please answer the two questions at the end of the case. thank you!
CRITICAL THOUGHT CASE-FOCUS ON ETHICS Barry Minkow founded ZZZZ Best Co., a carpet-cleaning firm, when he was 15 years old. He ran the business from his family's garage in Reseda, California. The company became one of the biggest carpet-cleaning firms in California, and Minkow was a millionaire by age 18. Minkow took his company public by selling its stock when he was 21, and his personal worth was estimated at close to $10 million. At that time ZZZZ Best ("Zee Best) had 1,300 employees and 1987 sales of $4.8 million. Minkow boldly predicted that 1988 revenues would exceed $50 million. In July 1990, ZZZZ Best management filed for bankruptcy protection and sued Minkow for misappropriating $21 million in company funds. In addition, several customers accused ZZZZ Best of overcharging them in a credit card scam. Minkow publicly admitted the overcharges but blamed them on subcontractors and employ- ees. He also said he had fired those responsible and had personally repaid the charges. The Securities and Exchange Commission (SEC) and other law enforcement agencies began investigating Minkow and his company. It became apparent that ZZZZ Best was built on a foundation of lies, dishonesty, and inconsistent account ing practices. The company had submitted phony credit card charges and had issued press releases claiming millions of dollars in bogus contracts, sending the price of the company's stock even higher. The SEC investigated other charges, including possible phony receivables, bogus financial accounting statements, organized crime connections, and securities law violations by Minkow and other executives. The SEC placed an independent trustee in charge of the company until its accounting records could be examined. The Los Angeles Police Department investigated charges that ZZZZ Best was a money-laundering operation for organized crime. The investigation linked Minkow and ZZZZ Best with drug dealings and organized crime members. These allegations ultimately led Minkow to resign from ZZZZ Best for "health reasons." But his resignation was not the end of his troubles. ZZZZ Best's new management sued Minkow for embezzling $3 million of the company's funds for his personal use and misappropriating $18 million to perform fictitious insurance Part 2 Analysis and Valuation of Equity Securities restoration work. The suit charged that Minkow actually diverted this money to an associate's refurbishing business, which was part of an elaborate scheme designed to allow Minkow to take corporate funds for his own and others' personal use. According to the suit, these discrepancies in the company's accounting practices were the reasons behind the bankruptcy filing. As a result Zzzz Best's accounting firm quit. Questions 1. Given the extent of fraud in this case, should Zzzz Best's accounting firm be held responsible for not discovering the fraudulent activities? 2. What are the responsibilities of the broker and financial analyst in recommend- ing the company to investors? To what extent are they responsible for their investment recommendations
