Convicted Felon, Former Crazy Eddie CFO, Sam Antar, Talks to Lauren Lyster About Accounting Fraud

We first became apprised of the appliance star of Crazy Eddie in 1984, having watched Daryl Hannah breathlessly regurgitate one of the store's transfixing commercials in the movie "Splash."  While Crazy Eddie filled a major plot hole (namely, teaching a mermaid to speak English in an afternoon), the company also created a gaping hole in its financial statements, which helped to defraud investors of tens of millions of dollars in the 1980's.

In the fledgling days of the electronic retailer, one of the founders, Sam Antar, would learn the magic of double-book entry-keeping and eventually become the firm's CFO.  Cheating on taxes and embezzling funds could only go so far, however, because, according to the Net's truthiest source, "By 1983, it was becoming more and more difficult to hide the millions of illicit dollars."   What would the founders do?  In a testament to the historical prowess of the SEC, they "decided that the way to cover up their growing fraud was to take the company public."



The above is a must-see interview with Sam Antar by Lauren Lyster on RT's Capital Account, wherein the eminently quotable Sam began:

I'm happy to report, as a retired member of the criminal underworld, that fraud is good.  The fraud business is easy and fraud is getting easier.  The fraudsters have reached the top 1% of the American society....Democrats and Republicans alike are doing their best to make fraud even easier.

Sam then delved into the recently passed JOBS Act (affectionately dubbed, the "Fraud Made Easy Act"):

In the guise improving the economy, [it] peals away internal controls requirements for public companies, peals away various levels of oversight by the government, peals away at the requirements for audits, and it's going to make fraud easier.

Waxing nostalgically (and, a bit tongue in cheek [hopefully]), he said, "I might even go back to my life of crime because of the JOBS Act--because it makes fraud too easy."

Also covered was why jail time not a deterrent:

People commit crimes simply because they could and the opportunity exists.  Most criminals do not consider the consequences of their acts as far as jail time is concerned.  There's an old saying that prisons are filled with criminals who never planned on being there....Opportunity is what makes us commit the crime...if no internal controls, if no oversight, if there's nobody watching over us...

When Lauren asked, "What is the deal with these auditors--are they complicit? Are they dumb?  Do we have too-high expectations?" Sam said:

The word audit itself is a fraudulent term.  They're limited compliance reviews of GAAP which may or may not catch book keeping errors.  They're not designed to catch fraud.

Segueing to Capitol Hill, James Koutoulas, co-founder of the Commodity Customer Coalition, also weighed in:

In a sense, the regulators are almost a smoke and mirror facade of these Ponzi schemes that they fail to catch.  People feel safe when they invest in a "regulated entity," but a lot of times, I think that's a false sense of security.  These regulators clearly have proven that they can't catch these frauds, and I think that people do less due diligence on these regulated entities.  

Sam had to agree, and also highlighted the perennially understaffed SEC as not only incapable of making a dent in securities fraud, but also having very little desire to use its existing resources to do so.  Witness the vacuum of prosecution pursuant to the now decade-old Sarbanes Oxley Act.

Not to focus solely on criticism, solutions were discussed, such as management clawbacks: as in, "personal liability: you lose your house, you lose your car."  Think Corzine on a bike in Brooklyn.

When Lauren asked, "how close are we to a situation where we could have a Crazy Eddie situation again?" Sam was not shy to answer:

It's occurring right now.  It's occurring all over the place.  Firms, with impunity, manipulate numbers.  And, the SEC does nothing except--we caught you, fix your numbers, and go away.  

Sam detailed the [alleged] fraud perpetrated by one company in particular, who you will have to tune in to learn about (hint: its portmanteau neologism of a name rhymes with "poop on").

And, a few more choice quotes to close the interview...

On auditor incestuousness:

In my day, I had to fool auditors--I had to lie to auditors in order to defraud my investors.  Today you don't have to lie to auditors--you don't have to fool them.  In many ways, they're complicit with management.  They're in bed with management.  They have this incestuous relationship with management, which makes crime easy.

Responding to whether it's easier to commit fraud now or in the eightees:

In my day, I knew auditors were stupid.  I knew auditors were incompetent.  But I always thought that if they saw something wrong, they would do the right thing.  Today, you don't have to worry about them doing something wrong, because they're going to do the wrong thing.  They've gone from being enablers--they've gone from being duped--to being actual co-conspirators, in many cases...co-conspirators to financial statement manipulation.

PwC could not be reached for comment.

Again, the whole thing is here:

http://www.youtube.com/watch?v=Egfiqr8TcK8&feature=player_profilepage

Words of War Regarding Conscription and Taxes in Israel

Yesterday, Moshe Gafni, Knesset Finance Committee Chairman, made a curious statement in regards to a proposed Israeli Value Added Tax (VAT) hike, over which he just used his authority to delay for one month until September 1, 2012: "War hasn’t broken out, and we don’t need to raise the tax immediately.”  

The Israeli Finance Minister, with the backing of Bank of Israel Governor, Stanley Fischer, attempted to ramrod the 1% VAT raise through the Finance Committee to take effect today, August 1, 2012.  Apparently, Gafni took issue with the way in which the tax increase was presented to him, though sources do not reveal exactly why.

As to the clout of Gafni and his his ultra-Orthodox party, United Torah of Judaism, its leaders have headed the Knesset Finance Committee since the 1990's, which allows the small party to control the purse strings of the Israeli budget.  The party is also central to a deeply divisive issue in Israel regarding adult conscription into military and/or civil service, for which 54,000 ultra-Orthodox Jews currently enjoy legal exemption. 


Here's where the dates get interesting.

According to a May 1, 2012 article in the Jerusalem Post, Gafni told the Knesset Foreign Affairs and Defense Committee that, "Haredim (the ultra-Orthodox) will go to jail rather than get drafted into the army."  Why?  The "Tal Law," the very law protecting ultra-Orthodox Jews from the draft (and from the alternative of prison, for "draft dodgers"), expires August 1, 2012 because it is not eligible for its usual five year renewal.  It was struck down as unconstitutional by the High Court of Justice on February 21, 2012.


The issue of conscription in Israel for civil or military service and the exemptions for Haredi and Arabs is "one of the most heated disputes in Israeli society."  It has been a major source of political contention for Netanyahu in attempting to manage his coalition.  Which is likely why he dissolved the latest Tal committee on July 2, 2012 just prior to the issuance of its final report.  Committee Chairman Plesner still published the report two days later, which recommended conscription for the ultra-Orthodox Haredi.  At the time, Netanyahu said that he would convene a meeting of the leaders of the ruling coalition party members "in order to draft a proposal that would garner a majority in the Knesset."


Well, the month of July has passed, and we are today on the August 1 expiration of the Tal Law, which exempts 54,000 ultra-Orthodox from conscription.  Given Finance Committee Chairman Gafni's protector status of this group, we are again drawn to his nixing words: "War hasn’t broken out, and we don’t need to raise the tax immediately,” along with his concurrent furry at how the tax proposal was presented to him.

Was this an indication of a failed back-door deal to allow a de facto extension of the Tal Law (or similar) in return for a tax raise?  More ominously, as tensions continually escalate with Iran and Syria, was it an indication that war is imminent, perhaps a mere month away--its timing resting upon negotiations of a mere tax law?

Admittedly, this deviates from our usual areas of research and expertise.  But, our research has revealed no discussion of a connection between these events (at least in the English language).  Which is why we leave it to the astute readers of these pages to offer any suggestions and information.