Crazy Eddie was a consumer electronics chain in the Northeastern United States- previously called ERS Electronics ... It was started in 1971 in Brooklyn, New York, by businessmen Eddie and Sam M. Antar. The chain rose to prominence throughout the Tri-State Region as much for its prices as for its memorable radio and television commercials, featuring a frenetic, "crazy" character played by radio DJ Jerry Carroll ... At its peak, Crazy Eddie had 43 stores in four states, and earned more than $300 million in sales.[1]
In February 1987, the United States Attorney's Office for the District of New Jersey commenced a federal grand jury investigation into the financial activities of Crazy Eddie. In September of that year, the United States Securities and Exchange Commission initiated an investigation into alleged violations of federal securities laws by certain Crazy Eddie officers and employees. Eddie Antar was eventually charged with a series of crimes. Antar fled to Israel in February 1990, but was returned to the United States in January 1993 to stand trial. His 1993 conviction on fraud charges was overturned, but he eventually pleaded guilty in 1996. In 1997, Antar was sentenced to eight years in prison and was subject to numerous fines. He was released from prison in 1999.[2]
I thought it was crazy Eddie from Larry Niven's "A Mote in God's Eye" (forget the co-author).
That term is used to describe an alien mindset that comes up in a certain alien species every so often where they think they can break them out of their explosive population climb and subsequent social destruction before having to rebuild their civilization again.
Here's what I don't get: Why is everyone so unconcerned about making themselves complicit in crimes like this?
I can understand that you might be able to influence one or two people to become complicit. But it sounds like everyone was taking part in the scheme: everyone in the family, employees at every level, even the auditors contributed a part to the conspiracy.
I mean, dozens of people must have been involved in this scheme. Why didn't anybody of them say, hey, I'm not going to be a part of this? I'm going to report this?
I can not overstate how broken the NYC culture was in the 1980's and how normal this all would have felt. You would be a sucker if you ran a business without an angle. The angle is what made business fun, it was the clever part, your moat. Also getting paid, especially at a young age, made you feel incredible (I was 14 when I started "Screwy Louie's" an electronic biz since I admired Crazy Eddie). In those days money === status. Status was more important than people. And being labeled a "snitch" or "rat" was a sure way to destroy your status.
If you ever find yourself in a bad culture, you simply need to leave, especially if you are young. Culture has a powerful momentum but that momentum reduces with each person who opts out.
I can answer this from personal experience. Very relevant experience since the article notes in line 1: "...frauds in the subprime mortgage market, the AIG bailout..."
I worked at AIG's Credit Default Swap group in NYC in 2007/2008 and someone in IT noticed strange audit records showing Operations/Accounting users manually changing prices for no documented reason. The person in IT foolishly copied the logs into an email and emailed some managers inquiring why. You might recall the company was under investigation for massively over-marking their derivatives so any accusation around derivatives prices being manually overridden without an audit trail is quite damning.
Within 24 hours, he was accused by one of the Operations/Accounting users of assault (supposedly a mouse was thrown at her.) There were no eye-witnesses, a total he-said-she-said. Despite that, he was walked out of the office soon after. He had no prior HR records/demerits. He was on an H1 which meant he'd be sent back to China within two weeks if he didn't find another job.
Despite having a printout of the email which likely initiated this retaliatory accusation, HR was not interested in any email. They seemed to be more interested in squashing the original concerns than investigating it. HR did not interview anyone besides a few of the accusers. It seemed like a professional hit job (cover-up?)
The message to the overall group was clear and chilling -- keep you mouth shut and don't look where you should not. I tried to switch departments immediately, as did others. Luckily the entire group was re-org'd and much better and more fair management took over. Regardless, I never publicly mentioned the story (I am now posting it for the first time since many of the people involved are retired and I'm in a different industry.)
It was also puzzling me. I think a link posted below [http://www.nytimes.com/2007/10/14/magazine/14syrians-t.html] explains it. They are a closed ethnic community. Reporting it would be like betraying not just your employer, but also your people.
The article is really excellent. It is really a closed community. There is an religious edict that bans everyone who marry a non Syrian Jew.
