The Crazy Eddie Fraud
Horizontal Analysis
Crazy Eddie
Consolidated Statement of Operations
In thousands except for share data
Year Ended Year Ended
03/03/85
8167,147
127.619
03/03/86
$262,268
194.371
39,528
67,897
26.431
42.975
13,097
1,418
24,922
{5721
Change
Year Ended
85-86
03/01/87
Change
Year
Ended
02/23/88
Change
56.91%
5231%
71.77%
$352,523
86-87
34.41%
272.255
40.07%
346.791
2738%
80,268
18.22%
(31,252)
(138.93)%
61341
42.74%
(24.06)%
96.195
(127,447)
(77336)%
£2221
62.59%
90.29%
126.38%
4336%
(5.233^
130.62%
538.17%
13,943
27,312
95.88%
21,097
(22.76)%
(133,419)
(732.41)%
Pension contribution
Income before income taxes
600
13343
800
26,512
3333%
98.70%
500
20,597
(37.5)%
(2231)%
(133,419)
(747.76)%
Income taxes
Net income
6,276
86367
13J268
$13.244
90.19%
108.01%
10.001
$10.596
Earnings per share
$1.10
$0.48
-5636%
$034
Net Sales
Cost of Goods Sold
Gross profit
Selling, general & administrative
expense
Operating Income
Other income
Interest expense
Income before pension
Contribution and income taxes
Weighted average number of
3,210
18,927
7,403
$315,339
87-88
(10.49)%
56.82%
14.12%
(24.62)%
(243211 (343.19)%
(19.99)% ($109.098^ (1129.61)%
(29.17)%
($3.52) (1135.29)%
shares
5,796
27,664
31,204
30,957
Source: Crazy Eddie Annual Report 1985.1988, Securities andExchange Commission. JO-K Reports
The Crazy Eddie Fraud
Crazy Eddie
Consolidated Balance Sheet
(In Thousands)
ear ended Year ended
Assets
Current Assets:
Cash
Short-term investments
Accounts receivable
Merchandise inventories
Prepaid expenses & other current assets
Income tax refunds receivable
Deferred income taxes
03/03/85
03/02/86
$7,216
15,057
1,876
26,543
1,509
Change
85-86
$13,296 8426%
26,840 7826%
2,246 19.72%
59,864 125.54%
2,363
56.59%
Total current assets
5231
104,609 100.40%
Restricted Cash
Deferred Income taxes
7,058
3^56 (52.45)%
Year ended Change Year ended
03/01/87
02/28/88
86-87
Change
87-88
$9347 (29-70)%
$5,100
(45.44)%
121,957 354.39%
6346 182.55%
109,072 8220%
9,846
(91.93)%
3,529
59,444
6,613 179.86%
4^00
2,846
32,077
(44.39)%
(45.50)%
(56.96)%
4.026
261,861 150.32%
112,842
(56.91)%
612.82%
1,668
Furniture, fixtures, equipment & leasehold
improvements at cost, less accumulated
depreciation and amortization
3,696
7.172
94.05%
26,401 268.11%
32,949
24.80%
Construction in process
1,154
6,253 441.85%
5,560 291.83%
4,928 (1137)%
3,008
(38.96)%
93.73%
$294,858 13226%
$148,799
(49.54)%
$51,723 124.12%
$50,022 (329)%
49,286
285 (87.36)%
42,752
(14.53)%
Other Assets
Total Assets
1,419
865.528
S126.95Q
Liabilities and Stockholders1 Equity
Current Liabilities
Accounts payable
Short-term debt
Current maturities of long-term liabilities
Income taxes payable
Unearned service contract revenue
Accrued liabilities
Total current liabilities
Long-term liabilities, less current maturities
Convertible subordinated debentures
Unearned service contract revenue
Total Liabilities
$23,078
0
24300
(5029)%
153
0
(4632)%
423
2,254 432.86%
11,071
1,173
8.733
3,696 215.09%
3,641
(1.49)%
3,861
6.04%
6,035(30.67)%
5.593
9.332
33,407
(7.63)%
74,799 123.90%
108,827
45.49%
80,598
66.85%
(25.94)%
8,459
80,975
9.84%
632
(92.53)%
7,625
7,701
1.00%
1.829 188.03%
$41,667
$84329 10239%
3337
82-45%
$201,598 139.06%
80,975
0.00%
5332
$167337
59.78%
(16.90)%
Stockholders' Equity
Preferred stock - par value SI per share
authorized 5,000,000
Common stock - par value $.01 per share,
authorized 15,000,000 shares, 5,000,000
outstanding
Additional paid-in capital
Retained earnings
Less treasury stock, at cost, 500,000 shares
Total stockholders1 equity (deficiency in
net assets)
Total liabilities and stockholders' equity
18
67
280 317.91%
12365
11,429
17,668 42.89%
24,673 115.88%
57,678 226.45%
35,269 42.95%
1.65%
58,630
(73,829) (309.33)%
(3,872)
23.861
42.621
78.62%
93260 118.81%
(18.738) (120.09)%
$65.528
S126.950
93.73%
$294.858 13226%
313
11.79%
Source: Crazy Eddie Annual Report, 1985, 1988, Securities and Exchange Commission, 10-K Reports
315
$148.799
0.64%
(49.54)%
Vertical Analysis
Crazy Eddie
Net Sales
Cost ofGoods Sold
Gross profit
Selling, general &
Administrative expense
Operating Income
Other income
Interest expense
Income before pension
Contribution and income taxes
Pension contribution
Income before income taxes
Income taxes
Net income
Earnings per share
Weighted average number ofshares
Consolidated Statement of Operations
In thousands except for share data
Year
Year
Year
Ended
%
Ended
%
Ended
%
?/P3fl? ofsales 03/03/86
3/03/86 ofsales 03/01/87 ofsales
$167,147 100.00% $262,268 100.00% $352,323 100.00%
Year
Ended
02/28/88
346.791
ofsales
100.00%
109.90%
(31,252)
(9.90)%
$315,539
iaLfil£ 7635% 194.371 74.11% 272.255 77.23%
39,528 23.65% 67,897 25.89% 80,268 22.77%
26.431
13,097
1,418
(572)
5.81%
7.84%
0.85%
-034%
2,925
24,922
1639%
9.50%
61341
18,927
17.40%
96.195
30.49%
5.37% (127,447) (4039)%
(mi
-031%
(5233)
-1.48%
(1.89)%
13,943
600
13,343
834%
036%
7.98%
27,312
SQSi
26,512
10.41%
031%
10.11%
21,097
500
20,597
5.98%
(133,419) (4228)%
5.84%
(133,419)
-4228%
4.17%
13,261
5.06%
JPJ01
2.84%
(2432H
-7.71%
21367
$1.10
5,796
3,210
1^2%
7,403
3.81% $J3,244
