Deception took various forms over history of L.A. scandals.

LOS Angeles long has been a hotbed of aggressive accounting, reflecting the area's entrepreneurial streak that sometimes goes over the line.

The laundry list of local accounting scandals runs the gamut of public companies to purveyors of phone sex.

Perhaps most notorious is wunderkind Barry Minkow and his fraudulent ZZZZ Best carpet-cleaning empire. But there's also Four Star Financial Services, whose star was propped up by an alleged Ponzi scheme when its phone sex businesses went south; and Gemstar-TV Guide International Inc.'s $250 million financial fib that had the company arguing for a restatement of its results while its accountants refused.

Accountants typically aren't the ones who instigate financial falsehoods. In some cases, they get hoodwinked by their clients. But in others, they remain ignorant despite obvious signs of fraud.

"It's clear to us that public accountants bear a significant share of blame for some of the accounting and disclosure problems that have come to light in the last several years," said Randall Lee, director of the Securities and Exchange Commission's Pacific Region. "When we look at the role of auditors in our cases, we see that there is a spectrum of conduct ranging from sloppiness and negligence to outright fraud."

The tale of teen entrepreneur Minkow highlights the damage a criminally minded client can do. In five years, he turned a carpet-cleaning idea into a $240 million empire that culminated in a public stock offering. But the business Minkow created, restoring flood-damaged buildings, was a fraud. Contracts that eventually accounted for 90 percent of revenues never existed.

Minkow generated money by going public. He ingratiated himself with Lan'y Gray, principal auditor of Ernst & Whinney (now Ernst & Young), and played on fears of litigation and competition if Gray got too close to uncovering the deceit. And he rented empty buildings for accountants and underwriters to tour, showing them bogus restoration projects.

Auditors didn't catch Minkow. Instead, it was news reports that the company was over-billing customers on credit cards that led to a closer examination of the books. When bankruptcy was declared in 1987, a trustee was only able to find $30,000. Eight years later, Ernst & Young, several investment banks and a law firm agreed to pay $35 million in damages to ZZZZ Best shareholders. (Gray wasn't implicated.)

One of Minkow's accountants, Norman Rothberg, was convicted of accepting a bribe to cover the firm's wrongdoings, along with conspiracy and mail fraud. Minkow was convicted on 57 counts of conspiracy, securities fraud and money laundering.

Phone sex scandal

Four Star Financial was another firm with results too good to be true.

Once a thriving financial services firm that paid as much as 18 percent on returns to investors, Four Star performed well for years. The closely held firm had invested in 900-numbers and collected on their unpaid receivables. It also made short-term loans at high interest rates. But when the 900-number industry began to slide in the mid-1990s, the firm (then called 900 Capital Services) sought new ways to pay off investors.

A class action lawsuit alleges that Four Star undertook a Ponzi scheme described as the "'Argentina arbitrage transaction" defrauding investors of at least $40 million. The deal purportedly involved the sale of long-distance telephone arbitrage contracts in Argentina.

According to the Web site Four Star Fraud.com, which apprises former investors of ongoing litigation and company news, most investors--largely concentrated on the Westside--believed Four Star dealt exclusively in telecommunications. The suit further claims that both 900 Capital and Four Star had questionable investments from their inception.

In 2003, Cohn was convicted of fraud and conspiracy in a Baltimore federal court. Anson and Garrett, who operated Four Star out of their accounting firm Anson Garrett Co., have not been charged.

Investors allege that Garrett and Anson's firm was a participant in the fraud, preparing tax returns for Four Star that were used for "defrauding investors into believing that Four Star was profitable ... when in fact it had severe cash flow difficulties."

Federal investigators are probing the role of the accountants. All three principals remain defendants in a number of civil lawsuits, including one by the bankruptcy trustee. Ronald Nessim, Anson and Garrett's lawyer, said the two were not aware of fraud at the time it was perpetrated.

Programming error

Under the watch of accounting firm KPMG, Gemstar Chief Executive Henry Yuen and Chief Financial Officer Elsie Leung were able to "reap millions of dollars in financial gains from their fraudulent scheme," according to an SEC lawsuit against Gemstar.

During a three-year period beginning in 1999, the Pasadena-based firm inflated advertising and licensing revenues from its interactive program guide by $223 million.

After Yuen and Leung were ousted, Gemstar's new management sought to restate revenues, but KPMG refused, so it was fired. With its new auditor, Ernst & Young, in place, Gemstar restated three years" worth of sales and profits. KPMG officials declined comment.

At issue were the company's aggressive accounting techniques, which the SEC said recorded revenue under expired, disputed or non-existent agreements. It also improperly mis-classified some income as IPG licensing and advertising revenue. Some of those improperly reported transactions included so-called "roundtrip" transactions where Gemstar paid money to a third party that then used those funds to buy advertising from Gemstar, the SEC alleged.

Gemstar officials declined comment on KPMG's role in the scandal. In June, Gemstar agreed to pay a $10 million penalty to settle the SEC's charges, without admitting or denying guilt.