Ex-con turned investigator says he profits from finding dirt on other companies
By Brandon Bailey
Mercury News
Article Launched: 10/29/2008 08:00:00 PM PDT
After serving time for a notorious stock fraud in the 1990s, onetime whiz kid Barry Minkow has reinvented himself as an author, a pastor and a self-styled anti-fraud crusader. Now he's found a way to profit from investigating other companies.
As head of a for-profit entity called the Fraud Discovery Institute, Minkow investigates corporations and, if he finds derogatory information, buys "put" options that allow him to make money if the companies' stock price falls when the information is disclosed. Experts say the practice appears to be legal, though it raises ethical concerns.
From an office in San Diego, Minkow has trained his sights on a Silicon Valley tech company, Trimble Navigation, one of several corporations nationwide where he says he has found evidence that an executive falsely claimed an academic degree or other credentials.
Armed with a computer and backed up by a private investigator, Minkow says he recently discovered that Trimble's chief technology officer, Dennis L. Workman, did not earn the master's degree in electrical engineering from the Massachusetts Institute of Technology that is listed on the company's Web site and in other biographical material.
MIT has no record of granting Workman any degree, though he was enrolled as a graduate student for the 1967-68 school year, said university spokeswoman Jen Hirsch. She said the registrar's office had double-checked after receiving inquiries from several news outlets.
Workman told the Mercury News that he earned the degree in 1969 and said he received a certificate confirming it at the time. The 63-year-old engineer said he didn't know whether he still had the document, or why MIT records don't reflect the degree he says he earned nearly 40 years ago.
"Obviously I'm concerned as to how this progresses. It could have a negative impact on the company and me," said Workman, who was hired at Trimble in 1995 and serves on the company's executive committee. Trimble develops products and uses for global positioning satellites and other technologies.
A company spokeswoman said Workman has assured Trimble executives that he received the degree, adding that she didn't know if the company would investigate further.
"He's been a valued member of Trimble's team, and we actively support him and his credentials," said spokeswoman LeeAnn McNabb. She called Workman "a great guy" and said he has helped earn several patents while at the company.
Minkow, meanwhile, acknowledged that he has acquired "put" options on Trimble shares that allow him to sell the stock at a fixed price, which means he will profit if the trading price drops. His Web site says he "almost always holds a position" in companies that he investigates.
It's unclear whether Trimble's stock, which on Wednesday closed at $18.80, up 4.8 percent, would be affected by questions about Workman's degree. In recent months, Minkow has identified false claims on the résumés of executives at Herbalife, which markets weight-loss products, and Tetra Tech, an engineering company. Both Southern California companies' stock prices fell after Minkow's findings were reported in the Wall Street Journal and elsewhere.
Minkow said he had "put" options in each company's stock. He would not say how much he earned but said "it barely covers" his investigative costs.
A report on Workman's academic history was first provided to the Mercury News by an anonymous tipster. When contacted by a reporter, Minkow said he commissioned the report after checking numerous companies for inaccurate statements, but didn't know how the information got to the newspaper, which is the first news outlet to publish the findings.
"There's no expectation of privacy for people that are officers of public companies," said Minkow, who served seven years in prison after being convicted of a multimillion-dollar stock fraud in 1988. The case involved the ZZZZ Best carpet-cleaning company, which Minkow started as a teenager in his parents' Los Angeles home. These days he preaches at an evangelical church, lectures and writes about fraud prevention, and conducts his own investigations.
"We're a for-profit organization," said Minkow, 42, "and if our information is true, the market reacts accordingly."
It's not uncommon for professional investors known as "short sellers," who specialize in betting against a company's stock, to publicize negative information or pass along tips to reporters. Experts in business and securities law said there is probably nothing illegal about Minkow's efforts as long as he is truthful and discloses what he is doing.
Some say it raises other concerns.
On one hand, investors have a right to expect companies to provide truthful information about their executives, said Kirk Hanson, a business professor and executive director of the Markkula Center for Applied Ethics at Santa Clara University. Other companies have fired or demoted executives for fibbing on their résumés.
But Hanson also warned that building a for-profit business along Minkow's model "creates an incentive to engage in rumor-mongering, and too easily the release of factual information can slide into releasing rumors or even engaging in deceptive disclosure in order to increase the value of their short positions."
Minkow said he deals only in facts, and that false information on a résumé could indicate other problems inside a company. On his Web site, Minkow depicts himself as using his experience to serve as a watchdog for investors and other victims of corporate fraud.
Hanson offered another view: "It's clear that if you're taking short positions, you're not an organization which promotes virtue. You're a self-interested capitalist entity. Any claim that you're doing good for the world to prevent fraud is suspect." |