5.05% $10.596
$0.48
27,664
31,204
3.01% ($109.0981 -34.58%
$034
Source: Crazy Eddie AmualReport. 1985.1988. Securities and Exchange Commission, 10-KReports
($3.52)
30,957
The Crazy Eddie Fraud
Assets
Crazy Eddie
Consolidated Balance Sheet
(In Thousands)
Yr. Ended
Yr. ended
03/03/85
03/02/86
Yr. Ended
Yr. Ended
03/01/87
02/28/88
Current Assets:
Cash
Short-term investments
Accounts receivable
Merchandise inventories
Prepaid expenses & other current assets
Income tax refunds receivable
Deferred income taxes
Total current assets
Restricted Cash
Deferred Income taxes
Furniture, fixtures, equipment & lease
hold improvements at cost; less accumu
lated depreciation and amortization
Construction in process
Other Assets
Total Assets
Liabilities and Stockholders1 Equity
Current Liabilities
Accounts payable
Short-term debt
$7,216
11.01%
22.98%
$1336
2,246
1,509
2.86%
40.51%
2.30%
59,864
2,363
52,201
79.66%
104,609
82.40%
7,058
10.77%
3,356
2.64%
15,057
1,876
26,543
Unearned service contract revenue
Accrued liabilities
Total current liabilities
Long-term liabilities, less current
maturities
10.47%
21.14%
1.77%
47.16%
1.86%
Total Liabilities
6,346
109,072
6,613
4,500
4.026
261,861
3.17%
$5,100
3.43%
41.36%
2.15%
36.99%
9,846
3,529
59,444
2,846
32,077
2.37%
39.95%
1.91%
21.56%
112.842
75.84%
32,949
22.14%
2.24%
1.53%
137%
88.81%
1,668
0.57%
8.95%
6.62%
5.64%
1.76%
2.17%
7,172
6,253
5,560
5.65%
4.93%
4.38%
26,401
$23,078
35.22%
$51,723
40.74%
$50,022
49,286
16.96%
16.72%
$42,752
24,500
28.73%
16.47%
4,928
1.67%
2.02%
3,008
$65.528 100.00% $126,950 100.00% $294,858 100.00% $148,799 100.00%
0
423
0.65%
1,173
8.733
1.79%
3,696
13.33%
33,407
6.055
50.98%
7,625
&5
2^54
11,071
285
0.10%
153
0.10%
3,641
5.593
108,827
1.23%
74,799
1.78%
8.72%
2.91%
4.77%
58.92%
1.90%
36.91%
3,861
9.332
80,598
2.59%
627%
54.17%
11.64%
7,701
6.07%
8,459
2.87%
632
0.42%
0.97%
1.829
1.44%
80,975
27.46%
1.13%
80,975
54.42%
5.332
3.58%
Convertible subordinated debentures
Unearned service contract revenue
$9,347
121,957
3,696
1,154
1,419
Current maturities of long-term
liabilities
Income taxes payable
26,840
$41,667
$84,329
3.337
$201,598
$167,537
Stockholders' Equity
Preferred stock - par value $1 per share
authorized 5,000,000
Common stock - par value $.01 per
share, authorized 15,000,000 shares,
5,000,000 outstanding
Additional paid-in capital
Retained earnings
Less treasury stock, at cost, 500,000
67
12,365
11,429
0.10%
18.87%
17.44%
280
17,668
24,673
13.92%
19.44%
23.86J
36.41%
42.621
33.57%
0.22%
net assets)
Total liabilities and stockholders' equity
0.01%
315
0.21%
313
57,678
0.11%
19.56%
35,269
11.96%
58,630 39.40%
(73,829) (49.62)%
93.260
31.63%
(3,872) (2.60)%
fl8.738U12.59m
shares
Total stockholders' equity (deficiency in
18
$65.528 100.00% $126.950 100.00% $294.858 100.00% $148.799 100.00%
Source: Crazy Eddie Annual Report, 1985, 1988, Securities and Exchange Commission, 10-K Reports
The Crazy Eddie Fraud
Key Ratio Analysis
Accounts receivable turnover
Average number of days
receivables outstanding
158.71
12S5
1986
1987
2218
113.94
127.25
82.06
63.91
2.30
3.20
2.87
4.45
5.71
Inventory turnover
Average number of days
inventory outstanding
5.2622
5.2618
4.4989
3.2231
4.1158
69.3622
69.3668
81.1297
Accounts payable turnover
113.242
88.6821
6.84197
6.40773
6.0879
6.3189
6.40616
53.3471 •
56.9623
59.9545
57.7623
56.9763
Average number of days
payables outstanding
A/P as a percentage of inventory
82.79%
86.95%
86.40%
45.86%
71.92%
The analysis ofthe financial statements reveals several possible trends that need to be looked into to
detemune the cause for changes. For the three years prior to becoming a public company, sales were
growing at approximately 20%. After it became public, sales for Crazy Eddie grew at the rate of
approximately 45%. This would be highly unusual for any company and in light ofthe industry
havmg a slowdown during this time, the growth should have raised suspicions. Even factoring in that
management was skimming sales, the rate ofgrowth would still be highly suspicious. This leads one
to beheve that there may be fictitious sales. An increase in accounts receivable might lead further
credence to this theory. While the accounts receivable wasn't large, it did exhibit a trend. From 1985
to 1986 accounts receivable increased by 20%, however, in 1987 accounts receivable increased by
182% ending with a $6.3 million balance. Since this was primarily a cash business, one would
expect it to be low. Could the balance be due to fraud or to the business that Crazy Eddie did with
commercial accounts? That should probably be checked to determine the validity ofthe balance and
make-up ofthe balance. The ratio analysis ofaccounts receivable, as expected, backs this up. The
average number ofdays receivables outstanding were increasing from 1986 forward, meaning mat
customers are paying more slowly, while the receivables turnover ratio was decreasing, meaning that
the time between me sale and collection was slowing down. Ifmere are fictitious sales, then there
are probably fictitious receivables. After all, fictitious sales are never collected.
