1. “Crazy Eddie” AntarCrazy Eddie’s inc. Fraud Case Senior Seminar Rebecca Easton

2. Eddie Antar became an icon after creative advertising tactics of his prices being “insane” which created enormous market awareness and has made him be forever known as “Crazy Eddie.” Not only was Eddie Antar “crazy” in creating and upholding a commercial electronic business, Antar was “insane” when practicing various types of fraud. Crazy Eddie Antar is mainly known for his many schemes of falsifying records to inflate profits and increase stock prices that caused a bankruptcy of his own company and left many investors still in debt today. Thesis Statement:

3. Born in Brooklyn, NY in 1947 Fit personality profile of a white collar criminal Opened Sight and Sound in 1968 Crazy Eddie’s Cutting edge prices Aggressive sales techniques Earned the nick name “Crazy Eddie” Eddie Antar

4. Whole family involved in fraud for many years, mostly inventory fraud Getting more difficult to hide fraud 1984 Crazy Eddie’s goes public selling for $8 a share 1986 stock sold for $75 a share Sam E. Antarbecame accountant for company Needed to hide $3 million deficit and wanted to increase by 10% in sales The Story

5. Sam schemed the money Known as “Panama Pump” Israeli banks Transferred to Panama banks The story

6. 1986 Electronics boom ended causing a drop in stock December 1986 Eddie resigned as President and CEO Eddie cashed out his share of the stock, $25 million - $30 million Stock was back down below $10 a share Hostile takeover starting lawsuits against the whole family The story

7. Zinn & Palmieri’s financial analysts audited Crazy Eddie’s finding inventory short $40 million - $50 million 1987 federal grand jury investigation SEC subpoena whole family Liquidation and closing of store Eddie failed to appear at court, freezing his assets Eddie fled country to Israeli while Sammy testified guilt in exchange for immunity The story

8. 1992 arrested near Tel Aviv Found guilty on 17 counts of fraud, sentenced to 12 ½ years Appealed, overturned 1996 pled guilty, sentenced to 8 years $150 million in fines, $1 billion in judgments The story

9. 1998 online store, crazyeddieonline.com, closing in 1999 Eddie returned, re-launched website to crazyeddie.com 2004 website disappeared 2006 Trident Growth Fund bought trademark, auctioned off brand for $800,000 and domain name with failure 2009 Jack Gemal bought rights, pricesareinsane.com Recovery?

10. Eddie – works for an electronic superstore Sammy – advisor for government agencies and businesses investigating fraud Efforts to recover the lost money are still continued today Where they are now?

11. Whole family engaged in fraud from get-go For every $5 reported as income, $1 was taken by Antars Deposited illegal funds into Israeli banks under fictitious names $3 - $4 million a year skimmed Fraud scheme overview

12. Practice of engaging in financial transactions to conceal the identity, source, and / or destination of illegally gained money by which the proceeds of crime are converted into assets that appear to have a legitimate origin Money laundering

13. 3 main phases: Placement - physically distributing cash Series of separate deposits in Israel bank Layering – camouflage illegal sources by fixing transactions Off shore bank accounts, before officials had a chance, Eddie wired money from Israel to Panama banks Integration – money gets mixed in with legitimate dollars and documented as revenue Eddie wired money from Panama bank accounts to Crazy Eddie’s Money Laundering

14. Fictitious Revenues – boots both assets and income by crediting accounting transaction to sales with an offset debit to accounts receivable Created fake invoices showing merchandise sales Suppliers cooperated Fraudulent Asset Valuations – overvaluing inventory $80 million overvalued “borrowed” merchandise from suppliers to boost ending inventory count Altered inventory count sheets to increase inventory Methods of financial statement fraud schemes

15. Timing Differences – taking advantage of accounting cut off period Books were open past the end of the period to falsely inflate sales revenue Liabilities not recorded until next period Concealed Liabilities and Expenses – Placed unpaid bills in desks Improper Disclosures – Altering footnotes to state that certain income was recognized when received, cash basis Next year, removed received and substituted earned, accrual basis Methods of financial statement fraud schemes

16. Eddie – 21 years old, aggressiveness, reputation, sales tactics Inventory observations – auditors let company employees help with counting Suppliers – dependent on only 3 suppliers, too small of a relationship Personal Relationships – all members with positions were family members, lacking appropriate qualifications for those positions “Red flags”

17. Increased Finances – growing way too well compared to industry Financial statements – inventory account dominated balance sheets increasing from $23 million to almost $110 million Age of inventory leaped from 80 days to 111 days Inventory increase, but accounts payable decreased Year end accrued expenses were lower than previous three years, even though assets increased by 800% “Red flags”

18. Investigate Customer Before Accepting – could have stopped conducting business with Eddie after finding out he was a risky business salesman Inexperienced Field Officers – lacked judgment and maturity, should have been audited by senior auditors, fraud examiners, and / or antifraud specialists Carefulness – asked crooked employees to help count without verifying the count Trust – auditors need to be less trusting, “Trust, but verify.” Could have made copies of inventory sheets or crossed out unused sections Don’t have a desk in company Don’t leave keys on top of desk What should have been done

19. Investigate Supplier Relationships – too dependent on 3, should have investigated this Analyzed Personal Relationships – dealing strictly with family is an extra risk, known to be easier to conspire with family Assess Economic Status of Related Businesses – doing too well compared to industry Randomness - auditors should have randomly picked an account and requested supporting documentation What should have been done

20. No Independent Auditing – two audits should have been done to compare and contrast findings Critical Thinking and Interviewing Skills – auditors lacked these Internal Controls – having internal controls can help prevent and detect fraud What should have been done

21. Fraud Prevention – cumulative effect of both preventative and detection systems incorporated by management CIA Triangle Confidentiality – limit unauthorized access, limit access to authorized users Integrity – trustworthiness of information resources Availability – ensures data is available Code of Ethics Employee Screening Future frauds

22. Education Training Awareness Future frauds

23. Fraud Strategy / Plan Prevention Fraud Policy Detection Internal Controls Internal Audit External Audit Reporting Structures Response Response Policy Investigation Internal External Future frauds

24. The end