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  • 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