Merchandise inventories also present a disturbing concern. Annual increases of22% and 52% prior
to going public might be inappropriate, but after the company went public, the inventories really
increased. From 1985 to 1986 inventories increased by 125% and from 1986-1987 they increased
82%. The percentages are shocking perhaps, and the actual numbers even more so. The balance went
from $26 million to nearly $60 million in one year and men in the following year, it increased to
SI 09 million before tumbling to $59 million when the fraud was discovered. Increases ofthat
The Crazy Eddie Fraud
magnitude would probably require closer scrutiny especially at the rate that sales are increasing. Was
the increase due to increased purchasing or due to manipulating the inventory count? The ratio
analysis also bears this out Whereas inventory was turning over 5.26 and 4.49 times in 1985 and
1986, it decreased to 3.223 times in 1987. The higher the ratio, the less inventory that sits on the
warehouse shelves since it is being sold more quickly from the time ofacquisition. This is further
evidenced by the increased number of days that inventory remained in stock. If sales were growing
at the rather high rate reported, why was^ventory turning over more? We now know that the
inventory was severely overcounted causing inventory to be overstated. Inventory that is overstated
causes the cost ofgoods sold to be understated. Ifcost ofgoods is understated, then gross profit and
net income will be overstated and thus a higher profit will be (fraudulently) misstated. The accounts
payable ratios also give credence to overstated inventory. In the ratio accounts payable as a
percentage ofinventory, the percentages drop drastically fiwn fiscal 1986 to 1987. If sales were
actually growing as reported, then the percentages should not have decreased but rather remained
constant
Selling-OffStock
One sign that something was amiss was the selling off ofEddie's stock. Before the public offering
Eddie owned 75.4% of the common stock. Aiter the public ofifering, the number of shares owned or
controUed by Eddie was 55.2%. However between September 1984 and late 1987, he sold more than
90% ofthe common stock he owned or controlled. By September 1987 he owned or controlled only
4.7% ofthe common stock. From 1984 through 1987, Eddie overstated the rate ofgrowth of Crazy
Eddie's earnings, to report $45 million in fictitious earnings, and to claim more than $20 million in
fictitious sales. With these falsified reports, Eddie was able to sell his own stock at inflated prices for
a total of $74,844,000 from September 1984 to November 1987. By taking advantage of Crazy
Eddie's materially misrepresented financial condition, Eddie sold his stock at prices substantially
higher than what he could have otherwise obtained. Refer to the Appendix for actual Crazy Eddie
announcements regarding the sales of Eddie's stock. Notice the reasons for the selling ofhis stock,
reasons, which were frauds in themselves. The following is a summary ofEddie's stock sales.
Date
.
•
Number of Average Price
Shares Sold
per Share
Total of
Proceeds
09/13/84
300,000
03/20/85
7.40
450,000
04/04/85
19.80
150,000
09/10/85
19.80
428,550
11/08/85
13.63
.600,000
5,841,137
03/14/86
13.00
600,000
7,800,000
03/20/86
25.23
120,000
15,138,000
.11/18/86
2553
1,500,000
3,027,600
. 09/15/87
13.88
1,400,000
10/23/87
4.38
5,000
20,820,000
6,132,000
10/26/87
2.80
15,000
14,003
10/27/87
2.13
45,000
31,950
10/28/87
2.37
65,000
106,550
10/29/87
1.94
30,000
126,100
10/30/87
1.94
82,000
58,200
11/02/87
1.88
163,000
154,160
11/03/87
109
45,000
340,670
11/13/87
2.20
55,000
99,000
11/16/87
2.60
470,000
143,000
1.94
911,800
Total
2,220,000
8,910,000
2,970,000
Source: Criminal No.: 92- 347UnitedStates District Court, District of
New Jersey, Superseding Indictment, UnitedStates ofAmerica v.
Eddie Antar, MitchellAntar, Allen Antar, Eddie Gindi
The Crazy Eddie Fraud
Red Flags
All in all many red flags were raised from the adventures of Crazy Eddie. Should the auditor have
become suspicious when so many were found? Decide for yourself. Some ofthe more blatant ones
that the auditor could have caught were:
1. Owners selling offmassive amounts of stock. Even with the public explanation ofwhy Eddie
sold the stock, selling it offthat many times especially when the stock was high should have
raised suspicions.
2. The growth in sales. Very high increases in sales are uncommon in any industry except perhaps
high tech. Very high increases in sales when the industry was experiencing a slowdown should
have caused concern enough to check into it further. This is especially true with inventory
turnover decreasing at a rapid rate.
3.
Checks written in large amounts ofmoney in round figures for merchandise is not common in
any industry concerning goods.
4. Checks written out of sequence. That is, some check numbers and check dates didn't coincide.
5. Purchase orders and shipping documents out of sequence. Shipping documents were dated before
the purchase order date.
6. Debit memos in round numbers and out of sequence. The dates on debit memos were out of
sequence with the number on the debit memo.
7. Changes in accounting policy were made without reference to the previous policy, especially one
that could have a significant effect on the financial statements.
8. Inventories in individual stores were "unusually high compared to the total sales for the particular
store.
9. Unit costs for inventory items in the computer system were much higher than the invoice
amount
10. Missing documents. Documents that would be a normal part ofrecordkeeping were missing.
11. Unexplained discrepancies. Discrepancies were found in account payable balances for many
vendors due to the debit memo scam, but not properly checked out.
. *
12. High amount of sales at the end ofan accounting period. Deposits in transit should have been
reviewed to determine if sales were recorded in the proper period.
The End of the Story
By the time Eddie's electronics empire folded, Antar and members ofhis family had distinguished
themselves with a fraud of massive proportions, reaping more *h«n $120 million. By the time this
case was concluded, the Securities and Exchange Commission was joined by the FBI, the Postal
Inspection Office and a U.S. Attorney in tracking Eddie down.
The Crazy Eddie Fraud
All m aU, according to federal indictments, the conspiracy inflated the company's earnings during
the first year by about $3 million. By selling off shares ofthe overvalued stock, the partners
pocketed more ifcan $282 million. The next year ihey illegally boosted income by $5.5 million and
retail sales by $22 million. This time the group cashed in their stock for a cool $422 million
windfell. In the last year before the boom went bust, Eddie and his partners inflated income by $37.5
million and retail by $18 million. They didn't have that much stock left though, so despite the big
blow-up they only cashed hi for about $83 million.
Maybe he knew the end was at hand, but with takeovers looming, Eddie kept fighting. However, in a
proxy battle for Crazy Eddie's, the Antars had too little shareholders' power to stave offthe bid.
They lost For the first time, Crazy Eddie's was out of Eddie's hands.
The new owners didn't have long to celebrate; They discovered that their ship was sinking fast.
Stores were alarmingly understocked, shareholders were suing, suppliers were shutting down credit
lines because they were either paid late or not at alL An initial review showed the company's
inventory had been overstated by $65 million, a number later raised to more than $80 million. In a
desperate maneuver, me new management set up a computerized inventory system and established
lines ofcredit They made peace with fee vendors and cut 150jobs to reduce overhead. But all this
to no avail. Less man a year after the take-over, Crazy Eddie, as it was known in its heyday, was
dead
Eddie Antar, on the other hand, was very much alive. But nobody knew where. He faded when it
became apparent that the takeover was forcing him out He had set up dummy companies in Liberia,
Gibraltar and Panama, along with well-supplied bank accounts in Israel and Switzerland. Sensing his
days as Crazy Eddie were numbered, he fled the United States, traveling the world with at least a
dozen take passports.
