Professional Accountant Fraudster Sam Antar’s Methods are Still Relevant Today
Sam Antar was the co-founder of Crazy Eddie; an electronic goods retailer. Despite being a relative success, Eddie Antar (Sam’s cousin) engaged in commercial fraud nearly from the first day Crazy Eddies opened its doors.
Systematically, Sam Antar engaged in phases of fraud that are still relevant today. Sam was named CFO of the company in 1986 and earned his degree in accounting in 1980.
Under the expertise of Sam, Crazy Eddies was able to further commit commercial fraud. Sam worked for the company since he was 14 years old, starting in 1971. Fraud was occurring under the Crazy Eddie brand before Sam, but his expertise helped the company reach a new level of tax fraud.
Skimming money, or taking money without reporting it, is still a common practice in today’s business world. There is no viable proof of income when customers pay for a product with cash. If a person walks into a pizzeria and pays in cash, the owner can easily put the cash in their pocket and not pay taxes on it – it happens a lot.
Antar did this in multiple ways – all to avoid paying income tax:
- Cash Skimming: It’s claimed that he would take $1 out of every $5 the company made in cash. This money would not be accounted for, and reached $3 - $4 million per year at the height of the fraud. Antar deposited $6 million in offshore accounts between 1980 and 1983.
- Payroll Taxes: Crazy Eddie employees were paid “off the books” in cash. This allowed the company to report lower income to the IRS.
- Insurance Claims: The company would report or exaggerate insurance claims to increase profits.
Many companies still conduct this same exact fraud today.
Initial Public Offering
Hiding the money that was being made became difficult for Crazy Eddie. In 1979, Antar decided that it was time for the company to skim less money each year. Systematically, the company’s profits rose the next three years a reported 171%.
The increase in the company’s profits were only 13% when the skimming was accounted for accurately.
A major increase for any brand, the company decided that it would go public. On September 13, 1984, Crazy Eddie stock was being sold for the first time and was valued at $8 a share. This number would rise to $75 per share by early 1986.
Smart and decisive, the Antar family did not unload their stock during the company’s IPO. Instead, the family sold stock slowly over a 3 year period, netting over $90 million.
How did Crazy Eddie’s stock jump so high?
Sam Antar, a superb accountant by all means, created what is called the “Panama Pump.” The company had been skimming profits and not reporting it by keeping the profit in Israeli bank accounts. The company needed new capital to open new stores while still keeping the company’s stock price high.
The Panama Pump provided the ability to commit further fraud.
The money that the owners had skimmed was transferred to Panama using fake identities. This money would then be laundered back into the company to inflate profits. During the first 10 months of 1986, comparable store sales rose by 20%.
During the final two months of the company’s fiscal year, sales growth slowed to 4%.
This was a problem for the Antar family, who wanted to raise $35 million in capital. The family used their secret bank accounts to make up for the slow sales growth by utilizing $2.2 million of their own money.
The Panama Pump was brilliant because money was transferred to Panama, and bank drafts were used to withdraw the funds. Using bank drafts, disclosure laws on the movement of funds in Panama were avoided. Ultimately, this allowed for no plausible way to trace where the money derived and ended up in Crazy Eddie’s bank accounts as sales.
1987 – The Fraud Continues
Fraud was a part of the Crazy Eddie brand, and the family decided to continue with their deceptive practices. In 1987, channel switching was the first “great” fraud of the year in an attempt to inflate comparable store sales.
Merchandise was shipped or sold to other re-sellers and not end-users for the channel switching scam to work.
Trans-shipping sales were not regulated thoroughly and neither were comparable store sales. A major wholesaler at the time, Zazy International purchased $20 million in merchandise from the company, but paid for the merchandise with a series of checks.
These small denomination checks allowed Crazy Eddie to deposit smaller checks into the bank accounts of individual stores to increase same store sales. The money truly originated from the company’s main office. In total, $10 million of the sales were improperly reported to the government as comparable store sales.
Profitable from 1970 – 1984, the company didn’t start losing money until Q3 1987.
Counteracting the decline in sales occurred through inventory inflation. The company purchased $5 - $7 million from Wren Distributors without including the amount as being owed to a vendor. The store inflated inventory by $15 - $20 million, affectively misrepresenting the amounts of assets the company maintained.
Crazy Eddie was still losing money at this point and would need to report a major loss. Debit Memo fraud would occur in an attempt to avoid reporting a loss and having the company’s stock tumble. The company would purchase inventory while not properly accounting for volume rebates.
An example of this is:
- Crazy Eddie purchases $30 million in inventory from Sony.
- The company sells a high volume of the product.
- Sony agrees to a volume rebate of $1 million.
- The accounts payable ledger reflects that Crazy Eddie owes $10 million to Sony.
The company made it look like the $1 million rebate was actual purchases and not lowering the accounts payable as a result. The company started issuing debit memos to claim “chargebacks” and not waiting for the credit memos as they did in the past.
Crazy Eddie was immediately able to reflect less amounts owed to vendors, making it look like income for the company.
All of these frauds avoided audits. First, Sam Antar worked for Penn & Horowitz, the company in charge of auditing Crazy Eddie between 1981 and 1984. Sam learned the ins-and-outs of auditing at this time, and lax auditing companies allowed for the fraud to continue unknowingly until the company was taken over in 1987 by Elias Zinn.
Weeks after the acquisition, Zinn’s financial analysts uncovered the company’s inventory fraud, estimating inventory was short by $40 - $50 million.