From the article:
"Seventy years after the promulgation of the Edict, it seems fair to say that, taken on its own terms, it has been an almost uniquely successful tool of social engineering. The enclave grows and thrives beyond the dreams of its founders. It offers a secure economic future and a sweet family life to those who remain within its confines."
BTW, is it offensive to use the word Jew? If so, how should I have called them?
More from the article about how they are a really closed community:
“Never accept a convert or a child born of a convert,” Kassin told me by phone, summarizing the message. “Push them away with strong hands from our community. Why? Because we don’t want gentile characteristics.”
More on how closed this community is in Nathanial Popper's Digital Gold. IIRC, Charlie Shrem's parents would not pay his substantial bail unless he broke up with his GF who was not an SY Jew.
The flip side of strong ethnic ties and ingroup preferences enabling fraud, is that they make it possible for, eg, Hasids to conduct an extemely high-value diamond trade on a handshake basis internally. https://www.algemeiner.com/2014/05/21/new-yorks-diamond-dist...
I don't think that's true; traders in the stock markets with no racial or familial ties regularly make such deals, especially in the days of open outcry markets.
There's a couple of reasons. One is that it's a term with a history of being used in a pejorative manner. In cases like this, adjectival forms e.g. Jewish person are preferred over noun forms e.g. Jew.
Another problem is neither "Jew" nor "Jewish" is particularly precise. For instance, in America, it typically refers to someone of Ashkenazi extraction, not a believer in Judaism.
Are you saying that the Syrian "community" mentioned in this article are not followers of Judaism? I did not know that...I had assumed that the different "sects" of "Jews" were similar to the different sects of Islam or Christianity: in that they differed in certain beliefs, but still considered themselves as Muslim or Christians.
What I'm saying is that "Jewish" may refer to someone who is an atheist but celebrates Hanukkah. There's probably someone in their family who is practicing.
The problem being, "Jew" refers both to both a belief system and a racial characteristic, and without qualification it can be thoroughly unclear. This is even true of more precise terms e.g. "Hasidic". There's a very tight-knit ethnic group that share a bunch of religious practices, but the adjective refers to both things.
Aside: if you're not easily offended, watch Chanuka Honey on YouTube. It's an extended joke about American Jewish culture, but religion barely features.
"Crazy Eddie was from Day One planned to be a criminal enterprise. We committed our crimes simply because we could," said Antar, whose cousin Eddie Antar founded the chain.
Have you never been in a place where the culture stinks? If you go along with everyone, there is potential trouble in the future, but if you go against there is certain trouble now. A reasonable person with a choice will go along and bail as fast as they can (see what Susan Fowler did), but in a family business people don't have that luxury, and that's how the cart gets wedged in the mud.
Very simple: if you make waves, they fire you. Then you are damaged goods. No one will hire you. You know that you are the honest party, but someone who doesn't already know and trust you has no basis for deciding whether you are honest or if you are lying about your former employer's dishonesty because you have an axe to grind. Also, even honest employers don't really want to hire someone honest enough to blow the whistle because some day they might want to bend the rules a little bit too, and then they will want everyone to be a "team player."
I think most people would distinguish between crimes of necessity, such as feeding and clothing yourself and your family, and generating another $20 million in income.
Now, people have an amazing ability to rationalize behavior, so it's entirely possible some of those people convinced themselves that they needed to continue because they would be out on the streets with now way to provide for their family because that's all they knew, but I think it's important to distinguish irrational thinking such as that and the reality of the situation when discussing it.
1: "Out on the streets" could very well have been well above the poverty line and quite comfortable given their likely assets and resources, but unfortunately it's all to often a relative assessment that is made, where relatively worse still may be quite comfortable on an absolute (or relative to the region) scale.
You're right. It is easy to rationalize this sort of behavior. But I think there's a few things going on, that mutate normal action/response.
1. Family. Doing this the "right way" would mean fessing up. And that means alienating and testifying against family. Unless they're Hannibal The Cannibal, or other absolutely horrible crimes against humanity, you're not going to want to destroy your family and the business.
2. Inertia. It was already done, we're just doing it how it was done before. (Insert "Cause everyone else does it").
Sure, I was referring more to the general case, which may or may not include family or friends (beyond co-worker friends). Family obviously makes it harder to report, but I don' t think it's in any way a requirement.