After more than two years on the run, he walked into a police station in Bern, Switzerland—not to
turn himselfin, though. Using the alias, David Cohen, he demanded help from the police. He was
angry because bank officials refused him access to the $32 million he had on account there. Tie
bank wouldn't tell "Mr. Cohen" anything, only that he couldn't access the funds. But officials
discreetly informed police that the money had been frozen by the U.S. Department of Justice. It
didn't take long to realize that David Cohen, the irate millionaire in toe Bern police station, was
Eddie Antar.
The Crazy Eddie Fraud
It was the last public part Crazy Eddie would have for a while. He eventually pleaded guilty to
racketeering and conspiracy charges and was given 82 months in prison, besides having to repay
$ 121 million to bilked investors. Almost $72 million had been recovered torn Eddie's personal
accounts. In June 1998 successful litigation by the SEC held Eddie's father, brother, and brother in
law responsible for fraudulently raising the value of Crazy Eddie stock. The family was also told to
hand over its profits from the sale of stock sold on behalf ofEddie's nieces and nephews.
What happened to the Crazy Eddie stores? They're baaack, Crazy Eddie pitchman Jerry Carroll and
all. In 1998 Eddie's nephews held a grand opening for a new store in New Jersey selling what else?
Electronics.
Crazy Eddie Fraud Summary
'Crazy1 Eddie Antar was termed by US Attorney Michael Chertoff
"The Darth Vader of Capitalism"
BY U.S. MAESHALS
ill
II
II
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Up
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Prior to Going Public: A Securities Fraud Committed by Going Legit
In the years years prior to the Crazy Eddie Initial Public Offering (IPO) the company
gradually cut down on its skimming each year to increase to growth of its reported
pro forma earnings. The effect of the gradual reduction on skimming had a
substantial effect on pro forma earnings growth:
Fiscal Year
Fiscal Year
Ended
05/31/80
Fiscal Year
Ended
05/31/81
Fiscal Year
Ended
05/31/82
Ended
05/31/83
Income Before
Pension Contribution
& Income Taxes
$1,709,000
Approximate
Skimming
$2,273,000
$3,404,000
$4,637,000
$3,000,000
Adjusted Income
Before Pension
Contribution & Income
Taxes
$2,500,000
$1,500,000
$
$4,709,000
$4,773,000
$4,904,000
$5,387,000
750,000
Crazy Eddie Securities Frauds after September 13, 1984 Initial Public Offering
Earnings Inflation Fraud
Pre Tax (In $ 000'S)
Low
Range
Fiscal
Year
Ended
03/02/86
Fiscal
Fiscal
Year
Year
Ended
Ended
02/29/84 03/03/85
Pretax Earnings as Reported
High
Range
Fiscal
Year
Ended
03/02/86
Low
Range
High
Range
Fiscal
Year
Ended
03/01/87
Fiscal
Year
Ended
03/01/87
6,582
13,343
26,512
26,512
20,597
20,597
Warehouse Inventory Inflation
0
(3,000)
(6,000)
(6,000)
0
0
Defective Merchandise (Reeps)
Inventory Inflation
0
0
(1,000)
(2,000)
(7,500)
(8,000)
Store Inventory Inflation
0
0
(3,000)
(4,000)
(15,000)
(20,000)
0
0
(3,000)
(4,000)
(5,000)
(7,000)
accounts Payable Cut Off
Fraud
Reeps Cut Off Fraud
0
0
0
0
(1,000)
(2,000)
Debit Memos
0
0
0
0
(20,000)
(20,000)
Comparable Store Sales Cash
Infusion from Previously
Skimmed Funds
0
0
(2,000)
(2,000)
0
0
Fraud Subtotal
0
(3,000)
(15,000)
(18,000)
(48,500)
(57,000)
0
0
3,000
3,000
15,000
18,000
0
(3,000)
(12,000)
(15,000)
(33,500)
(39,000)
0
8,000
8,000
8,000
8,000
(3,000)
(4,000)
(7,000)
(25,500)
(31,000)
(70,000)
(70,000)
Less: Cumulative Effect of
Previous Years Fraud
Fraud effect on Current Year's
Earnings Before Audit
Adjustments
Excess Reserves by Auditors to
Smooth Earnings
Fraud Effect on Current
Earnings After Adjustments by
Auditors
0
Cumulative Shortage Claimed
by New Management in
December 1987
Please note that the above information is based on my testimony provided in
depositions and at trial in the Crazy Eddie civil, SEC, and criminal case. The fraud
information provided during testimony was approximate.
Highlight on Fiscal Year 1986:
•
In 1986, we became even greedier.
•
The effect on our growth by reducing our prior skimming had run its course and
was no longer beneficial.
•
In 1986 they wanted to sell more stock and of course make millions, more.
•
I was asked, and I participated gladly in creating fictitious sales to initially to
boost Crazy Eddies reported comparable store sales and later to boost earnings
and earnings growth.
•
Monies that were previously skimmed in the 1970's had made its way to secret
bank accounts at Bank Leumi in Israel.
•
Crazy Eddie's Fiscal Year now ended in the first Sunday in March instead of May
31.
•
Crazy Eddie's same store sales which were ahead up until Christmas 1985 at a
rate of 20% were only running ahead 4% for January and February 1986.
•
Eddie and his father wanted to sell over $30 million in stock by the first week of
March 1986 at the highest possible price.
•
They transferred or "maybe" advanced $1,500,000 to Crazy Eddie from their
secret bank accounts in Israel which contained the previously skimmed funds by
first wiring such funds to another bank secrecy jurisdiction in Panama.
•
Once the funds were in Panama, another family member withdrew such funds
from Bank Leumi in the form of drafts so he would not violate laws on movement
of funds into the country and bought such funds into Crazy Eddie's offices in
Brooklyn, New York.
•
I later took these drafts which were in amounts ranging from $50,000 to
$100,000 and caused all $1,500,000 of them to be deposited into stores that
were opened in both fiscal years.
•
They were deposited after the last day of the fiscal year, which was March 3,
1986 and no invoice was generated.
•
However, because the drafts were dated before the last day of the fiscal year,
the deposit was entered as if it occurred and the sale happened before fiscal year
end.
•
The auditors never noticed anything since they did not do a sales cutoff test at
year end in the 1986 audit.
•
They could have noticed unusually large deposits in transit since the drafts did
not clear the bank before fiscal year end.
They could have also noticed that same store sales increased 75 -100% for no
apparent reason.
