Scambuster Inc.

By Adam Zagorin

A roomful of agents was waiting expectantly at the FBI's principal training facility at Quantico, Va., when a wiry, intense man stepped to the microphone. Pointing to a video camera recording the session, he tried to break the ice. "I notice you guys are videotaping me," he deadpanned. "And I want to thank the FBI, because this is the first time you have let me know in advance that the recorders were on."

Count Barry Minkow as one of the more unlikely people ever to be a law-enforcement lecturer. A felon, he was busted in his early 20s by the FBI for engineering one of the biggest frauds in U.S. history. His ZZZZ Best carpet-cleaning scam, a mid-1980s securities caper, was worth $300 million before it went up in smoke. That rap landed him in a federal pen on a 25-year sentence. After serving seven years and four months, he got out in 1995 and, like the con man portrayed in the hit movie Catch Me If You Can, he started helping the feds. "Three weeks out of jail, my arresting officer extended an invitation to speak at an FBI conference on bank fraud," recalls Minkow, 38. "When you're a failure and get a second chance, you don't want to let people down." A new autobiography, Cleaning Up: One Man's Redemptive Journey Through the Seductive World of Corporate Crime, documents how he has uncovered more than $1 billion worth of fraud in the past 14 months alone. "Barry has now recovered far more fraud than he ever perpetrated," says James Asperger, a former head of the major-fraud section of the U.S. Attorney's office in Los Angeles, who prosecuted the case against Minkow.

Given his history, one can't help wondering whether Minkow's reincarnation is a story of redemption or just another clever ploy. (Of course, there's not a lot of money in teaching FBI recruits.) A nerdy kid, the son of lower-middle-class parents in California's San Fernando Valley, Minkow says he got into scamming at the age of 16 and set up ZZZZ Best in his parents' garage so he could impress girls. "I learned that money brought respect, and it was like a narcotic," he says. "I couldn't live without it." At its peak, ZZZZ Best had 1,400 employees at 23 locations in three states. But the reality was something else: more than 85% of ZZZZ Best's cash flow came from undisclosed loans fronted by organized crime in New York City--all booked as revenue for supposed contracts to renovate distressed housing. When the FBI finally unraveled the scheme, Minkow managed to pay off his Mafia loan sharks ("You can't mess with them," he says), but some $300 million worth of company stock was suddenly worthless, leaving hundreds of investors in the lurch.

Now a born-again Christian and evangelical pastor, Minkow explains his religious devotion in one breath and in the next delves into the nitty-gritty of financial shakedowns. Though lately the press has focused attention on the crackdown on corporate fraud--with WorldCom executives finally coming to trial, for example--he says everyday Ponzi schemes are more prevalent than ever. According to the nonprofit National White Collar Crime Center, $40 billion is lost every year to such investor swindles. Current low interest rates are making matters worse, Minkow says, because retirees on fixed incomes are more vulnerable to shysters who promise higher rates of return. At the same time, the national run-up in real estate prices gives many people a way to tap extra cash, often through second mortgages. "When the value of your house goes way up, you can access that money at the behest of scam artists," he says, "and many of them will suggest you do exactly that."

Some of the smartest scam artists, Minkow explains, target groups united by religion, race or ethnic origin. From 1998 to 2001, at least 80,000 people lost $2 billion in religious-investor frauds, according to the North American Securities Administrators Association, a group representing state regulators. In fact, most of the eight major frauds Minkow helped uncover in the past year have involved hustlers trying to sell investments to church groups.

Minkow knows how to play that gig. He went undercover after getting a call from a prospective investor in a pair of Southern California investment schemes and, posing as someone with extra cash to commit, found enough evidence to allow the Securities and Exchange Commission to shutter the firms in November. They allegedly had conned nearly $26 million from more than 1,200 people, largely by targeting church-affiliated African Americans. In 2003 he managed to shut down another scheme, a California operation that targeted retirement funds worth $813 million. "Barry has a lot of insight into the many ways scams work," notes Peter Norell, an FBI supervisor who helped arrange Minkow's stint at the FBI's Quantico training facility. "That helps him ask perpetrators the right questions, which can lead to indictments and convictions."

He took yet another case to the office of New York attorney general Eliot Spitzer, who was in the midst of a spree of high-profile fraud prosecutions. Spitzer's experts contacted the FBI, and after Minkow agreed to wear a wire and record phone conversations with the purported scam artists as they solicited new money, the agency verified that the suspects were using an offshore shell company to bilk hundreds of millions of dollars from investors by pledging annual profits of more than 38% and an eight-year rate of return in excess of 1,000%. TIME has confirmed that the FBI is likely to move in on the fraudsters soon.

These days, when he isn't preaching or scam busting, Minkow delivers speeches on fraud to corporate officers, insurance companies, accountants and law-enforcement groups, often appearing in a bright orange prison jump suit. At Quantico, as his 150 student FBI agents scribbled notes, he walked through Fraud 101, explaining the psychology of the scam. "A lot of con men just want to please everyone," he says. He stresses that in a successful con game, appearances are everything. "After all," says Minkow, "fraud is nothing more than the skin of the truth stuffed with a lie." Spoken by the master himself. ???