ZZZZ Best Advisers Sued in $7-Million Loss

A bank that lost $7 million it loaned to the ZZZZ Best carpet cleaning company and its founder, Barry Minkow, filed suit Friday against the company’s prominent law and accounting firms, accusing them of fraud, professional negligence and providing deceitful information.

ZZZZ Best, started by Minkow in his parents’ Reseda garage at age 15, experienced phenomenal growth and became a hot Wall Street stock before its collapse amid charges of fraud and criminal activity last summer.

“This action is brought against the professionals who made the ZZZZ Best scandal possible,” says the suit filed in Van Nuys Superior Court by the San Francisco-based Union Bank.

Class-Action Suits

The suit is the first malpractice case brought against the professionals who advised Minkow and verified the legitimacy of ZZZZ Best, said Susan Illston, an attorney for Union Bank. At least six class-action suits by investors, who lost large sums when ZZZZ Best and Minkow filed for bankruptcy last July, are pending in U.S. District Court.

Union Bank seeks to recover the $7 million principal from its 1986 loan as well as interest, attorneys fees and costs and punitive damages.

The bank’s suit names as defendants the Wall Street-based law firm of Hughes, Hubbard & Reed and one of its Los Angeles-based partners, Mark R. Moskowitz, and Ernst & Whinney, one of the nation’s largest accounting firms. Both firms worked for ZZZZ Best, with Moskowitz serving as the company’s counsel.

Also named are Greenspan & Co., a New Jersey accounting firm that audited ZZZZ Best; Bruce T. Andersen, who was ZZZZ Best’s chief financial officer, and Vera Hojecki, ZZZZ Best’s ex-senior vice president and board member.

Union Bank, which had twice previously denied Minkow’s credit application, finally agreed to provide him and the company with a $7-million line of credit based on information from the professionals that proved false, the suit says. The suit alleges that the defendants knew that ZZZZ Best’s claims about its solvency, growth and the purpose of the loan were untrue.

What ZZZZ Best reported as its most profitable line of business--repairing buildings damaged by fire or water for insurance companies--was actually largely bogus, according to the company’s board of directors and Los Angeles Police Chief Daryl F. Gates, who announced in July that the company was under investigation for laundering money for organized crime families. No arrests have yet been made.

According to former ZZZZ Best officials, the company inflated its financial statements by claiming to do millions of dollars in insurance jobs that did not exist.

“The hired guns make the fraud possible,” Illston said.

The suit does not name Minkow or ZZZZ Best as defendants, saying that both “are insolvent, with no prospect of a return to financial viability.”

John M. Townsend, a partner in Hughes, Hubbard & Reed, which employs 250 attorneys in four U.S. cities and Paris, said Friday: “Any allegation that anyone connected to this firm would knowingly mislead anyone is absurd. . . . If the bank was misled, so were we.”

Anderson and an attorney for Greenspan, both of whom had not seen the suit, declined comment. An Ernst & Whinney spokesman and Hojecki could not be reached.