Crazy Eddie Wanted Poster (left), to download full size click here, Eddie Antar (center) and Michael Chertoff (right).

Crazy Eddie Antar was termed the "Darth Vader of Capitalism" by US Attorney Michael Chertoff

Compared to today’s frauds in the billions of dollars, Crazy Eddie’s fraud was smaller in size. However, the Crazy Eddie fraud was much more outrageous than many frauds committed because of its time span (18 years), its use of multiple methods:

• skimming
• under reporting of income (tax fraud) prior to going public
• over statement of income (securities fraud) after going public
• money laundering
• fictitious revenue
• fraudulent asset valuations
• timing differences
• concealed liabilities and expenses
• improper financial statement disclosures

There had never been a financial fraud in history where such combinations of techniques were used to commit such crimes for so long a period of time. The Crazy Eddie fraud would go down in history for its sheer audacity resulting from the brazen and unprecedented methods used by its conspirators in executing their crimes.

Four Basic Phases of the Crazy Eddie Financial Frauds

• 1969-1979: Skimming to reduce reported taxable income
• 1979-1983: Gradual reduction of skimming to increase reported income and profit growth in preparation of plan to take the company public

September 13, 1984: Date of Crazy Eddie initial public offering

• 1985-1986: Adjusting Crazy Eddie's reported income higher to increase stock prices so insiders could sell stock at inflated values
• 1987: Crazy Eddie starts losing money. Fraud main purpose is to "cover up' prior frauds due to "double down" effect

November 6, 1987: Remaining Antar family faction in power loses control of Crazy Eddie in a hostile takeover bid

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 the growth of its reported pro forma earnings. The effect of the gradual reduction on skimming had a substantial effect on pro forma earnings growth and store unit productivity:

Note: Average number of stores opened during period takes into account new store openings and store closings during the year and the average number of days the stores were operating.

Source: SEC filings, my testimony, other documents

Much of the skimmed funds were deposited in secret Antar family bank accounts in Israel. Initially denying the existence of the skimming early in the investigation certain family members when confronted with the evidence changed their stories and admitted to lying. They claimed, however, that the skimming had stopped many years earlier in 1976 (to reduce their criminal exposure due to the Statue of Limitations.

The story was recounted in the book "Frankensteins of Fraud," by Joseph T. Wells (CPA, CFE) which stated:

When Sam, the old man, [Eddie Antar's father and my uncle] was forced to admit his repeated untruths in federal court, he declared, “You are 1,000 percent right. You can show me 29 books of depositions. I did lie, I did lie...,” adding with vehemence and balled fists, “But I am not lying now.” Sam M. huffed that he’d skimmed millions of dollars in five decades of business, but never took one cent from Crazy Eddie’s after 1976, so that he could take the family legit. However much he’d sinned in the past, Sam swore he was clean now. “I lied, I lied, I lied, I lied, I lied, I lied. But then I rescinded the lies and told them the truth. That is all I did.”

Note: Bracketed information added by me for clarity.

Crazy Eddie Securities Frauds after September 13, 1984 Initial Public Offering

Source: SEC filings, my testimony, other co-conspirator's testimony, auditor work papers, other documents

Crazy Eddie Fraud for the Fiscal Year Ended March 2, 1986: Focus

In 1986, we became even greedier.

The effect on our growth in sales and profits 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 willfully participated in creating fictitious sales to initially to boost Crazy Eddie's 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 brought 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 on the bank reconciliations since the drafts did not clear the bank before fiscal year end.These large deposits in transit of $25,000 to $50,000 were listed next to normal ones from sales of $50 to $1,000 on the bank reconciliations.

They could have also noticed that same store sales increased 75 -100% for no apparent reason in the last week of the fiscal year.

They never checked.

The aspect of the Crazy Eddie fraud described was known as the "Panama Pump."

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 issued 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.

In addition, they 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. 

We committed 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, employee benefit compliance, and other work totaling in excess of $1 million per year.

