2008 investor’s guide
takes one to
know
one
Sam Antar, the felonious former CFO of Crazy Eddie, is now teaching students
and prosecutors how to spot fraud in public companies. by peter carbonara
and he will not let anyone
forget it for a minute. Whenever you find yourself starting to
think of him as merely a fast-talking yet charming New York
character, he’ll come out with something like: “I had no remorse
whatsoever as a criminal. I had no concern about any other human being. I enjoyed being a criminal.” ¶ Antar is a cousin of
“Crazy Eddie” Antar, the eponymous founder of the notorious
New York City–area consumer electronics chain of the ’70s and
’80s. The business was a forerunner of Best Buy and famous
for TV spots featuring a manic, turtleneck-wearing pitchman
promising that Crazy Eddie’s “prices are insaaaane!”
Sam E. Antar is a convicted felon,
Free As a Bird
Sam Antar testified against his cousin crazy eddie. now he spends time with his Parrot, Cuddles,
in brooklyn.
108 a December 24, 2007
photographs by david yellen
December
December240,
24, 2007 A 000
takes one to know one
Actually, it was the bookkeeping that was insane,
and today it provides a cautionary tale that Sam Antar likes to tell, Ancient Mariner–style, to would-be
stock pickers. When the company, which went public
in 1984, blew up in a financial scandal in 1987, Sam
Antar, an accountant, was its CFO. The debacle cost
investors roughly $145 million and involved just about
every kind of accounting fraud then known to man,
including receipt skimming, money laundering, and
the counting of bogus inventory. The total dollars
involved were puny and the scams simple compared
with later baroque swindles like Enron, but for sheer
cojones, Crazy Eddie remains unchallenged.
That was a long time ago, of course. Antar (known
as “Sam E.” to distinguish him from other Sams in the
family, especially clan patriarch Sam M.), however, has made a second career out of reliving it. Several
times a month he speaks to law-enforcement, accounting, and student groups about Crazy Eddie and what
it can tell them about spotting accounting fraud now.
In October, for instance, he had two speaking dates
in Washington State, a third in South Carolina, a
fourth in New York City, and a fifth in Salt Lake City.
He travels around the country entirely on his own
nickel, he says, and can afford to not because of any
pile of money he stashed from the Crazy Eddie era but
because his wife, the daughter of a New York real estate developer, is wealthy. While he sneers at
words like “redemption,” in more reflective
moments Sam E. admits he does it, at least in
part, to atone. “I feel guilty about what I did.
I want to give back to society,” he says.
Antar offers himself for public inspection
$145
not as a diabolical accounting genius but as
Mr. Bad Example, a living object lesson in
million
basic criminal behavior. After he’s been introduced at one of his speaking gigs, for instance, he generally thanks the audience for
their hospitality—and then scolds them for
being chumps. One October morning he told
a classroom filled with amused Columbia
The college
of nefarious
knowledge
Antar lectures to Professor Arthur Dong’s class at Columbia University’s School of Inter­
national and Public Affairs on Oct. 27.
The debacle cost
investors
and
involved nearly
every accounting
fraud then
known to man.
110 A December 24, 2007
University graduate business students, “All too often
we give the white-collar criminal a pass. If I were a
serial killer, a child molester, a rapist, you wouldn’t applaud me. You’d be throwing eggs—am I right?” And
then he’s off to the races, talking about Crazy Eddie
and the “artful liars” responsible for the “brutality of
white-collar crime.”
Sam E., 50, looks exactly like a Mob accountant
in a gangster movie, and before an audience he plays
the part with brio. A short, balding guy, the product
of a tight-knit Syrian Jewish enclave in Brooklyn,
Sam E. has bulging eyes. As he talks to the Columbia
students, his shirttails are coming out of his pants.
He missed a spot shaving this morning. He paces the
front of the lecture hall and pauses occasionally to
underline a point with his favorite expression: “You
understand what I’m saying to you?”
