentence to be shortened by at least two years in return for providing testimony and documents as part of an ongoing joint investigation by the U.S. attorney’s office and the Federal Bureau of Investigation.
A spokeswoman for the U.S. attorney’s office in Miami declined to comment on the investigation. The FBI declined to comment on the investigation as well.
Nicolas Marsch, the real-estate developer who hired Mr. Minkow, hasn’t been charged with a crime.
Todd Macaluso, an attorney for Mr. Marsch, said Thursday that his client had not been contacted by federal investigators and that he was “nearly 100 percent certain that no charges will be brought against Nick Marsch,” but declined to elaborate.
Daniel Petrocelli, a lawyer at O’Melvey & Myers representing Lennar, praised the U.S. attorney’s office for its work and said in a statement that he was confident that “the other individuals responsible for the illegal attack on Lennar’s stock and shareholders will soon be brought to justice.”
Mr. Minkow wasn’t available for comment. In recent days, the court had received pleas of leniency from Mr. Minkow’s wife, Lisa, and several colleagues. They said that Mr. Minkow, who ran an investigative services company called the Fraud Discovery Institute, had worked with federal agents to expose wrongdoing at several other companies.
Mr. Minkow and his wife have moved from the San Diego area to Crossville, Tenn. In San Diego, he was dismissed as a pastor at Community Bible Church after he agreed to plead guilty.
This will be Mr. Minkow’s second stint in prison for stock fraud. Two decades ago, he served seven years in jail for convincing investors to put hundreds of millions of dollars into a fake carpet-cleaning company based in Southern California known as ZZZZ Best.
Robbie Whelan, The Wall Street Journal, July 21, 2011