The annual audit fee was approximately $150,000.

Keep your friends close, keep your enemies closer.

Focus on Crazy Eddie Store Inventory Falsification (1987 v 1986)

For the fiscal year ended March 1, 1987, Crazy Eddie's store level inventories were estimated to have been falsified by $15 to $20 million. In the previous fiscal year, we had falsified our store level inventories by $3 to $4 million.

Below is a table of the inventory levels recorded on the auditor work papers for comparable sales stores (stores in existence for both accounting periods). Such stores whose year end inventory counts were observed by the auditors had reported increases in inventory levels of 170.71%. The inventory levels of stores whose year end inventory counts were not observed by auditors increased by 295.16%.

The auditor's work papers were left on Crazy Eddie premises overnight until the audit was completed in supposedly secured locked metal trunks. However, the audit manager dutifully left the key to these locked metal trunks in a small 2 inch paper clip box on Crazy Eddie premises.

Therefore, we were able to falsify the inventories that the auditors observed at year end in an effort to make the growth in inventory levels in such stores similar to the inventory levels in stores where they were not present to witness the inventory counts.

However, we were not successful as the growth in inventories in unobserved stores almost doubled that of the stores observed by the auditors. The auditors never questioned this red flag.

Table

This chart includes only comparable store inventory levels and not inventory levels for stores opened during fiscal 1987 which were falsified too. 

Comparable Store Sales Inflation Fraud (Last Quarter of Fiscal Year 1986 and First Three Quarters of Fiscal Year 1987)

• A "comparable store sales" increase measures the growth in sales from stores in existence during two comparative accounting periods. It does not take into account the growth in sales resulting the addition of new stores. The "comparable store sales" computation is used as a measure of store unit productivity.
• Crazy Eddie reported its comparable store sales computations on a quarterly basis except for the month of December which was reported separately.
• Therefore, financial analysts could use the company's last fiscal quarter's comparable store report which ended on the first Sunday in March and impute the last two months comparable store sales computation separately.
• The fraud figures used are the minimum amounts of sales inflation.
• This specific fraud was last used for the quarter ended 11/30/86.
• Beginning in January 1987, we initiated a plan to take the company private in part to cover up the frauds.

Source: This information is derived from SEC filings, deposition transcripts, and documents uncovered in the investigation.

Can you provide me audit procedures that you think would have detected the issues with falsification of inventory?

Store Inventory Frauds for 1986 and 1987:

For the fiscal year ended March 2, 1986, we falsified store inventories by approximately $2 million to $4 million. For the fiscal year ended March 1, 1987 we falsified store inventories by $15 to $20 million.

While the amount of the inventory fraud inflation in the stores may seem low in relation to the frauds committed today, it was the lack of adequate audit procedures employed by the auditors during their audit that potentially could have enabled us to commit even bigger inventory frauds.

The auditors simply did not observe the inventory counts in all of the Crazy Eddie stores at fiscal year end. In 1986, they observed the inventory counts in roughly 50% of the stores.  We simply inflated the inventory counts in the stores that the auditors failed to observe at year end.

Regarding store inventories the auditors observed, they failed to take copies of the entire inventory counts with them after leaving the store premises. The auditors only took their "test counts" with them and not copies of the entire store inventory. We monitored their test counts. Therefore, we knew which inventory counts to falsify.

In 1987, we had access to the audit work papers. The audit work papers where left behind 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. As a result, we were more aggressive and increased the store inventories even in greater proportions than the previous years.

Since we knew which inventory counts the auditors observed, we were able inflate the inventory in the stores they had previously observed. Therefore, we were more aggressive in 1987 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 inflations of the observed stores. However, the auditors did nothing!

Warehouse Inventories 1985 and 1986:

We were nice to our friends and nicer to our enemies. When boxes were stacked really high and deep, we were very courteous to those young kids just out of college who felt that it was beneath their dignity to do physical work. Let the blue collar people do the climbing and counting. We would climb and count and look behind all those rows of cartons in that big 150,000 square foot warehouse. We yelled out to the young lazy auditors - 200 camcorders (which use to cost $750 each wholesale) when there was actually 150 items in stock.

