SECOND ACT FOR VALLEY'S NOTORIOUS WHIZ KIDS MITNICK, MINKOW ATONING FOR THEIR MISDEEDS.

Byline: Dana Bartholomew Staff Writer

The call came in for Barry Minkow, the onetime San Fernando Valley whiz-kid con artist who'd just served 7 1/2 years for bilking investors out of $26 million in the notorious ZZZZ Best carpet cleaning company fraud.

Minkow, living in a halfway house for felons in downtown Los Angeles in 1995, didn't want trouble.

But on the phone was another Valley guy, Kevin Mitnick, on the FBI's 10 Most Wanted list for hacking into the computers of some of the world's largest corporations.

``He's on the run. He calls me in the halfway house, gets me busted. It's my first call in the halfway house - talking to a fugitive,'' Minkow, now 37, recalled recently, telling the story for the first time. ``Then he calls me back again!''

The call was a lark - a test of the hacker's omnipotence. But it was also a link between two Jewish kids from the Valley who had wanted to make it big in the worst - and best - ways possible.

Today, both have done prison time. Both have paid restitution. Both have written books. Both have hosted L.A.-based radio talk shows.

And both are atoning for their sins - turning noses for deceit into corporate defenses against a whole new generation of hustlers and hackers.

Minkow, a fiery, born-again preacher in San Diego, has co-founded a company that fights corporate fraud and claims to have helped uncover $1 billion in white-collar scams.

Mitnick, an earnest computer sleuth who just moved from Thousand Oaks to Henderson, Nev., has founded a company against invaders from cyberspace and is slated to host a convention in Las Vegas this fall on corporate computer security.

``I'm trying to put this all behind me, to make lemonade out of a lemon,'' Mitnick, 40, said in a recent phone interview. ``I'm like Frank Abagnale in 'Catch Me if You Can.' I like his notion of giving back to the community.''

How Minkow and Mitnick slid from blithe adolescence into household synonyms for trespassing and fraud began in the San Fernando Valley of the heady 1980s, the ``decade of greed.'' Ronald Reagan was in the White House. Michael Jackson hit his moonwalk stride, Madonna her sex-kitten strut. MTV had turned X-teens into the Video Generation. The dawn of the PC age had begun.

And in the Valley, loopy teenage girls hanging out at the Sherman Oaks Galleria won the hearts, and ridicule, of an entire nation.

Enter 16-year-old Barry Minkow.

The scrawny 10th-grader from Reseda had worked the phones over the summer with his mom, drumming up business for a small carpet cleaning company.

Now he was old enough to drive - to ``make'' himself. His dad had gone bankrupt in real estate and couldn't find a job. Without payment, the Gas Co. would shut off the heat and hot water.

To try to win the heart of a cheerleader of Cleveland High School, Barry joined the Valley Gym and Health Club. To save his family from ruin, he started cleaning carpets after school, eventually starting his own business in the fall of 1982 in the family garage on Lull Street - ZZZZ Best Co.

Barry hired his mom as a sales rep and business took off. Within three months, he had leased an office, bought more equipment and hired an army of carpet cleaners.

Then the cost of bad checks, nagging vendors and a company payroll began to mount. He needed capital - immediately.

So Barry started stealing.

He hocked his grandmother's jewelry. He stole money orders, kited checks, forged credit-card vouchers. He staged thefts to fleece his insurance company.

Before long, the teenage hot-shot was juggling tens of thousands in tainted dough. As the debts piled up, he found other sources of cash.

Through connections, Minkow managed a $400,000 investment from the ex-wife of singer Tony Orlando. Others jumped in - including the Genovese crime family from New York.

The ZZZZ Best fraud bloomed.

Barry moved out of his house, bought a neo-colonial home in a gated community in Woodland Hills, drove a red Ferrari Testarossa. He had millions of dollars and lots of women.

Then he took his Ponzi scheme public - promoting ZZZZ Best as a restorer of fire- and water-damaged buildings for insurance companies. To fool auditors, he toured construction sites - claiming multimillion-dollar contracts to renovate high-rise buildings he had never seen.

When one auditor wanted to see a finished job, Minkow leased the building for $1 million and hired contractors to fix six of its eight floors in 10 days.

Minkow became the darling of Wall Street - its youngest CEO, his company ultimately valued at $300 million. By age 23, he had fooled 15 major banks, two CPA firms, an investment banker and a prestigious law firm, while falsifying some 22,000 documents.

``Think big,'' he said, reciting his personal motto on ``The Oprah Winfrey Show'' in April 1987. ``The sky is the limit.''

Then, his deeds - and the law - caught up with him. In January 1988, Minkow was convicted of 57 counts of fraud and sentenced to 25 years in a federal penitentiary. He ultimately served 7 1/2 years in prison.

``This is a great day for America. This is a great day for the justice system,'' Minkow said, without irony, the day he was sentenced. ``The government got the right guy. I did it.''

