This is the second in my series on the rise and fall of Crazy Eddie, the New York-based electronics retail chain of the 1970s and 1980s that became an audacious empire of white-collar crime. Part I, explaining how the company got to where it was, is here. The main source material for this article is the fascinating series of essays on Crazy Eddie by Sam E. Antar, one of the participants in the scam, who now works as a forensic accountant.
It seems to me that the beginning of the end of Crazy Eddie’s criminal empire came on New Year’s Eve, 1983, but no one knew it at the time. On December 31, 1983, Eddie Antar, the mastermind behind the scam, decided to go partying with his mistress (Eddie was married) to ring in the New Year. Sam M. Antar, Eddie’s father, had by this time fallen out of favor as the patriarch of the clan–and he resented his son’s greater wealth and success. Seeking to take Eddie down a peg, Sam M. tipped off Eddie’s wife that he was going out with his mistress and told her right where to catch them. She did, confronting her unfaithful hubby outside a stretch limousine. With expensive furs flying and jewels flashing, Debbie Antar made a scene, screaming in the street and humiliating her husband. The scene was later captured richly by courtroom sketch artist Ida Libby Dengrove, and it’s the header image for this article–like something out of a 1980s prime-time soap opera. Eddie wanted revenge against his father for tipping off his wife and causing the scene. The seeds were planted for a family rift.
The New Year’s Eve battle, however, happened just before the apotheosis of Crazy Eddie as a criminal enterprise, just a couple of months before the company went public. Eddie had stopped skimming off the top and paying employees under the table, but thanks to creative and insidious accounting tricks by the company’s CPA/mole, Sam E. (“Sammy”) Antar, who as you’ll recall was specially trained to commit bigger and more elaborate frauds, the company’s profits ballooned, at least on paper. Part of it was because, now that they weren’t directly skimming, more cash made it to the company’s bottom line. But the intent was never honest. The whole idea of dialing down their crimes was to position the company for the big score: the initial public offering (IPO), which occurred September 13, 1984. The company’s stock symbol abbreviation was, fittingly, CRZY.
Crazy Eddie built its market presence in the early days on obnoxious commercials, but they continued through the heyday of the fraud. Here’s one from 1986.
It worked like gangbusters. Crazy Eddie stock was the securities equivalent of the last Cabbage Patch doll at K-Mart on Christmas Eve: everybody wanted some. Starting at $8 in September 1984, less than 18 months later the stock was blasting into orbit at a staggering $75 a share. If this was a legitimate company, the Antar family, who naturally had the best stock positions, would have been cashing in. Instead they were cashing out. Knowing their scam would not last forever, between the IPO in 1984 and when Crazy Eddie was sold in 1987 the Antars very quietly unloaded $90 million worth of stock. A lot of that money went to Eddie’s offshore bank accounts in Israel. During this period the company also kept two sets of books: the classic telltale hallmark of an illegal business.
But no one knew it at the time. Sammy had done his work well before 1984, but after the IPO, when he was now CFO of the company, he really shifted into high gear. He came up with several nefarious schemes to inflate earnings and keep shareholders happy, the boldness and audacity of which are almost unbelievable. Sam E. invented, for instance, the “Panama Pump”: taking some of those secret shekels from the Israeli bank accounts, they wired about $1.5 million to Panama, then converted the cash into non-negotiable financial instruments and used them to make payments to the Crazy Eddie company, which were reported falsely as retail sales. In addition to shifting income and deductions back and forth across fiscal years–the last week of December was a busy time for Sammy–there was also a scheme to get Crazy Eddie’s biggest wholesaler to ship them a whole bunch of merchandise right before the champagne corks popped on New Year’s Eve. This worked because they convinced the dealer to hold off on sending the bill until after the first of the year, which meant the company could count inventory as assets without having to report the accounts payable until after financial numbers had already been finalized. This little oopsie alone was worth $4 million.
Eddie Antar is served with divorce papers. Unlike many courtroom drawings, the depictions by Ida Libby Dengrove depicted prominent scenes from the case, rather than just showing what the participants looked like in court.
In theory, public companies are supposed to be watchdogged by independent accounting firms who audit their books. How could Crazy Eddie get those pesky auditors not to notice the fraud right under their noses? Sammy employed what today we might call “social engineering.” He deliberately sought to delay the on-site auditors’ work so that they would be rushed to finish it at the end of the year, and make sloppy mistakes. He did this partly by encouraging attractive female employees to flirt with the accountants, who were usually single guys in their late 20s. With the auditors’ eyes filled with T&A, they weren’t watching the books as closely, which meant Crazy Eddie could get away with more chicanery. He also flattered them with meals on the company’s dime, favors and presents. This is only the tip of the iceberg. The accounting tricks used by Crazy Eddie to overstate its income and understate its liabilities forms a very long and complicated list.
In 1987, though, the fizz on the champagne started to go flat. A drop in consumer electronics prices and increased competition caused the chain to lose money for the first time. As the stock price declined, rumors began swirling that some corporate raider was circling about, ready to buy Crazy Eddie in a hostile takeover while the stock prices were low. Sammy and Eddie realized this would bring disaster: a takeover might expose their fraud. They decided to take the company private, and began looking for an unsuspecting friendly party whose money they could use to do it. At the same time, the family rift that had flared up in the New Year’s Eve 1983 battle broke wide open. Eddie’s wife sued him for fraud. He also sought to purge his father, Sam M., and his faction from the company. This caused a burning desire for revenge.
Another brassy commercial, but you can see the formula by now was wearing thin. This dates from 1987, when the collapse of Crazy Eddie was really getting going.
In May 1987, before Eddie and his hand-picked “white knight,” Sam Belzberg, could take the company private, a businessman named Elias Zinn unexpectedly announced a hostile takeover (a change in ownership of the company that did not have the backing of the company’s management). Eddie and Belzberg scrambled to raise cash to top Zinn’s offer. The future of the company was now a high-stakes game of poker. After getting a buy-in from another businessman, Zinn outbid Eddie and gobbled up a significant chunk of the stock. On November 6, 1987, Crazy Eddie was now in the hands of new management–and it was only a matter of time before they found out what Crazy Eddie really was behind its fraudulent facade.
In addition to this, another time bomb was ticking. To get their revenge, Sam M. and friends had already blown the whistle and contacted the Securities & Exchange Commission to tell them about Crazy Eddie’s fraud, carefully covering up their own involvement. Now the feds were involved. The stage was set for the implosion of Crazy Eddie and the fiery collapse of its criminal enterprise.