The process would continue through the night. Afterwards, we would gain trust their by buying them coffee during the breaks or we would perform small errands for them. For example, after the auditors finished their test counts, we helped them relax by obtaining coffee and snacks for them. We volunteered to make copies of their audit test counts. They were very happy to have us make copies for them. Afterwards, we could inflate the warehouse inventories in even greater amounts since we knew what items to inflate and what items to avoid. By 1987, the warehouse inventory was automated and it was no longer possible to use that method.

Can you provide me audit procedures that you think would have detected the issues with Accounts Payable by using Phony Debit Memos (Charge Backs to Vendors)?

Debit Memo Fraud 1987:

Up to fiscal year 1986, Crazy Eddies' accounting principles as disclosed in the footnotes to the financial statements for purchase discounts and trade allowances stated:

purchase discounts and trade allowances are recognized when received.

Therefore, Crazy Eddie did not reduce its accounts payable (thereby increase its profits) until a credit memo was received from a vendor.

Crazy Eddie's accounting principles for trade discounts and allowances was conservative since "earned" discounts and allowances were not recognized as income until the credit memo was received.

For the fiscal year ended 1987, Crazy Eddie's accounting policy for purchase discounts and trade allowances was changed and disclosed in the footnotes to the financial statements as follows:

Purchase discounts and trade allowances are recognized when earned.

Therefore, as soon as purchase discounts and allowances were earned, regardless of whether or not Crazy Eddie received the credit memo from the vendor, they were recognized and accrued as deductions from accounts payable.

The change in accounting policy for purchase discounts and allowances gave us the opportunity to generate $20 million in phony debit memos and $8 million in legitimate debit memos to offset almost $78 million in accounts payable.

In previous years, we generated an accounts payable aging schedule for the auditors. For the fiscal year ended 1987, no accounts payable aging analysis was generated for the auditors. Since the accounts payable aging schedule was not generated in 1987, they were unable to determine the true volume of collectible debit memos.

In some cases, Crazy Eddie had negative accounts payable balances for certain vendors. In other cases, there were large amounts of debit memos offsetting gross accounts payable balances. However, the auditors conducted no analytical tests as to the debit memo's collectibility.

The auditors believed our false rationale that the reason that accounts payable had been reduced in relation to inventory compared to previous years was due to Crazy Eddie using short term commercial paper to pay its vendors more promptly.

However, the real reason for the relative percentage reduction in accounts payable in relation to inventory was due to the large volume of non reconciled bogus debit memos. The true accounts payable excluding those bogus debit memos was about $71 million.

Furthermore, the auditors reconciled the accounts payable of only three major vendors. Each vendor had significant amounts of reconciling items, resulting from the bogus debit memos. For a certain vendor, that had clamed that Crazy Eddie owed them $17 million, we said they were owed them $7 million. A significant factor in the gap between the differing amounts claimed by the vendor and Crazy Eddie was the bogus debit memos.

The auditors never contacted any of the companies they reconciled concerning any discrepancies. The audit staff member responsible for the accounts payable audit had no retail accounts payable audit experience and only six months experience in other audit areas. He first learned about debit memos at the Crazy Eddie audit.

The audit partner approved the so-called audited financial statements for a press release at a board meeting before the accounts payable audit was completed.

An inexperienced audit staff member began his test work on Sony (which contained over $4 million of the $20 million in phony debit memos on April 28, 1987, the same day they signed off on the audit according to his testimony in a deposition.

In his sworn testimony, he said his work continued for more than one day. The audit opinion was signed as of April 28, 1987. The partner had approved the release of Crazy Eddie's financial reports to the Board of Directors on the previous day.

An excerpt from the work papers said, "...PMM traced all debit memos into A/P status report as of 03/01/87. No further work necessary."

