Editor’s Note: The online version of this story includes information that was inadvertently omitted from the print version. It also corrects the year Minkow was released from prison, which was 1995.

Five years ago, former ZZZZ Best carpet cleaning charlatan Barry Minkow was released from prison after serving a sentence for fraud, racketeering and tax evasion.

Since then, the one-time San Fernando Valley resident has reinvented himself, first as a minister and now as an unlikely champion of corporate governance reform.

His latest target?

Herbalife Ltd., the nutritional supplement maker and multilevel marketing phenomenon that five years ago also set about reforming its less-than-stellar public image.

The Century City-based company was handed over to Michael Johnson, a slick Walt Disney Co. executive who sought to improve the product line and leave behind its history of marketing abuses not without some success.

But Minkow, who now lives in San Diego, doesn’t buy it.

He considers the marketer of vitamins and weight-loss shakes little more than a pyramid scheme hiding behind the respectability of a NYSE ticker symbol and $2.5 billion market cap not to mention what he claims is a purveyor of unsafe products.

“Herbalife is what we call a fully disclosed fraud,” Minkow said. “Everything is there but you have to read between the lines. And when you look at the turnover you can see the model can’t sustain itself, except for the people at the very top.”

A corporate gadfly with Minkow’s past might easily be dismissed, but at least one of his barbs hit the bull’s eye.

Last month, he conducted a credentials check of top company managers and directors and discovered the chief operating officer, Greg Probert, hadn’t completed requirements for the MBA listed on his resume. Probert, also a former Disney executive and longtime friend of Johnson, resigned less than a week after the story broke.

Then on March 28, Minkow published his latest attack on the Web site of his San Diego-based Fraud Discovery Institute. The post contended that he had hired an independent lab to test several Herbalife products and had found what he contends to be unsafe levels of lead in the children’s version of a meal-replacement shake.

As a result, the company is in the process of testing lead and other contaminant levels in all 61 products sold in the United States. Herbalife contends early results show lead levels far lower than Minkow claims, with the company planning to release a detailed report.

Still, the attacks by Minkow and a network of multi-level marketing critics he collaborates with have taken their toll on Herbalife’s stock price. After rising to a 52-week high of $51.09 on April 4, shares have fallen 24 percent as a steady stream of troubling news, much of it generated by Minkow, appeared to spook investors.

While he admits to a short position in Herbalife’s stock, Minkow contends that’s his way of financing continued investigation of the company. Last month he said he informed local FBI and SEC officials what he was doing, and provided access to his online trading account so they could monitor his actions.

Herbalife officials admit Minkow was right about Probert’s past, but insist that their adversary twists and stretches facts in a misguided effort to scare off investors and encourage regulatory and law enforcement scrutiny.

“We have a gentleman here who has some facts but not all the facts,” said Herbalife Chief Financial Officer Richard Goudis. “We’re a very large organization and we’re not perfect. But we walk our talk about ethics and I think we’ve shown repeatedly that when a situation is brought to our attention, we act.”

Johnson declined to comment for this story.

Cleaning up

Herbalife sells its products developed internally but manufactured by contractors through a network of independent distributors who buy the products from the company and resell them. Distributors can climb up the ranks of several layers of supervisor, with each level granting larger wholesale product discounts, bonuses and a cut of each sale made by a distributor they recruited.

For a multilevel marketing model not to be considered a pyramid scheme, the majority of the sales are supposed to be made to retail customers. However, Herbalife has gotten into trouble in the past when it failed to properly oversee its distributor networks.

The company was founded by the charismatic Mark Hughes, who died in 2000 after an accidental drug and alcohol overdose. He had a free-wheeling corporate governance style and one of Johnson’s first orders of business when he took over was to clean up the distributorships.

Johnson instituted tougher ethics standards for employees and independent distributors and spent $6 million to settle a lingering class action lawsuit with disgruntled supervisors, a higher level of distributor in the company’s marketing food chain.

“It’s a fallacy to say our model is ‘doomed by design,’ as they contend,” said Goudis.

But Minkow contends that Herbalife distributors continue to be encouraged to make money off recruiting other participants in the marketing program rather than by selling the actual product.

Starting over

It takes a lot of chutzpah for a felon convicted of fraud to start anew as a champion of Wall Street governance reform. Then, again, Minkow never lacked in the chutzpah department.

Unlike many San Fernando Valley teenagers in the 1980s, Barry Minkow didn’t look to Hollywood for his heroes. In that greed-is-good decade, Minkow wanted to be just like Michael Milken, the junk bond pioneer.

At age 21, Minkow was considered the youngest chairman and chief executive of a publicly traded company in Wall Street history.

And by 1989, Minkow was pleading guilty to multiple counts of fraud and was sent to prison. (Milken was having his own troubles about the same time, pleading guilty to securities fraud and being sent to prison.)

In Minkow’s case, it was his carpet cleaning company ZZZZ Best. In classic Ponzi scheme style, he misled investors into thinking that the carpet cleaning business was a bigger operation than it actually was.

Minkow went to prison, found God and upon his release in 1995 vowed to atone for his misdeeds through good works. Minkow also found Jesus and left his Jewish faith to become a senior pastor at Community Bible Church in San Diego, where he lives with his wife and two adopted children.

He also continues to pay back hundreds of millions of dollars to the people and institutions he shafted two decades ago, and serves as a fraud consultant to the FBI and other agencies.

Minkow is cheerfully philosophical about the personality traits that both got him in trouble with the law, and now enable his new life as an investigator.

“Why am I good at what I do? I’m a liar and a thief,” said Minkow, who was in town last week working on a deal for a possible TV pilot based on his life story. “I think in the same way as the people I go after.”