About the time Barry bought his first carpet-cleaning machine, Kevin Mitnick, the shy son of a single mother who worked as a waitress, was mastering America's first personal computers.

As a kid, he had loved magic. When the pudgy teen from Panorama City got to James Monroe High School, he discovered a computer class - and hacking.

His first challenge: To obtain the teacher's password. So he wrote a program that when his instructor logged on, he'd encounter a simulated operating system - run by Mitnick. The password was his.

``When I told him about it, I got an A for it,'' Mitnick recalled recently. ``That's one of the problems - young people were not taught computer-based ethics. If you could get around security, then you'd get a pat on the back.

``It was like I was a whiz kid performing a magic trick. It turned out a lot of people who are hackers.''

He became a ``phone freak'' - a teen who used stolen phone codes to make free long-distance calls.

One of his early stunts was figuring out how to change the code in his friend's phone so when he tried to make a call, a recorded voice came on the line, saying, ``Please deposit a dime.''

Another trick was played against an overweight guy at school who was a practical joker himself. Mitnick electronically gained access to his 30- digit speed dialer and reprogrammed each button so each time the guy tried to make a call, he'd reach a Weight Watchers office in a major city around the U.S.

At 16, Mitnick contacted Digital Equipment Corp. Posing as a product developer, he convinced the system manager to give up his password and access to the company's computers - a con Mitnick now dubs ``social engineering.''

At 20, he hacked into DEC again, but got caught. He served a year in prison, including eight months in solitary confinement.

But his time spent behind bars didn't cure him of his obsession. Mitnick didn't hack for profit, he said, he hacked to be the best.

For the next 15 years, the hacker known as ``Condor'' raided corporate computers by conning its overseers into letting him in their systems.

The notorious cyberspy soon became a computer-age folk hero after he led the FBI on a two-year cross-country hacking spree that ended with his arrest in North Carolina in 1995 - the first hacker ever to make the FBI's 10 Most Wanted list.

The FBI had painted Mitnick as a dangerous, anti-social computer wizard - a thief who stole 20,000 credit card numbers and, legend has it, broke into the North American Air Defense Command.

But Mitnick, still bitter about his treatment by the U.S. government which considered him such a threat that he was denied phone access and a bail hearing, says he did no such thing.

``I became the government's poster boy for hacking,'' he said. ``I was snooping on software that was proprietary, not doing something detrimental to the company ... They overstated the harm I caused. Federal prosecutors said I could provoke a nuclear war.''

In March 1999, Mitnick pleaded guilty to five counts of computer and wire fraud after illegally entering some of the world's most secure computers at Sun Microsystems, Motorola and San Diego-based Qualcomm.

Various officials have estimated he caused anywhere from $10 million to $80 million in damage to corporations by raiding their proprietary information.

He served nearly four years in prison and paid a fine of $4,125.

Last year, after a hiatus as part of his probation, Mitnick surfed the World Wide Web for the very first time.

According to a February 2003 article in The New Yorker magazine, he was helped in his inaugural venture on the Web by two longtime supporters, Steve Wozniak, co-founder of Apple Computers, and Emmanuel Goldstein, publisher of 2600, a quarterly publication for hackers.

``Don't be freaked out by advertising,'' Goldstein told Mitnick. It's everywhere. So is pornography.''

According to The New Yorker, Wozniak later gave Mitnick a new Apple Titanium Power Book, telling him, ``I'm pro-choice, so if you prefer a PC I'll buy you one.''

At the Community Bible Church in eastern San Diego, the preacher paced back and forth across the dais, his arms a windmill, his hands grasping at immutable truths, his wide mouth spouting the purported wisdom of the centuries.

Pastor Barry Minkow was preaching to the multicultural denomination about salvation and redemption.

``Nowhere in the Bible are we promised to get our healing,'' he proclaimed, his weightlifter's frame floating through the aisles of young worshippers in the industrial park sanctuary.

``We're only promised that, if we need a mulligan in life - a do-over - God will help you ... All the lies you told, all the destructive behavior, and you get a do-over - turning your life around.''

Although he was raised Jewish, Minkow sought Christ as a fast break from prison. There was no epiphany. No burst of light. No voice from God. Not even a prick from his conscience.

``Initially, I became a Christian because it worked with (John) DeLorean'' - the sports-car magnate who acquitted of charges of money laundering and drug trafficking. ``He got off. I was insincere with my approach with God. But it eventually occurred to me that God had other plans.

``What I had was a realization that after 'Oprah,' I was empty. I had gone on 'Oprah' and felt, Is this it? What's next?'

``It was the ultimate in life and it had let me down.''

While in prison, Minkow earned a bachelor's degree and a master's in divinity from Liberty University, founded by by the Rev. Jerry Falwell.

When he got out eight years ago, he was appointed a pastor of evangelism and director of the Bible Institute at the Church at Rocky Peak, an evangelical denomination near Simi Valley.