An A/P Status report simply lists all invoices and debit memos. Therefore, the debit memos were traced to a report listing the phony debit memos and no further work was necessary - garbage in, garbage out.

No efforts were made to contact Sony about the discrepancies in its confirmation of accounts payable. The senior staff member did conduct an interview of Crazy Eddie's Accounts Payable Manager (a co-conspirator) after the staff auditor finished his testing and after the partner signed off on the audit. His work paper is dated May 22, 1987.

There was a similar lack of follow through with other confirming vendors regarding any discrepancies. In addition the change in the accounting policy relating to the cash discounts and trade allowances required additional computations under Accounting Principal Bulletin 20. No such computations were contemplated or done by the auditors.

For additional information on Crazy Eddie's accounts payable fraud, please read my blog post entitled, "Hiding Your Dirty Laundry in the Footnotes: Anatomy of the Crazy Eddie Accounts Payable Fraud."

Can you provide me audit procedures that you think would have detected the issues with comparable store sales?

Trans-shipping sales as retail sales

Trans-shipping sales are sales made to non retail customers who are not end users, such as other retailers and wholesalers. During Crazy Eddie’s early days, we had difficulty 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.

Previous to the end of "fair trade" laws, Crazy Eddie needed to purchase inventory from trans-shippers or other retailers who bought directly from the manufacturer and sold us their excess inventories at a small profit. Later, after the “fair trade” laws ended trans-shipping still was a source of merchandise for retailers who did not have credit to buy directly 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 our actions illegal was that the sales originated from the main office and we were depositing monies received into the bank accounts of stores used in the computation of comparable store sales to manipulate the price of the stock.

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 (which were included in the computation of comparable store sales) 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 sales only listed total 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 trans-shipping. 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.

The auditors must test sales procedures, look at deposits in transit, actual deposits, sales cutoff, and similar information during interim periods. Payments from such sales must be examined and merchandised should be traced.

Can you provide me audit procedures that you think would have detected the issues regarding inclusion of consignment merchandise in year-end inventory?

Inclusion of Consignment Merchandise at Year End:

A certain vendor from whom we purchased over 10% of our merchandise 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.

The only way that auditor can detect such a fraud is to examine internal control procedures for receiving merchandise a paying bills, shipping records, and billing of vendors on an interim basis and Crazy Eddie records like wise on a similar basis.

Yes.

Crazy Eddie's document retention policy was to destroy all evidence of wrongdoing as soon as possible. When the government began its investigation of Crazy Eddie in 1987, we were asked for copies of our year end inventory count records for the fiscal years ended March 3, 1985 through March 1, 1987. The auditors never made copies of the inventory counts that supported their audit.

I later testified that Crazy Eddie had a "scorched earth" policy in the criminal and civil trials as a government witness. We would destroy copies of all falsified documents (to the extent possible) to cover up our crimes.

When I was initially asked by the S.E.C. under oath (at such time I was not a cooperating witness) about obtaining copies of the suspected falsified inventory counts, I simply answered that Crazy Eddie had no formal document retention policy. With regards to the inventory documents, they were thrown away after the audits since they served us no useful purposes.

My rationale at the time was that I could not be criminally prosecuted for stupidity. Since there were no subpoenas issued against Crazy Eddie at the "supposed time" that we destroyed such documents the worst thing I could be accused of was that I was negligent.

For additional information about how we covered up our crimes, please read the Crazy Eddie Investigation page.

Can any amount of audit procedures make up for a lack of internal controls?

No!

For example, (as noted in the 1986 fraud above) we inflated our sales and cash balance by $2,000,000 by depositing previously skimmed funds into the Crazy Eddie bank balances. The bank accounts were reconciled.

However, there were no controls over sales invoices, inventory, and cash by Crazy Eddie. The auditors did not perform sales and cut-off testing and they did not review deposits in transit.

