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An Apple computer, a bottle of whiteout, and a desktop copier. These, according to Mark Morze, are all it takes to fool some of the best educated, highly regarded auditors in the accounting business.
Morze, who was a financial consultant for ZZZZ Best Carpet Cleaning (Z Best), helped perpetrate one of the most notorious business scams in recent memory. Working with 20-year-old wunderkind Barry Minkow, Morze helped turn a small carpet cleaning business into a Wall Street company valued at more than $200 million. Eventually both were sentenced to prison--Morze for five years and Minkow for 25. But before being exposed by journalists, they raised and spent millions.
Morze met Minkow in the summer of 1985, when he was doing financial consulting for mom-and-pop businesses and the 19-year-old Minkow needed capital. With his connections to local banks, Morze easily raised the money Minkow needed to expand. It wasn't long before Morze learned the truth about Minkow's business. After selling some receivables from restoration jobs in early 1986, Minkow admitted to Morze that the jobs did not exist.
"At that point, I could have extricated myself and said 'hey, you're breaking the law here," Morze said. "Instead, for numerous reasons--greed, rationalization--I became a willing co-conspirator."
Shortly afterward, Minkow wanted to take the company public, get listed on NASDAQ, and trade on the OTC. Morze saw the public offering as a cure-all for the problem of repaying loans that were used to repay investors, leaving a few million left for expansion.
But they quickly learned that when you do audited statements going back three years, and have told lies, you not only have to re-tell those lies, you have to support the lie with paperwork to fool auditors.
"I thought, 'well, OK, I told a lie three months ago, and it's a terrible lie, maybe even the kind of lie you could go to prison for, but since no one lost money, it's like the secret is over," Morze said. "But it's never over when you have auditors going back." This was the beginning of a series of false documents Morze forged over a 20-month period. Morze ultimately faked thousands of documents. One tactic he used involved auditors who requested to see a sampling of 400...