They never checked.
Also, another $500,000 in currency that did not make its way to Israel was
deposited in the same store sales.
Finally, a sale of $200,000 to another retailer called "trans shipping" was counted
as a retail sale and include in same store sales, thereby artificially increasing
same store sales in total by $2,200,000 for the Fiscal Year Ended 1986 and more
specifically the last week of that year.
On March 7, 1986 Eddie and his father sold over $30 million dollars of stock and
I was a hero.
The press release issue by Crazy Eddie reported a same store sales increase of
17% for the year and everybody was happy with the news.
However, there was still more sinister plan in action for the Fiscal year End March
2, 1986.
We only issued a same store sales report and the two main principals made a
killing selling their stock.
The audited financial statements for the fiscal year were yet to be issued.
Eddie and his father wanted no earnings surprises.
The effect on our growth by reducing our prior skimming had run its course and
was no longer beneficial.
We had already artificially inflated our earnings by $2,000,000 from fictitious
sales resulting from monies transferred back to Crazy Eddie that were previously
skimmed.
I helped Eddie, his father and others plan and execute the misstatements of
inventories and accounts payable that taken together with the sales fraud initial
overstated net income by approximately $15 - $18 million.
Inflation of store inventories was particularly easy since the auditor did not
supervise the counting of more that 40% of the store units or store inventory
values.
It was also quite easy in a company where the family controlled everything to
receive merchandise weeks before the auditors arrived without any records or
audit trail on Crazy Eddie books and then receive post dated invoices weeks after
the auditors leave.
•
In the warehouse our conspirators were very accommodating to audit personnel
in helping them count merchandise by volunteering to climb over huge stacks of
boxes and count all of the units.
•
They also, helped the audit manager make copies of his test count work papers.
•
That trick was also done in stores in which the auditors supervised the inventory
counts.
•
Fraud by accommodation.
•
The auditors upon completing the audit believed that Crazy Eddie had
substantially understated its profits.
•
Crazy Eddie's gross margins for the year had been computed at close to 40%
when historically it never exceeded 25%.
•
Our gross margins for the last quarter exceeded 60%.
•
Eddie and I had discussions with the auditors regarding this so called dilemma.
•
Never once was the word fraud as a negative connotation toward Crazy Eddie
management considered.
•
The auditors felt we were the kind of client they could work with.
•
The partner said, "Nobody got sued for underreporting earnings."
•
He would set up artificial cushions that he would call "rainy day funds" or
"accountants liability insurance."
•
Therefore, he arbitrarily set up non GAAP conforming allowances of $8 million to
offset his perceived $16 million understatement of earnings not knowing the con
job that Eddie and I pulled over him.
•
We rewarded Main Hurdman very dearly after the 1986 audit.
•
I gave them various contracts for computer system implementation and
employee benefit compliance totaling in excess of $1 million per year.
•
The annual audit fee was approximately $150,000.
•
Keep your friends close, keep your enemies closer.
Frequently asked questions:
Did Eddie send you to college with the sole intention of making you the
company accountant and CFO? Was there ever a time that you thought
about changing majors?
He paid me a full time salary because he wanted me eventually to become the Chief
Financial Officer of Crazy Eddie. I would have gone to college anyway. I never
thought of changing majors. From the age of 12 I read the Wall Street journal and
Barron's. I was always intrigued with numbers.
Can you provide me audit procedures that you think would have detected
the issues with:
A.)
Falsification of inventory
B.) Bogus debit memos
C.) Recording of transshipping transactions as retail sales? (What do they
mean by transshipping?)
D.) Inclusion of consign merchandise in year-end inventory?
A.
Inventory
1.
Store Inventory Frauds for 1986 and 1987: In 1986 we falsified store
inventories by $2 - $4 million and in 1987 we falsified store inventories by $15 - $20
million. While the amount of the inventory fraud inflation in the stores may seem low
in relation to the frauds being committed today, it is the techniques and the
principals employed by the auditors in conducting the audit that could have allowed
for potentially a billion dollar inventory fraud had we had the inventory amounts to
play with.
The auditors simply did not observe the inventory counts in all of the Crazy Eddie
stores. In 1986 they observed the inventory counts in roughly 50% of the stores.
When leaving the store premises after the inventory was observed the auditors only
took their "test counts" with them and not copies of the entire store inventory. We
simply inflated the inventory counts in the stores of which the orders did not observe
the inventory counts at year end.
In 1987, we had access to the audit work papers. While the audit work papers where
left in locked boxes on Crazy Eddie premises during the audits, the audit manager
had left the keys in a small 2" paper clip box and hid it in an unsecured desk.
Therefore, we became more aggressive and increased the store inventories even in
greater proportions than the previous years. The reason is that we had the data from
the auditors as to how much inventory was in the comparative stores that they
observed the inventory counts.
Also, knowing which counts they observed, we than inflated other parts of the
inventory in the stores they observed. Therefore we became more aggressive than in
1986 and attempted to increase the store inventories in both observed and non
observed stores with the same proportionality. We screwed up and increased the non
observed stores by over double the inventory of the observed stores. However, the
auditors did nothing!
2.
Warehouse Inventories 1985 and 1986: Be nice to your friends and be nicer
to your enemies. When boxes were stacked really high and deep we were very
courteous to those young kids just out of college who feel that it is beneath them to
do physical work. Let the blue collar people do the climbing and counting. When they
climb and count and look behind all those rows of cartons in that big 150,000 square
foot warehouse they will yell out to those young lazy auditor 200 camcorders (which
use to cost $750 each wholesale) when there was actually 150.
This process would go on all night. Afterwards, as the cunning fraudster would build
trust with the auditor by buying him coffee during the breaks of doing small errand
for the superior intellectual auditor during a moment of little notice he would simply
copy the sheet that the auditor used for his test counts. Afterwards, we could inflate
the warehouse inventories even more because we knew what not to inflate. By 1987,
the warehouse inventory was automated and it as no longer possible to use that
method.
B.
Debit Memo Fraud 1987: In 1987 $20 million in bogus debit memos were
created. There were a total of $28 million in total debit memos in 1987. In previous
years the auditors generated an aged schedule of accounts payable.
In 1987 no such analysis was done by the auditors. Had such an analysis been done,
the note they mad on their work papers that the reason that accounts payable had
been reduced in relation to inventory than in previous years was due to Crazy Eddie
using short term commercial paper to pay its vendors more promptly. What was true
was that the relative percentage reduction in accounts payable in relation to
inventory was due to the large amount of non reconciled bogus debit memos. The
true accounts payable without those bogus debit memos was $80 million.