Crazy Eddie's comparable store sales, earnings, and cash were overstated in 1986.

The money was in the bank and the auditors assumed it came from legitimate sales. However, they never considered that even if the company had such money in its accounts that there was a possibility that it could come from sources used to manipulate earnings.

A credible audit cannot be made in the absence good internal controls. A so called strong audit and strong internal controls are not mutually exclusive.

What other techniques did you use to prevent the auditors from performing an effective audit?

We committed "obstruction by distraction." We always appeared cooperative with the auditors. However, from the day they set forth on Crazy Eddie premises until the day the audit was completed we did our best to distract them from their filed work. For example we would constantly engage in "small talk" while they were working on the audit. We knew that for the audit staff member, such work was boring in their minds and they would not mind minor distractions that did not appear to be obstructionism. We would constantly invite them out for coffee and lunch.

Therefore, instead of completing their work in approximately equal amounts during the eight weeks of the audit by the end of the sixth or seventh week the audit staff would find itself far behind their goal of completing the audit. They would then rush to complete their work and in the process of rushing they would make mistakes in their work and skimp on important work to be performed.

How did the government find Eddie Antar?

When Eddie Antar fled the United States he carried at least a dozen phony passports and all of his money had been shifted to bank accounts in what is known as "foreign bank secrecy jurisdictions."

His accounts were mainly accessible through secret passwords and code names. In order to conceal those accounts, Eddie routinely transferred moneys from one account to another and then depositing the money into new accounts.

It was during the course of these transfers that the SEC and the Court appointed receiver picked up his trail. The SEC froze an account in Switzerland containing over $30 million. Eddie attempted to get the money unfrozen by appearing at the bank under one of his false identities. The government tracked Eddie to Israel.

What were some of the documents the government found when they arrested him in Israel that enabled them to recover his ill gotten gains?

Documents seized from Eddie Antar's apartment revealed that he controlled over 30 offshore bank accounts in 10 different companies. Nearly all of those accounts were in the names of Eddie Antar's nominees; one or another of Eddie Antar's false identities; or Liberian and Gibraltarian shell entities controlled by Eddie Antar under one or another of his assumed names. Deborah Ehrlich (Eddie's second wife) is identified as the signatory or as having power of attorney of at least three overseas accounts Eddie Antar controlled. (Source: US Government Documents)

How was the Crazy Eddie Fraud Uncovered?

The Securities and Exchange Commission seriously began investigating financial statement fraud at Crazy Eddie when Arnold Spindler (a former employee) tipped them off about the fraud in July 1987 four months before a hostile takeover of the company by a group led by Victor H. Palmieri and Elias Zinn.

The collapse of the Antar family's control over Crazy Eddie was due to infighting, rivalries, and jealousy among Eddie Antar and his family. For more information, please the Criminal Trial Press Coverage and the Untold Story pages.

Did you make money on your Crazy Eddie stock?

I actually lost about $8,000 after having a one time "paper" gain of over $1.6 million including my stock options. The S.E.C. determined that I wrongfully cut my losses by $20,000 when I sold my stock. They assessed me treble damages of an additional $60,000 in disgorgement. Therefore, the S.E.C. assessed me for $80,000 in fines, penalties, etc. See Criminal and Civil Cases page for further information about Criminal, S.E.C. and Civil Litigation case dispositions and settlements.

Do you keep in contact with Eddie Antar?

No. The last time I spoke with him was around 1989. The last time I saw him was at the criminal trial in 1993. I have run into other members of his family but they do not speak to me.

Did any of the Antar family members involved in the fraud including your ever a discussion about the morality of the frauds?

No. We never cared. In the early days when we were skimming the attitude was that the government was not entitled to tax our earnings. The government was considered an adversary. Customers were considered adversaries. Anyone outside the interests of the Antar clan ruling Crazy Eddie was an adversary. We always knew what we were doing was wrong. There were no debates in terms of morality. However, there were debates in terms of risk.

