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B. Petitioner’s Dealings With ZZZZ Best Co.
1. 1986
In early 1986, petitioner advertised in the Los Angeles
Times for businesses that wanted to factor receivables. Barry
Minkow (Minkow), the president of ZZZZ Best Co., Inc. (ZZZZ
Best), in Los Angeles, saw the ad and contacted petitioner.
Petitioner and Mark Morze (Morze), Minkow’s accountant, met in
Los Angeles in April or May 1986 to discuss petitioner’s purchase
of ZZZZ Best receivables. Morze gave him balance sheets,
operating statements, press clippings on Minkow and ZZZZ Best,
and other documents purporting to show the financial strength of
Minkow and ZZZZ Best. Petitioner and Minkow spoke several times
during the summer of 1986 about petitioner corporation’s possible
purchase of ZZZZ Best receivables. ZZZZ Best claimed to perform
insurance restoration work on buildings damaged by water and
fire.
Minkow knew the receivables were fraudulent and that ZZZZ
Best’s financial statements contained false information about
its profitability. Minkow needed capital in 1986 because he
frequently borrowed from one investor to repay another investor.
On July 10, 1986, Minkow sent documents to petitioner from
Interstate Appraisal Services (Interstate) purporting to show
that ZZZZ Best’s accounts receivable were legitimate. Petitioner
examined ZZZZ Best’s financials and the Interstate documents in
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