Furthermore, the auditors reconciled the accounts payable of only three major
vendors. There were significant reconciling items for all of them, most of which were
the bogus debit memos. For a certain vendor, that company had said Crazy Eddie
owed it $17 million while we said Sony was owed $7 million and most of the $10
million difference was bogus debit memos.
The auditors never contacted any of the companies they reconciled. The person for
the auditors who handled the accounts payable part of the audit never had retail
accounts payable audit experience. Finally, the audit partner approved the year end
audit number for public release at a board meeting before the accounts payable audit
was completed.
C.
Transshipping sales as retail sales: Transshipping sales are sales made to non
retail customers who are not end users such as other retailers and wholesalers. In
Crazy Eddie's early days we had trouble getting merchandise direct from the
manufactures because we busted the "fair trade" rules which were enforced to keep
prices at the same level and stifle competition. Eventually the "fair trade" rules end.
Before that however, we had to purchase inventory from Tran shippers or other
retailers who bought directly from the manufacturer and sold us their excess stocks
at a small profit. Later, after the "fair trade" laws ended transshipping still was a
source of merchandise for retailers who did not have credit to buy direct from the
manufacturers in large enough quantities, did not meet the manufactures standards,
could not get stock replenished quickly enough from the manufacturer, and for out of
the country grey markets.
Eventually, Crazy Eddie was buying direct from most manufacturers. One way we
inflated our comparable store sales in the 1987 fiscal year way by using such sales to
trans-shippers. What made my actions illegal was that the sales originated from the
main office. The trans-shipper would issue a series of checks in small denominations
for their purchase which would normally be a large amount of money ($10,000 $1,000,000).
The small checks (usually in denominations of $10,000 - $20,000) would be
deposited into the bank accounts of the retail stores and treated as a regular "off the
street" customer retail channel sale.
If the trans-shipping sale had been initiated from the store I have no legal opinion as
to fraud because our financial reports and comparable store sale only listed sales NOT RETAIL SALES per se. It was the manipulation which was wrong. There is still
no specific regulation or guidance that I know of from the S.E.C. or the accounting
profession regarding comparable store sales and transshipping. Other than cut off
issues at year end, this kind of fraud is difficult to catch during an audit if it occurs
during the year and not near year end.
D.
Inclusion of Consignment Merchandise at Year End: A vendor who we did over
10% of our business with and whose volume with us was over 35% of their business
would ship us merchandise to be counted in our inventory at year end. After the
auditors finished the audit they post dated the bills into the new fiscal year.
Crazy Eddie Criminal Trial Press Coverage
The Associated Press quoted me as testifying in an article by Jeffrey Gold on
the Crazy Eddie criminal trial on June 30,1993:
"The financial plan was to make more money every year and commit more fraud."
Crazy Eddie criminal trial atmosphere as reported in the Associated Press by
Jeffrey Gold on July 1, 1993:
Lawyers for the founder of Crazy Eddie and his brothers on Wednesday challenged
the credibility of the government's key witness in the stock fraud case. However,
they were unable to topple the basic assertions of the witness, Sam E. Antar, a
cousin of the defendants who also was an executive in the failed discount electronics
chain.
During his four days in the witness box, Sam E. Antar has laid out much of the
government's case against Crazy Eddie founder Eddie Antar and his brothers,
Mitchell and Allen.
They are accused of bilking stockholders in the chain of $80 million by inflating the
value of Crazy Eddie stock through a series of schemes, including exaggerating
inventory and deferring invoices.
.... during two days of cross-examination, they have sparred with Sam E. Antar, who
succeeded his father in the mid-1980s as chief financial officer of the booming
company.
The witness has complained that the lawyers wouldn't let him finish his answers. The
witness has often finished his responses by telling the lawyers, "Go ahead."
"Don't give me instructions/1 shot back Jack Ford, lawyer for Mitchell Antar. "Judge
Politan gives me instructions." Sam E. Antar continued the practice anyway.
When Gerald Krovatin, lawyer for Allen Antar, suggested that Sam E. Antar was
being evasive, the witness replied that the question wasn't specific: "Ask a proper
question and you'll get the answer you want."
Sam E. Antar reiterated how he has already made a deal with the U.S. attorney,
pleading guilty to obstruction of justice and conspiracy to commit stock and mail
fraud. He could be sentenced to 10 years in prison, as opposed to hundreds if he had
been convicted on all charges.
He also has settled suits with the U.S. Securities and Exchange Commission, and
Howard Sirota, lawyer for 10,000 Crazy Eddie stockholders.
Ford asked Sam E. Antar whether he hopes the Antar brothers are convicted so he
might get a lighter sentence.
"I wouldn't care either way," Sam E. Antar said. "Right now, it's the truth that's
important."
Ford pressed the issue. He noted that Sam E. Antar has testified to about 100
meetings and more than 1,600 phone calls with government lawyers and other
investigators opposing the Antar brothers.
Ford reported that Sam E. Antar has cheerfully greeted Sirota and Richard Simpson,
lawyer for the SEC, outside the courtroom. Aren't you on their team? Ford said. "I'm
not part of any team against anyone," Sam E. Antar replied. "This is not a game, sir.
This is real life. "The witness also denied his motive for testifying was revenge
because his attempt to gain control of Crazy Eddie with an outside investor failed in
late 1987.
On July 6, 1993 Edward R. Silverman covering the Crazy Eddie criminal trial
in an article he wrote in Newsday:
"It's like the Addams family went public and ended up in court," said one spectator
at the trial.
Money was the glue that held these people together," said Sam Antar, a short,
intense man who frequently interrupted his testimony to visit the bathroom and,
during breaks, munched on ka'ak, a Middle Eastern cookie. Despite bickering, "when
it came to money, they knew how to cooperate."
He went on to relate meetings, phone calls and family trivia. To laughter, he told
how Eddie thought that Raoul Felder, his first wife's divorce lawyer, is a "moron,"
and how Eddie once warned him not to tell lawyers the truth, "because they'll just
plead for you and not fight hard enough."
Results of Criminal Prosecution, Securities and Exchange
Litigation, and Other Litigation:
On July 20, 1993 the criminal trial resulted in the conviction of Eddie Antar and his
brother Mitchell Antar. Allen Antar was acquitted. On April 12, 1995 the convictions
were over turned on appeal.
However, both Eddie and Mitchell both pled guilty to criminal charges and served
time in prison rather than face a re-trial. Eddie served over 6 years in prison and
Mitchell served approximately 2 years. The government and various civil litigants
have recovered over $75 million from Eddie and $2 million from Mitchell.
Allen Antar, his father Sam M. Antar, and brother in law Benjamin Kuzser were found
guilty of civil charges when the SEC instituted and prevailed in a civil case in Newark,
NJ Federal Court on July 15, 1999. The Court explicitly rejected the defendants' trial
testimony that they were unaware of the frauds that were committed at the
company, finding that all three defendants "lacked credibility."