One secret bank account in Israel with over $8 million in deposits from skimmed funds from Crazy Eddie listed Eddie Antar, Debbie Rosen Antar (Eddie's first wife), Sam M. Antar (Eddie's father), Rose Antar (Eddie's mother), Mitchell Antar (Eddie's brother), and Ben Kuszer (Eddie's brother in law, husband of his sister Ellen) as owners.

Why was Allen Antar excluded from the account?

In the mid 1970's, Allen divorced his wife Jill and married a person who was not Jewish. He was excluded from all family interests during most of that period. He eventually left his second wife and remarried Jill again. Since he was in the family's good graces, he came back to work for Crazy Eddie. However, they never put his name on the secret Israel bank accounts. The family did not trust Allen's judgment on certain money matters.

Perhaps the lack of Allen's signature on the secret Israel bank accounts, was the reason for the jury acquitting him in the criminal trial in 1993. However, he was later convicted of fraud in the later S.E.C. civil trial in 1998.

What was the main defense argument of Eddie Antar, Sam M. Antar, Allen Antar, Mitchell Antar, Ben Kuszer, and others in the criminal and civil cases?

They argued in general that there was too much family infighting for them to be able to cooperate in committing such a massive fraud.

Judge Ackerman, ruling in favor of the SEC in the civil fraud case wrote in part:

This court agrees with defendants that a family feud did exist, with Eddie and Sam M. as the main protagonists. This court does not agree, however, that the feud made it impossible for members of the Antar family, including the defendants herein, to cooperate in conducting the frauds at Crazy Eddie. The evidence reveals that the intensity of the family dispute waxed and waned over time, and it was not until late 1987 that it had any significant effects on the Crazy Eddie business. Prior to that time, the family feud did not prevent the Antars from operating Crazy Eddie, engaging in other business ventures, or indeed, perpetrating the extensive frauds at the company.

With respect to the relationship between Sam M. and Eddie, it does not appear to have been as fractured as the defendants would now have this court believe.

For more information, please read the Criminal Trial Press Coverage, SEC Civil Case Opinion, and the Untold Story pages.

Why did you cooperate with the government and civil plaintiffs after stonewalling the investigation for almost two years?

First and foremost, I did not cooperate with the government and civil plaintiffs for altruistic reasons. Fear of a very long prison sentence prison was my primary motivator. No sense of morality played a role in my decision to cooperate. It was purely a selfish decision motivated by fear.

I had found out that Sam M. Antar (Eddie Antar's father) and the faction of the Antar family allied with him were setting Eddie and I up to take the fall (See Untold Story page). Upon relaying the information to Eddie, he distanced himself from me, too. I knew that Eddie had shifted his assets overseas (including proceeds fom the sales of inflated stock) and had millions of dollars of his skimmed cash from Crazy Eddie was already overseas. I learned that Eddie had obtained many phony passports prior to his flight from justice. Therefore, I was worried that I would be left "holding the bag."

When I began cooperating I had warned the government about Eddie Antar's possible flight from justice. However, they were legally powerless to prevent him from fleeing at the time.

How was your relationship with the government and civil plaintiffs after you decided to cooperate?

The government employees and civil plaintiffs attorneys I encountered were both professional and ethical. Even though the government did recommend a jail sentence for me, (I was never sentenced to prison by Judge Politan - See Criminal and Civil Cases page for more details), I respected their recommendation and did not take it personally. They treated me with respect, even though I did not deserve it. They used a "do not trust and verify" approach with me which was completely justified. The government, civil plaintiff's attorneys, and others (excluding conspirators or so-called "cooperating witnesses") who assisted them are the true heroes of the Crazy Eddie saga.

With poor internal controls, how did you keep your employees honest?

We relied on polygraph tests (lie detector tests). New employees had to take a polygraph examination and such polygraph examinations were administered randomly. The polygraph examinations did not include any employees paid off the books or involved in fraudulent activity. In later years, random drug testing was administered. In addition, in the last couple of years we tried using handwriting analysis to screen new employees.