At Crazy Eddie he says he had little trouble burying accounting shenanigans where inexperienced or
lazy auditors wouldn’t see them. Sam E. and others
at Crazy Eddie pumped up the company’s same-store
sales with bogus receipts, for instance, and used a
variety of devices to count inventory that didn’t exist. Investors who relied on the disclosures blessed by
those auditors saw big pops in same-store sales.
As a result, Sam E.’s disdain for financial pros runs
deep. Most Wall Street analysts are in his estimation
wimps: “They don’t ask the right questions.” Accountants: “Most of these people don’t even get any training in fraud.” Corporate audit committees: “They’re
less qualified than the inadequately trained auditors.” And the financial press: “You guys are easily
intimidated.” As for antifraud laws, Antar says that
Sarbanes-Oxley is good as far as it goes, but he doubts
that it does much to intimidate dedicated fraudsters. The only safeguards against accounting fraud
that work, he says, are stringent disclosure rules for
companies and better fraud training for auditors. So
with no one looking out for stock pickers, the only
investing strategy that makes sense, Sam E. says, is
one of sustained and disciplined paranoia. Read SEC
takes one to know one
then and now
Clockwise from left: A New York
Times article; A 1981 print ad; and the CNBC reunion of Eddie and Sam in 2007
filings carefully—starting with
the footnotes where accounting
flimflam may be buried. Listen
closely to what executives say
publicly and check the comments
against their statements and figures in their 10-Qs (the quarterly
statements publicly traded companies file with the SEC). Look out
for “one-time events” in filings that occur more than
once. Those are just some red flags. (For more, see the
box below.)
the making of a fraud
Investor
beware
112 A December 24, 2007
About $1.5 million that had been sent to Israel was
brought back into the U.S. via drafts on a bank in Panama and pumped back into the company (along with
an additional $500,000 in cash) as bogus receipts.
The same year as the so-called Panama Pump, Sam
E. also created $20 million worth of phony “debit
memos” supposedly reflecting rebates on promotional expenses like advertising from manufacturers.
The outside accountants didn’t catch either hustle.
Most of the auditors monitoring Crazy Eddie’s
books were young and inexperienced. Sam E.
counted on their lack of suspicion and their unwillingness to do the boring work of checking everything that needed checking. For instance, the
auditors checked some of the bogus rebates with the
manufacturers and even caught a few of the fakes,
but they didn’t check all of them. Sam E. thanked
the auditors for catching his “mistakes” and went
about his business. Crazy Eddie started to come undone during the
mid-1980s as business slumped and the family was
riven by a variety of feuds. In 1987, with the stock
sliding, a series of shareholder suits were filed alleging that Eddie had withheld bad news from investors
while selling much of his stock. The SEC and the U.S.
Justice Department started investigations into the
company. Various insiders starting telling at least
some of what they knew to investigators. In the fall
of 1987 a group led by New York businessman Victor
Palmieri won a proxy fight for the company and took
over from the Antars. Within weeks, though, Palmieri discovered a $65 million inventory shortfall, and
he eventually realized he’d been had.
Sam E. says that for two years he hung tough,
destroying documents and perjuring himself during SEC depositions. In 1990, Eddie fled the coun-
From top: Gaslight Ad archives, commack, N.Y.; CNBC
Although Sam E. pleaded guilty to three felonies in
1992 and was subsequently kicked out of various accounting industry professional
associations, the state of New
York got around to revoking his
license only this autumn. Sam
happily provided documentation
of his conviction. “He did a bad
thing, and you’d think he’d just
Sam E.’s five rules
let it go and try to do better in
for spotting potential fraud
the future. But for some reason
it’s important for him to flail
in public companies.
himself,” says Joseph T. Wells,
founder and chairman of the
Study SEC filings yourself. External auditors, audit committees, Association of Certified Fraud
and Wall Street analysts cannot
Examiners, a professional orgaprotect you from most fraud. Ana­
nization. Wells has written exlysts often do not ask the important
questions and are too quick to accept
tensively about Crazy Eddie and
management’s representations.
had Sam E. lecture his students
at the University of Texas at AusRead the footnotes first. Tiny things can be huge. In the Crazy
tin many times.