The Court found that the defendants artificially inflated the prices of their Crazy
Eddie stock holdings by engaging in an extensive, multifaceted fraud beginning in
the 1970s and continuing through 1987. (SEC vs. Sam M. Antar et. al 93-3988 July
16,1998^
Judge Ackerman began is opinion as follows:
There is perhaps no more insidious drain on the overall welfare of society than greed
unchecked. The saga of the Antar family and their operation of a major retail
consumer electronics business is but a manifestation of that tenet. In this and
related cases, it has become evident that various members of the Antar family
engaged in a pattern of fraud and deceit in their attempt to enrich themselves by
selling securities, the price of which had been artificially inflated through a multitude
of schemes. This appears to be the last chapter in a story of a family and its
deception of the public.
Some other family and non family members settled litigation issues with the SEC.
Various civil judgments against members of the Antar family exceed $500 million. To
date the government and various civil litigants have collected approximately $100
million Eddie Antar, Sam M. Antar (his father) Mitchell Antar and Allen Antar (Eddie's
brothers) and other members of the Antar family. Other parties such as Crazy
Eddie's auditors have also paid millions in litigation settlements. Over $150 million in
litigation recoveries has been collected to date.
It is estimated that shareholders recovered over $0.30 per dollar lost on their Crazy
Eddie stock. The government collection efforts on its judgments still continue.
Summary of my Sentencing:
Guilty Plea:
•
•
•
Conspiracy to Commit Securities Fraud
Conspiracy to Commit Mail Fraud
Obstruction of Justice
Criminal Action Sentence by Judge Politan (Major items):
•
Six months house arrest including costs of monitoring.
•
•
1,200 hours of community service.
Three years of probation.
•
$10,100 fines and fees.
Securities and Exchange Commission Litigation Settlement (Major items):
•
$80,000 disgorgement for insider trading (while I had lost approximately
$8,000 from selling my Crazy Eddie stock, it was determined that I cut my
losses by trading on insider information).
•
•
Requirement to pay $20,000 of the $80,000 disgorgement based on inability
to pay at time of settlement.
Lifetime prohibition from employment as an officer or director of a public
company.
•
Lifetime prohibition from violating securities laws.
Note: At sentencing the US Attorney while noting exceptional cooperation
recommended jail time for me. I did deserve jail time for my offenses and feel the
recommendations for incarceration by the US Attorney was justified. However, I am
grateful to the Court and therefore indebted to society for recognizing my
exceptional cooperation and not sending me to prison.
See Recent Articles page on this Web Site:
New Jersey Law Journal, Article by Tim O'Brien on June 13, 1994, "Footnote
to Crazy Eddie Case: You Talk, You Walk"
Major People Involved in Prosecuting and Investigating Crazy
Eddie Case (Alphabetical Order):
•
Jayne Blumberg (Assistant United States Attorney) - Played a key
major role in criminal investigation of Crazy Eddie and examined witnesses at
trial.
•
•
Michael Chertoff (United States Attorney) - Chief criminal trial counsel.
Oversaw Justice Department efforts to prosecute Crazy Eddie fraud case.
Max Folkenflik (Attorney from Folkenflik & McGerity who represented Elias
Zinn & Entertainment Marketing, one of the major shareholders who took
over Crazy Eddie in a hostile takeover) - Major role in civil investigation of
Crazy Eddie fraud.
•
•
Howard Hawkins (Attorney from Cadwalader, Wickersham, & Taft who were
the Trustees in Bankruptcy for Crazy Eddie) - Major role in civil investigation
of Crazy Eddie fraud on behalf of Bankruptcy Court.
Paul Hayes (Special Agent, Federal Bureau of Investigation) - Led the criminal
investigation of the Crazy Eddie fraud for the FBI. Played key major roles in
the investigation of the frauds and eventual apprehension of Eddie Antar as a
fugitive from justice.
•
Stephen Howard (Attorney from Milbank, Tweed, Hadley, & McCloy who were
attorneys for the Oppenheimer-Palmieri fund, L.P. one of the major
shareholders who took over Crazy Eddie in a hostile takeover) - Major role in
civil investigation of Crazy Eddie fraud.
•
•
•
Richard Ross (Attorney from Carella, Byrne et al, Court Appointed Receiver) Major role in investigation of the Crazy Eddie fraud and the money trails of
the Antar family.
Richard Simpson (Attorney for Securities and Exchange Commission) - Chief
trial and litigation counsel for the SEC in its civil cases against the Antar
family and other defendants. Led SEC investigation into Crazy Eddie fraud.
Played a key and major role in tracking Eddie Antar's whereabouts as a
fugitive from justice.
Howard Sirota (Attorney from Sirota & Sirota and Chairman of the
Shareholder's Class Action Committee) - Oversaw Civil plaintiff's efforts to
•
•
prosecute Crazy Eddie case. Led the civil plaintiffs investigation into the Crazy
Eddie fraud. Played a key major role in the investigation of the fraud including
helping apprehend Eddie as a fugitive.
Richard Wallace (Attorney for Securities and Exchange Commission) - Major
role in investigation of the Crazy Eddie fraud.
Paul Weissman (Assistant United States Attorney) - Co-trial counsel with
Michael Chertoff in criminal trial. Led the US Attorney's office investigation in
the Crazy Eddie fraud.
Please note that white collar criminal and civil investigations can be very complex
and take years to complete. The SEC began investigating Crazy Eddie in July 1987.
The criminal trial began in June 1993. The SEC civil trial was in July 1998. The
government is still active in pursuing and collecting judgments against many parties
even today. White collar criminal investigations require the resources of many
government agencies and many individuals both inside and outside of government
over long periods of time.
Any omissions to this list are not intentional and are accidental as others have also
played a major role. There were persons from the US Marshalls Service, The US
Postal Inspectors Service, Justice Department Inspectors, others plaintiffs attorneys,
and other government officials who played major roles. I apologize for any
omissions.
Any factual errors and ommissions are unintentional and I apologize for
them.
Special Acknowledgement:
I also note the excellent legal representation I received in the Crazy Eddie case:
Criminal Attorney: Anthony Mautone in East Orange, NJ and now also a part time
Federal Magistrate in Newark, NJ
Civil Attorney for SEC and Class Action Litigation: Jonathan D. Warner from Warner &
Scheuerman in New York, NY
Some of the Biggest Crazy Eddie Auditor Errors:
Under educated, under skilled and under experienced audit staff.
Lack of investigative skills by auditors.
Failure to ask proper questions.
Failure to know who to ask proper questions of.
Assuming the answers to good questions is correct.
Failure to verify answers to questions.