Did you ever fear getting caught and going to prison while committing your crimes?

No.

The only time I feared about going to prison was when the S.E.C. notified us of its "informal inquiry" into Crazy Eddie's financial statements around August 1987 (after Arnie Spindler came forward to them and disclosed some the frauds).

What was your biggest threat to you while you were committing your crimes?

The biggest threat to me as a criminal was that someone (whether the external auditors, Wall Street analysts, journalists, etc.) would ask good questions and seriously seek truthful answers from us.

What is your opinion of ethics courses?

I believe that an ethics course does not turn a criminal into a law abiding citizen. Ethics courses help people who are not criminals make more ethical choices. I believe that most people have a true sense of what is right and wrong and what behavior gives rise to criminality.

Ethics courses help people (who are not criminals) make the proper choices in decisions which may not be criminal but are legal and unethical. In other words, an action may be legal but not ethical and such courses help people decide their ethical dilemmas.

Do you blame the auditors for your crimes?

No one is to blame for my crimes except me. I hope the accounting profession learns from my input on white collar crime about how to prevent such crimes in the future.

If you never got caught would you still be a criminal today?

Probably yes, since my only reason for cooperating with the government and victims was to avoid a long prison sentence.

Notes:

Please note that the above information is based on my actual testimony provided in depositions and at trial in the Crazy Eddie civil, SEC, and criminal case. The fraud numbers are an approximation given in my testimony and other co-conspirator's testimony based on tabulations we made during our frauds. Certain other numbers are derived from actual audit work papers. In certain cases I have used the testimony of others to support certain facts I know to be true based on my personal knowledge.

The Justice Department, the SEC, the Court, and I (to a lesser degree) possess source documentation regarding the information presented and more.

For additional facts, details, and analysis about the Crazy Eddie fraud, please read the SEC Civil Case Opinion page on this web site.

Other Sources of Information About the Crazy Eddie Fraud

The Frankensteins of Fraud by Joseph T. Wells contains a full chapter about the Crazy Eddie fraud. The Association of Certified Fraud Examiners (www.acfe.com) and the American Institute of Certified Public Accountants (www.aicpa.org) offer Continuing Professional Education Materials based on the Crazy Eddie fraud. The ACFE provides a free download of the Crazy Eddie chapter on their web site.

Mr. Wells has written several other books which details the Crazy Eddie Fraud in specific dedicated chapters: Occupational Fraud and Abuse and the Encyclopedia of Fraud. His books are recommended reading.

I assisted the Association of Certified Fraud Examiners in developing a course entitled How to Detect and Prevent Financial Statement Fraud which contains detailed infromation about the Crazy Eddie fraud. Link to ACFE course.

Contemporary Auditing, Real Issues & Cases by Michael C. Knapp (Thomson, South-Western, 2006) contains a full chapter about the Crazy Eddie fraud. It also contains chapters about other major frauds and is highly recommended reading for any college course in auditing and fraud.

The Art of Short Selling by Kathryn F. Staley (Wiley, 1996) contains a full chapter about the Crazy Eddie fraud. She has covered the Crazy Eddie fraud from a unique angle.

Red Apple Entertainment (www.redapple.com) produces the Masterminds series for Court TV and produced an episode on Crazy Eddie which I recommend viewing. In addition it is aired on History Television too.

In depth articles about the Crazy Eddie fraud can be researched in:

• Asbury Park Post
• Crain’s New York Business
• Journal of Accountancy (published by the AICPA avaible free online)
• New Jersey Law Journal
• New York Post
• New York Times
• New York Daily News
• Newark Star Ledger
• Newsday
• Philadelphia Inquirer
• The Record (North New Jersey)

Note: Articles are most likely available as paid archives. College students can obtain many of these articles free through Lexis-Nexis searches available through their college and university libraries. In addition, if you subscribe to some of these publications, they offer free access to their archives.

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