Inertia is a big one though, I think your're spot on there.
(I'm a US immigrant, generalisations have issues) One thing I've noticed is that culture in the US seems to focus more on the getting caught side of things, versus the wrong doing in the first place.
The classic case is tax returns, where you tell the government how much you made, what you deduct, and hence how much you owe. Because a proportion of the information is self reported, it is (especially in the past) possible to cheat. Anecdata is that cheating, and getting away with it is somewhat common, and not frowned on by society.
Another is speeding on the roads, where ire is directed at the process of catching speeders versus the reason for the limits and their levels.
The US has a rather complex tax system, and one in which the default rates can be rather high but are offset by many different credits and deductions. This leads to a situation where if you aren't proactively trying to take all the legal deductions you can you may end up paying significantly more than you needed to.
It's my opinion that this leads to a perception that the government is out to take advantage of you unless you proactively protect yourself, and I think that may lead to people being far more willing to lie to reduce what they pay due to the feeling that government has taken advantage of them in the past, or at least tries to.
"Fairness" is a highly developed Human trait, and has even been shown in primates[1]. This is, of course, my pet theory regarding taxes and I'm not providing sources (but maybe some exist?), so take it for what it's worth.
As an outsider your opinion does seem to be the case, but I've heard stories of people taking it quite a bit further (eg claiming dependants that in no way meet the criteria). It is probably easier to rationalise incremental steps away from what should be done over time as you get away with each previous one.
What originally perplexed me originally would be seeing signs like "do not walk on the grass" and in some places it seemed completely ignored, and others obeyed. Same with speed limits (one time I was the slowest driver on the New Jersey turnpike because the signs said go 45 due to roadwork, so I did). I think it is the chances of getting caught that define people's behaviour, not any reasons for the rules in the first place, and this seemed to be a very big American trait.
BTW Dunbar's number is also related to the fairness thing IMHO.
> I mean, dozens of people must have been involved in this scheme. Why didn't anybody of them say, hey, I'm not going to be a part of this? I'm going to report this?
It two completely different level of effort and involvement.
Saying "I'm not going to be a part of this" means you step away and brush your hands clean.
Saying "I'm going to report this" requires much more effort. If you personally know someone working there it's even more difficult as you'd be intentionally ratting out your friend/colleague/family.
I owned a small mobile app public co a while ago for a few years. The things I witnessed ran deep and with most listed companies on most exchanges up and down the food chain. The fraud can go many levels deep and begins to look like a giant complex game, and for crazies out there, Sith Lords https://en.wikipedia.org/wiki/Patrick_M._Byrne#Campaign_agai...
One fun fact I remember is that your share price is not calculated based on shares outstanding. Sure, perceived supply and perceived demand account for a lot but many traders and armchair investors are not aware of this larger detail:
The bedrock of your share price is based on available tradeable DTCC-deposited http://www.dtcc.com/ "unchilled" float. It's all in the float and that includes a few private companies out there that determine your float number, including the DTCC and CapitalIQ https://capitaliq.com, which can mean a manipulated or highly inaccurate market cap via your share price which is calculated by your float. And, if a crook has any spies or moles working there, that crook can get a lot done with his buddies which can include stock transfer agents who play a big role here. I got offers like this from time to time.
Market makers and institutions will eventually dial your price in based on your float as it's one of the few solid factors they have for determining price. Shorts are all over this too. Large caps have arsenals of CFO's, attorney's and connections that fighting for an accurate unmanipulated float is trivial. "Bigger Stuff" is happening for them although NFLX was known as a "short incinerator" due to their essentially well-engineered low float which helped them maintain a high but volatile share price historically.
For mid size and small public co's if you're market cap is manipulated, you can see this when you ask for NOBO reports provided by the DTCC combined with reports from CapitalIQ who control how and when the main DB gets updated with the number of shares used to calculate your float aka number of tradable shares any given day, week or month. Try and get them to make corrections if you can, sometimes you won't be able to, depending on who you know or how well your engineering plan for your float is from the start of structuring your public co.