Lack of professional skepticism.
Allowing company staff to distract auditors from doing filed work by engaging
in social conversations thereby wasting time during audits.
Failure to observe inventories in all locations. The auditors form 1984 to 1987
did not observe all store inventories or inventories at all locations.
Failure to observe inventories simultaneously in all locations.
Failure to take copies of full inventories taken when leaving the premises.
Failure to conduct proper test counts of inventories by allowing relying on
company staff to count boxes.
Allowing company staff to take possession of test counts to make copies on
•
behalf of auditors.
Failure to follow through on analytical test issues.
Failure to conduct all required analytical testing.
Failure to conduct sales cut off testing at year end.
Failure to examine items listed as deposits in transit at year end.
Failure to age accounts payable.
Failure to conduct adequate verification of accounts payable balances.
Failure to contact vendors when major discrepancies were identified as
vendors sent back verification requests.
Failure to secure audit work papers left on premises during the audit by
leaving keys to trunks containing audit documents on company premises.
Allowing company personnel to view audit work papers in process.
Allowing company personnel to distract audit staff conducting the audit to
slow them down and thereby have to rush their work in the end to meet the
audit deadline.
Auditors signed off on financial reports to out directors and allowed issuance
of financial statements before audit was completed and backed into numbers.
Auditors made misrepresentations to the outside directors about certain
questionable practices and directions from the outside directors to investigate
them.
Auditors made misrepresentations to the SEC about directions from the audit
committee to investigate questionable accounting practices.
Much, much, more.
Some Crazy Eddie Red Flags:
Virtual absolute control over all aspects of the business by a tight knit family.
Very poor internal controls.
Virtually unchecked management over ride of internal controls.
Very poor audit trails and documentation.
Major self dealing transactions and related party transactions by family
members.
•
Absurd raises from absurd below market wages before the company went
public in a cash based business.
•
Big increases in gross margins, profits, inventories, debit memos etc. from
prior periods for no logical reason.
•
•
Use of "gross margin method" to value inventories during interim periods.
Change of accounting methods for purchase discounts and trade allowances in
1987 from cash basis to accrual basis noted in footnotes with no accounting
adjustments.
Small CPA firm that conducted Crazy Eddie audits before (then big eight firm
took over audits) had a significant revenue base from Crazy Eddie.
Controller and later CFO for Crazy Eddie (Sam E. Antar) worked for small CPA
firm that audited Crazy Eddie books.
Insiders were unloading major amounts of their stock holdings.
•
•
•
Some Certain Lessons for Investors
•
•
•
Crazy Eddie's internal control issues were disclosed in its footnotes.
Many of the self dealings by principals were fully disclosed.
Barron's had written a critical article about Crazy Eddie that had little long
term impact in 1984.
•
•
Good analysis of the financial statements and disclosures would have raised
some red flags.
Never takeover a retailer in a hostile takeover that has family based
management and/or poor internal controls.
Certain Realities Shown by Crazy Eddie Fraud that Everyone
Should Heed:
•
•
•
•
Both firms that audited Crazy Eddies' books provided significant consulting
services and the argument that consulting services helps accounting firms
know clients better proved unhelpful in mitigating any fraud.
Crazy Eddie had a former staff member from its "big eight" auditor as its
Chief Internal Auditor in 1987 the year of its biggest fraud misstatement.
Therefore, having former staff members of accounting firms join clients easily
had no impact in mitigating the fraud.
Certain Sarbanes Oxley provisions should apply to "small market
capitalization companies."
•
•
•
•
•
•
Frauds start small and Crazy Eddie had a $40 million market capitalization
when it had its initial public offering. The "success" of the fraud increased its
market capitalization to over $600 million at one point.
Size does not matter - Crazy Eddie was audited by a small accounting firm,
the number 9 accounting firm which then merged into a "big eight"
accounting firm which is a "big four" accounting firm today.
Disclosure does not always work - The auditors and the investment
community missed the change in accounting method for purchase discounts
and trade allowances in 1987.
Good news reporting does not always work - Barron's did a great article on
Crazy Eddie exposing a lot of weaknesses to the extent it could prior its IPO in
1984.
Wall Street Analysts do not provide valuable insights to companies - they are
at the mercy of management ho provide them with "whisper numbers."
Underwriters perform only surface level (no depth) due diligence and are at
the mercy of the negative assurances of accounting firms which is a recipe for
disaster since many public registrations take place during interim periods and
include non audit information. The public assumes all the information
contained in the registrations and presented has been thoroughly examined
Crazy Eddie Auditors:
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1976 to 1983: Penn & Horowitz (Small Firm).
1984 to 1986: Main Hurdman (Nineth Largest Firm).
1987: Peat Marwick (Main Hurdman had merged with Peat Marwick - part of
the "Big Eight" accounting firms). Today Peat Marwick is part of KPMG (It
is part of the "Big Four" accounting firms).
Some Things I Learned the Hard Way:
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Crime does not pay and do not commit crime.
Crime hurts people and society.
Never lie to your attorney.
Never lie to the government or in any way obstruct justice.
Never lie under oath.
The costs of defending a white collar criminal and civil prosecution are
onerous and substantial.
Over 85% of persons indicted by the federal government end up pleading
guilty or being found guilty in court.
If you are guilty it is better to cut your losses and settle all litigation
(criminal and civil) early since the process of white collar investigations are
very costly and time consuming and the odds are substantially against you
getting away with it.
If you hesitate to settle, the government may cut deals with other persons
making matters more difficult for you later on and increasing the likelihood
of prison and more jail time and expenses.
The government can almost force people to testify against you (if you are
guilty and the witness has such information) by imposing immunity on that
witness.
If the witness than refuses to testify with immunity such witness may face
prison if convicted for contempt of court.
This process will exact a huge toll on you personally, financially,
psychologically, and worst of all on your family members and loved ones.
Note:
When new management took over Crazy Eddie on November 6, 1987 to March 8,
1989 I originally stonewalled and obstructed the governments investigation. I lied
to my own attorney, to the government under oath, and helped cause others to lie.
On March 8, 1989 after I decided to cooperate with the government I changed
lawyers since I had no credibility with the lawyer we had represented me.
Other Advice from my Experience:
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Neither you nor your lawyer should speak to the press until after the
investigation, trial, and sentencing. My lawyers and I gave no comments
until after I was sentenced.
Trying your case in public or presenting your side of the story in public does
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not help you.
It is good free publicity for your attorney and it tips your hand.
It also raises the stakes.
Things I have Come to Learn:
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In the United States of America second chances are possible to those who
take responsibility not only in words but also in their deeds and actions.
That is just another reason why the United States is the greatest country in
the world.
whitecollarfraud.com
Sam E. Antar