Eddie fraud, the change of a single
There were plenty of bad things
word (from “purchase discounts
done at Crazy Eddie. From its inand trade allowances are recognized
when received” to “recognized when
ception, members of the Antar
earned”) allowed Sam E. to inflate
family, which founded and conthe company’s earnings in fiscal year
trolled the business, skimmed
1987 by about $20 million.
millions of dollars in unreported
Watch for inconsistencies.
receipts from the company. Some
If the CEO tells the press, “We are
of that cash went overseas to seprofitable,” make sure the figures in
the 10-Q back up the statement.
cret bank accounts in Israel and
elsewhere. Perhaps the most specAlways crosscheck disclosures.
tacular, if not the largest, act of acCompare Management Discussion & Analysis in the current report counting legerdemain happened
with MD&A sections in past 10-Qs.
in 1986 when the by-then-public
Look for any changes in disclosure
Crazy Eddie was expanding and
language.
wanted to show Wall Street how
Sound like too much work? good its same-store sales were to
If you don't have the time or expertise
justify a secondary offering that
to do the above, don’t buy individual
stocks. Stick with index funds. would benefit company insiders. takes one to know one
Crazy Eddie’s
new owner
discovered a
inventory
shortfall and
realized he had
been had.
114 A December 24, 2007
termind the fraud by giving advice to Eddie Antar on
accounting aspects of the fraud. I had participated in
many aspects of the fraud (though I was not involved
in every single aspect of the fraud nor did I have personal knowledge of each and every fraud).” He adds
that if his crimes were smaller than Eddie’s—whom
he derides as a “coward”—they are still plenty bad:
“I take full responsibility for my actions. My sins are
unforgivable.”
turning over a new leaf
As a would-be fraudbuster, Sam E. has yet to notch
his first kill. (Although in fairness he doesn’t hold
himself out to be a full-time 10-Q detective. “I don’t
have 40 people working for me like the SEC,” he says.)
He hasn’t brought any companies down or caused any
regulators to open any investigations.
The one scalp that he has been pursuing lately is
online: closeout retailer Overstock.com. Overstock
is perhaps most familiar because of the pugnacity
of its CEO, Patrick Byrne, and its ongoing libel suit
against short-seller Rocker Partners (now Copper
River Partners) and research firm Gradient Analytics. (They have denied all of Overstock’s charges and
have countersued.) Separately, Byrne has alleged a
conspiracy of illegal short-sellers targeting companies like his. (The best introduction to the tangled
Byrne-Overstock saga is Bethany McLean’s “Phantom Menace” on fortune.com.) Last year Overstock
store: John Pedlin—new york Daily news; Antar: Dan Hulshizer—ap
try. (He was caught in Israel in 1992 and extradited
to the U.S. in 1993.) With Eddie on the lam, Sam
E. claims he was left holding the bag. So he began
cooperating, pleading guilty in 1992. He was not
motivated by a sudden desire to do right. He didn’t
want to do hard time and all that went with it.
SEC lawyer Richard Simpson, who was
the lead lawyer in the government’s civil
case, says Sam E. overcame the government’s distrust of him by telling them lots
of things that checked out. “He was the most
help of any cooperating witness I’ve seen or
any cooperating witness I’ve ever heard of,”
Simpson says. In 1993, Eddie and his brother Mitchell
$65 million were convicted of racketeering and securities
fraud. (Another brother, Allen, was acquitted.) Those convictions were later overturned
on appeal, but rather than risk another trial
in 1996, Eddie and Mitchell pleaded guilty. Eddie was sentenced to 82 months in prison. Sam E. got off easy because of the plea deal.
He paid the SEC $80,000 in disgorgements
and fines. He was sentenced to six months of house
arrest and 1,200 hours of community service. He
served no prison time.