My goodness, when I first started in 2010 I got calls or emails just about every day around 6-7am PST for a year. These guys represent toxic credit lines/loans aka convertible notes/debt or the death spiral, not the better kind found among private startups today e.g. SAFEs. Never accept money from someone that calls you if your a small cap unless you know someone that knows them and they are clean. I was taught that early on by the guy that first invested in MySpace because he had a public co which he used to make that deal through a small NYSE issue I remember.
The way to handle those guys is with some basic Sun Tzu stuff. Most guys would ignore them, but they are so fun to talk to for the lulz.
You have to be real careful because even if smart money gets wind that you have talked to these guys, you might be looking at owning a roach motel by the end of the year. These guys also have the ability to naked short your stock til the cows come home. Something you've got to track. They will sometimes do things like try to book a call through someone partner or shareholder and get an intro, then blab to some subnet of people that you're going to take the deal and mess things up for you while they still short your stock knowing it's going to take a hit just because their dirty asses got near you. They know exactly how dirty gloved they are. Avoiding people like them during trips to NY is also fun and games.
One more point, this is also the main way companies looking to raise money screw their cap table up because, it absolutely ruins their float - this due to the fact that 99% of the time they have to reissue more and more and more of their stock to these death spiral guys to pay them back on the loans after 6mos. The reason its named a death spiral is because the model of most of these crooks follows includes knowing that these fledgling companies are going to have a hard time raising combined with a model that is purely based on shorting these kinds of deals. Amazingly close to absolute fraud.
You really want long term partners and financing from friendlies that understand your long term vision and at least buy into it a little bit. And, what it takes to uplist or cross list to higher quality exchanges if your an OTCBB with a healthy story, volume and price relative to some actual revenue or large partner.
What you do if you're the one trying to manipulate the company from the outside and on the short side:
A company might have a shareholder that needs a new certificate of stock issued because they "lost" their old one. Or it got eaten by sharks or something while you were at the beach, somebody's house burned down, they moved it got lost, cancer. Whatever the case, this happens everyday in the market, people lose certs for all kinds of reasons. If you own a public co, you'll have to work with your current stock transfer agent to get the certs reissued and this is a pain in the ass as affidavits and sometimes insurance bonds need to be issued along with them. These certs might represent e.g. 1 million shares of stock, 50k, 100k but it all accumulates if not taken care of and tracked like a hawk immediately. This might happen 1-3 times per year.
Each time this happens, the DTCC needs to finally validate the certs and "put them on deposit" officially approved for trading. Once this is done, if you have not worked with your SEC attorney, stock transfer agent (to get the ledger updated) and the DTCC to make sure there are no hold ups you then make sure CapitalIQ/S&P are holding accurately reflected updates in their DB as most institutions and market makers and some traders just rely on this data to adjust or predict your price in their models. Remember, a price adjustment must come if there is any change in the float. And, you've just witnessed a change in the float as the CEO properly overseeing the process, if you're on top of it, so you then expect to see a corresponding change, more or less, in the price in some reasonable amount of time, say a day or two or immediately if you have some good connections.
Now multiply the above by several accumulated share cert reissuances, which is more real-world, then add the fact that not many small cap CEO's are hawkish about that (half of them just let the stock transfer agent take care of everything and call it day, wake up the next day, grab a bag of popcorn and watch their stock trade <- keep this mind. Now add, the critical part, guys on the inside that know this process like the back of their hand. They in fact make money by making sure all this happens "smoothly", they are usually working closely with the stock transfer agents.
Next factor shrewd but unscrupulous friends in this guys little network, who might be big shorts of this stock. They call their friend at the transfer agent and throw a monkey wrench into the process knowing that inaccurate float data will then be distributed to OR within CapitalIQ. Prices then will not be accurately reflected and they are now in the money for building a short position in the stock while everyone else including the public thinks it should be valued differently. Unethical Information Arbitrage is happening.
Then then call their buddy up at the stock transfer agent and correct a synthetic mistake. Once corrected, the price of the stock must come down, making the short a load of $$$ on the way down because e.g. 20M shares have just been added to the float. This means more supply right. BTW: you want no where near that amount in your float as a small cap.
Unless the CEO can correct this or even knows about it, a form of fraud can continue to exist on that company stock.