In March 1997, he became pastor of Community Bible Church in San Diego, where church attendance has risen from 30 to 1,300 each Sunday. He is not authorized to deal with church finances.

At first, there were raised eyebrows from law enforcement. But many now believe that Minkow is the real deal.

``I've prosecuted a lot of white-collar con men, and I've never seen anyone like Barry,'' said James Asperger, the former federal prosecutor who had nailed Minkow.

``What is another remarkable part of Barry is how he has been able to bounce back after 7 1/2 years in prison. He's not proud of what he did. He realizes he must spend the rest of his life proving himself. People will always be skeptics.

``But he's proven himself in many ways. He hasn't done anything questionable since he was convicted.''

In late 2002, U.S. District Judge Dickran Tevrizian, who had sentenced Minkow to 25 years, lifted his probation. He also dismissed the order he pay $26 million in restitution to lenders and investors.

Despite this, Minkow has vowed to pay it back. He now owes Union Bank of California nearly $19 million. Each month, he said, he writes a check for $1,000 to $10,000 to Union Bank, and has so far repaid about $200,000.

For his effort, the bank temporarily lifted a lien on Minkow's house so that he and his wife, Lisa, could adopt twin boys from Guatemala this month.

In 2002, after he learned Minkow was helping investigators hunt fraud, according to The Wall Street Journal, the judge said, ``We have (a) problem facing our country now with corporate dishonesty. Go in and investigate some of these frauds ... and bring others to justice.''

He has.

He co-founded the Fraud Discovery Institute, which so far has unearthed more than $1 billion in white-collar fraud, including a suspected $814 million Ponzi scheme by Financial Advisory Consultants in Orange County. Its founder, James P. Lewis Jr., has pleaded not guilty to 14 counts of fraud and money laundering.

Clients include CPAs trained to detect fraud, private investors who don't want to get scammed and insurance companies.

``We stop crimes in progress, period,'' said Minkow, who has a team of forensic accountants and private investigators.

``We really do bust our tail, we really do good work. I know the kind of frauds, I'm aware of the techniques being used to deceive, to fool investors.

``Been there, done that.''

While Minkow discloses his shady past on his church and fraud Web sites - cbcsandiego.com and frauddiscovery.net - Mitnick has chosen to leave his behind. His Web site - defensivethinking.com - doesn't include his criminal record.

Nonetheless, the 40-year-old computer sleuth is adamant about pulling up the information technology drawbridge against intruders.

Companies were expected to spend $13.5 billion on corporate security in 2003 - and $20 billion by 2006, according to BusinessWeek.

His Defensive Thinking Inc. guides corporations on how to ward off hacker attacks. He also lectures. In the past year, he has toured to such countries as Poland, Brazil, the Czech Republic, United Kingdom, Spain, Portugal and Finland, where he spoke to officials from Nokia Corp., whose computers he trespassed.

``It's going good,'' Mitnick said. ``I am succeeding at what I'm doing. People want to hear what I have to say ... People may be skeptical, (but) I can't convince everybody.''

He has 11 clients, whom he declines to identify, and sells his services for $225 to $250 an hour for anti-hacking consulting, and $400 and hour as an expert witness.

He has written a book, ``The Art of Deception: Controlling the Human Element of Security,'' and is currently soliciting stories for another book, tentatively titled ``The Art of Intrusion,'' about the untold stories of hacking.

He made a cameo appearance as a CIA agent on TV's ``Alias.''

He has been contacted by the Department of Defense about a major hacking case. He has spoken at the FBI Academy in Quantico, Va.

This fall, he will host ``Access Denied,'' a conference in Las Vegas on corporate computer security, from which he will give an unspecified percentage of the proceeds to charity ``as an indicator of good will.''

``Oh wow,'' he said, opening a package during a Daily News phone interview. They (the FBI) sent me an Internet Crime Complaint Center shirt. How cool. It's not every day I get a package from the FBI.''

As to whether he remembers calling Minkow while on the run from the feds, he said, ``Maybe I did. I remember he had a very cute girlfriend.''

``Barry is a good social engineer, he's a good sales guy.''

Dana Bartholomew, [phone]

dana.bartholomew(at)dailynews.com

CAPTION(S):

5 photos

Photo:

(1 -- 2 -- color) Kevin Mitnick, who now owns a business in Henderson, Nev., that helps companies secure themselves against unwanted intruders from cyberspace, discovered computers - and hacking - at James Monroe High School in Panorama City, where he attended as a teenager.

Gene Blevins/Special to the Daily News

(3 -- 4 -- color) Barry Minkow, who as a teenager masterminded the ZZZZ Best fraud, is now a pastor at a San Diego church.

Andy Holzman/Staff photographer

(5) Barry Minkow founded ZZZZ Best carpet service as a teenager. The 10th-grader from Reseda turned the company into a darling of Wall Street before the fraud ultimately collapsed.

Daily News file photo