Now Eddie is out of jail, and the company is long
dead. The emotional wounds of those who went
through it all are still very much open, though. Eddie says he doesn’t hate Sam E. but
does wish his cousin would let old
painful business lie. “It should just
be left alone and done with,” he told
FORTUNE in an interview this fall.
Eddie doesn’t defend himself (“I did
what I did”) but says the government
let Sam E. skate on his own criminal
acts in exchange for his testimony. Sam E., Eddie says, began cooperating with the government two years
before Eddie fled the country. (Sam
E. denies that.) He also says he finds it absurd that
anyone could take a mere flunky like his cousin seriously as any kind of accounting authority. Or as Eddie
puts it, “He did what I told him.”
Howard Sirota, a New York attorney who was lead
counsel for the swindled Crazy Eddie investors, however, defends Sam E. as a capable accountant who befall of the antars
came a “relentless investigator” when he decided to coClockwise from top left: a going-out-
operate. He also suggests that Eddie and other members
of-business sale; a of the family have long tried to discredit Sam E.
U.S. Marshals Wanted poster, circa 1990;
For his part, Sam E. says he’s made no secret of
and eddie being extradited in 1993
any of his misdeeds at Crazy Eddie: “I helped mas-
takes one to know one
Bench Strength
antar enjoys a sunset on the boardwalk not far from his home.
lost roughly $100 million (although the company has
made much of an Ebidta-positive third quarter in
2007). Its financial performance has made it a target
for a number of online gadflies—including Sam E.,
who has accused the company of a variety of sins.
Byrne’s response has been to dismiss Sam E. online as
a crank who “makes a hobby out of clogging
message boards with deposition-style questions for and non sequiturs about me.” The latest exchange came in November.
In October, Sam E. had given his Crazy Eddie presentation at a conference on whitecollar crime at the Utah attorney general’s
$80,000 office. He wrote about that on his blog in a
post that also contained one of his broadsides against Overstock. The company’s
general counsel, former Utah securities
regulator Mark Griffin, complained to
Utah attorney general Mark Shurtleff, an
old friend. Shurtleff wrote a “To Whom It
May Concern” letter chastising Sam E. for
implying that Shurtleff endorsed his criticisms of Overstock. (Through an Overstock
spokesman, Griffin declined to comment.)
Shurtleff also took Sam to task for violating an
agreement he says Sam had made with the attorney
general’s office not to use his recent appearance to
promote his campaign against Overstock. Overstock
Sam E. got off
easy. He paid the
SEC
in fines and
disgorgements and
was sentenced to
six months’
house arrest.
116 a December 24, 2007
trumpeted the letter in a press release. Sam E. blasted
back denying that he had an agreement with Shurtleff
prohibiting him from discussing his presentation online. Sam E. also accused the attorney general, who
has received campaign contributions from Overstock,
of doing the bidding of a wealthy backer. Shurtleff
dismisses that as “bullcrap” and adds that Sam E.
reminds him of a line he’d read recently: “To a thief
everyone looks like a thief.”
Which is not the first time Sam E. has been accused of painting with too broad a brush. He’s also
been chided by some former Crazy Eddie employees
on a message board devoted to reminiscences of the
company for painting a totally dark picture of his
famous cousin. One former employee wrote, “To me,
Kelso [Eddie’s nickname] was a great man, perhaps it
was somewhat of a cult, but he was able to take people
like myself and draw out of them more success than
they might have found by themselves.” The former
employee also urged Sam to drop the hair shirt. Sam
would have none of it. “What Eddie and I did was
nothing but evil. Eddie Antar is not a great man, and
neither am I,” he wrote.
Any possible lingering doubts about how he wants the
world to see him are dispelled by the way he signed that
and other posts and e-mails. “Respectfully, Sam E. Antar
(former Crazy Eddie CFO and convicted felon).” F
feedback fortunemail_letters@fortunemail.com
Past as Prologue? For more on Overstock.com, go to fortune.com.