This is just 1 of many examples of how fraud can be structured on the short side. The long side is a bit different but with the same principles of screwing with a public companies cap table based on inside manipulation of the float, by deep insiders, not company insiders. I know this because I had to fight this exact scenario and few others from happening to my company. Being a software engineer also helps quite a bit. I built all kinds of automated monitoring systems for this in particular to monitor the NOBO list and true "short interest" for example.
I also use to have bots send certain small Market Maker guys updated news on our company. They hated that because it then bound them to a piece of knowledge that could be traced back to them. I thought it was funny. I eventually stopped that as I thought it was also too aggressive in terms of taking a bite out of fraud that ran against my company.
Keep in mind, some CEOs are in collusion here shorting their own stock after going long and just riding the waves of what they consider giant ATMs. You can tell who they are because 99% of the time they have super high floats and know that the public are clueless related to the bad "financial engineering" specific to float structures.
Other examples of the above including someone disagreeing with the NAV (Net Asset Value) of the assets within your company. If you legitimately change the NAV of one of your assets such as an LLC that has a JV with a new partner based on some IP or the acquisition of something valuable, then you can negotiate with CapitalIQ/S&P to have them change your float based on shares being issued to the JV or LLC and no longer being part of the public company. This is bit more complex strategy for the CEO to control the float. This process can also be manipulated by being help up a firm being used by some outsider. I had to deal this scenario too. I had some outside shareholders saying one of our NAVs was too low and another saying it was too high and he would not stand for a change in the float so he wanted to get personally involved with communicating with the outside data vendors.
Another example relates to "Donkey Kong" but that's different kind of volume manipulation that can help chip away a bloated float altogether.
And then there are those that will offer to manipulate the option pool which of course entails them cashing out very soon or immediately, buying all the way up and then shorting all the way down when your float become bloated from all the options being converted to actual tradeable stock and then just sitting out there waterlogging everything for investors and traders that are trying to figure out why your stock does not move up like the others but moves down much greater than the others... messing with options for the CEO while the deal includes the same options for the outside partner is still outright illegal and can land you jail. But I'm pretty sure its still being done.
And there's always the good nuclear option of cleaning up the cap table, buying back shares, finding ones no one is using (believe it not yes, unclaimed or those someone may want to give back to the company based on first right of refusal or for tax reasons and then once all rounded up - outright "canceling" a large lot, which can burn a lot of people real quick on the short side and make tons for others on the long side overnight. This is actually perfectly legal with the right intent. This also takes lots of phone calls and negotiation.
The bad nuke option is a reverse split, this leads different kind of death spiral for the stock and is encouraged by dealers and brokers some of which know that you won't be able to sustain it. You cut the float in half e.g. and then the price doubles correspondingly overnight. However, most companies are unaware that they being manipulated such that naked shorts keep piling on and worse off than where you started. Naked shorting and other kinds can almost endless add to an inaccurate float number.
Lots of details left out but in principle that's how the above works.
This must be the best content marketing I ever read. The author is the convicted felon being written about and he now runs a forensic accounting consultancy.
I have a very hard time getting through those stories, the writing is horrendous. Antar sure is a better writer than the person trying to expose him. What is laryngitis and why is Sam Antar a bad person for having it?
If you could spare the time for a tl;dr I'd be interested :)
"Sam Antar, generally not short of opinion, has suddenly developed laryngitis."
That's a metaphor. It means that Antar is suddenly not talking when the subject changes to Barry Minkow, and the author's opinion is that this is because they are or were in a criminal conspiracy.
I figured as much. My complaint is that I have to read up on some obscure disease as well as a certain Barry Minkow just to start getting an idea of why/how Sam Altar is still running cons.
But yeah, fair enough, maybe that's what I should've written then :)
This is not uncommon. This is taking tradecraft and applying it in a useful and valuable way (for society as a whole). Frank Abagnale is one such example.
American security consultant known for his history as a former confidence trickster, check forger, and impostor between the ages of 15 and 21.
Abagnale also continues to advise the FBI, with whom he has associated for over 40 years, by teaching at the FBI Academy and lecturing for FBI field offices throughout the country.
I think often what attracts these people, beyond getting a certain level of wealth, is the game and the high from knowing they are better than those they go up against.
Switching sides allows them to continue the game and often even continue with a good base level of wealth. This can be hard to do without an existing reputation, but their prior career should have already achieved that.
Sam Antar is a convicted felon and a former CPA. As the CFO of Crazy Eddie, Mr. Antar helped mastermind one of the largest securities frauds uncovered during the 1980s.
Today, Sam Antar is a forensic accountant. His primary work focuses on identifying and investigating public companies engaged in securities fraud by performing an in-depth (deep-dive) forensic analysis. (...)
This is one of the grey areas of the US criminal justice system that deeply worries me. By his own account, he willingly participated in a huge accounting fraud, in fact, he seems to have originated some of the most ingenious schemes to turn a regular crooked small private company, into a public one, defrauding many "small" investors along the way. And yet, he was let go (although at least he IS a convicted felon).
All this while thousands of Americans languish in jail/prison for nonviolent drug charges.
As an accountant, 1/3rd of the auditing class I took in college was just reading about how different companies perpetuated fraud. It made an otherwise boring class, pretty fun.
I still currently work in public, and a couple of the partners are incredibly jaded because they worked on clients at some point in their careers who were committing fraud.
Does this reflect poorly on the auditing industry? Kind of like with the ratings firms during the GFC. It seems that their poor practices have aided and abetted these frauds. Has their behaviour changed?
This is a good question, and I would like to know the answers as well. Although, seeing that the credit rating agencies that enabled the Great Recession are still in business...it seems unlikely that they have changed anything.
The only instance I've heard of an accounting company truly blowing up is probably Arthur Anderson after the Enron scandal.
I believe that a lot of firms had to split their accounting and consulting businesses after Enron, but this article shows the conflict of interest had quietly been there, and been abused, for decades.
I was a kid on Long Island when Crazy Eddie was big - it was impossible to not know the commercials' tag line by heart - "Crazy Eddie! His prices are in-saaaaane!"
I was young enough when all of this went down that I remember being super sad the guy in the commercials was a criminal. And then blown away to learn he was just an actor.
> I engaged in a calculated plan to subtly distract them with cute Crazy Eddie employees reporting to me. I encouraged my female employees to flirt and get friendly with their young male PMM counterparts and discuss audit issues with them over lunch and dinner on Crazy Eddie’s tab.
Human Intelligence at it's core with some Social Engineering thrown in.
"The gullible auditors accepted our silly explanation that our employees had sacrificed many years working at below average wages for the opportunity to be part of what they hoped might become a growing public company."
> After the funds were transferred to Panama, a family member withdrew those funds from Bank Leumi in the form of bank drafts or non-negotiable instruments, to avoid violating disclosure laws on the movement of funds into the country.
Bank Leumi figured big time in the crash of iBill, they took the money of a lot of merchants and never paid it out.
OK, Wikipedia has a pretty good article. And ... I question the ethics of directing traffic to the fraudster himself. https://en.m.wikipedia.org/wiki/Crazy_Eddie
Crazy Eddie was a consumer electronics chain in the Northeastern United States- previously called ERS Electronics ... It was started in 1971 in Brooklyn, New York, by businessmen Eddie and Sam M. Antar. The chain rose to prominence throughout the Tri-State Region as much for its prices as for its memorable radio and television commercials, featuring a frenetic, "crazy" character played by radio DJ Jerry Carroll ... At its peak, Crazy Eddie had 43 stores in four states, and earned more than $300 million in sales.[1]
In February 1987, the United States Attorney's Office for the District of New Jersey commenced a federal grand jury investigation into the financial activities of Crazy Eddie. In September of that year, the United States Securities and Exchange Commission initiated an investigation into alleged violations of federal securities laws by certain Crazy Eddie officers and employees. Eddie Antar was eventually charged with a series of crimes. Antar fled to Israel in February 1990, but was returned to the United States in January 1993 to stand trial. His 1993 conviction on fraud charges was overturned, but he eventually pleaded guilty in 1996. In 1997, Antar was sentenced to eight years in prison and was subject to numerous fines. He was released from prison in 1999.[2]