Behind the Scenes of Financial Fraud

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, remember when we were gonna do that series all about accounting?

Tracy Alloway (0:22)

Yes, I still hold hopes that we will one day do that. Why?

Joe Weisenthal (0:27)

No, no, I mean, I do. I think it's a really interesting topic.

And I do think that at some point, we should do a series, but I don't know when it's gonna happen.

Tracy Alloway (0:37)

Okay, that's fair. Are we doing accounting today?

Joe Weisenthal (0:40)

Yes, we are. So today we are doing an accounting episode. It's not part of a series, but it should be, it would have been a really good part of a series. It should be a really good one because obviously one of the most interesting aspects of accounting is forensic accounting, spotting fraud, deceit, how you could look at a balance sheet and an income statement, a cashflow statement and find things that are unusual. In fact, I think one of our accounting episodes or maybe the one we did was with a professor who specialized in spotting that stuff.

Tracy Alloway (1:13)

Yeah, I remember that one. And Joe, you must know this. I love forensic accounting so much that it's been in my Twitter bio, I think for as long as I have had that Twitter account.

Joe Weisenthal (1:23)

I recall that. Well, today we are not going, we are not speaking with a professor. We are speaking with a practitioner and he's not just any accountant.

He's someone who famously engaged in accounting fraud.

Tracy Alloway (1:37)

Wait, a fraudster turned an accounting expert or an accounting expert turned fraudster and then turned accounting expert again?

Joe Weisenthal (1:46)

Yeah, I think it's that. It's an accounting expert, then infamous accounting fraudster who now speaks about accounting and spotting fraud. So it's right in the sweet spot. Nothing, no theory here. It's all practice.

Tracy Alloway (2:02)

All right, well, go ahead and tell me who it is.

Joe Weisenthal (2:04)

So people who have lived in the Northeast for a while may recall the famous or infamous electronics dealership, Crazy Eddie. Have you ever seen their old commercials?

Tracy Alloway (2:17)

So I didn't really live in the Northeast in the 1980s, but I did have a VHS player and I had a copy of Splash. And I remember one of the ads, I think, popped up on Splash.

I think anyone who has ever seen them will remember what they were. Just this guy who was really hyperactively touting discounted electronics equipment, right?

Joe Weisenthal (2:45)

Exactly right. So this company grew like crazy. It was a cultural phenomenon, in part thanks to their commercials.

They ended up going public, and not too long after going public, the entire thing more or less imploded, as people have discovered all different kinds of fraud. Well, today we are going to be talking to the CFO of Crazy Eddie. He's in studio. Sam Antar is with us.

Sam, thank you very much for joining us.

Sam Antar (3:13)

Thank you for having me on.

Joe Weisenthal (3:15)

So you're a convicted felon, right?

Sam Antar (3:16)

That is correct.

Joe Weisenthal (3:17)

Okay, but you never did any, we'll get to it, but you never did any prison time?

Sam Antar (3:21)

No, I got house arrest, but believe me, after one month of house arrest, I wanted to be with the inmates.

Joe Weisenthal (3:27)

Okay, so let's go back. We'll get to that, obviously, in a little bit, but let's get started.

Where did Crazy Eddie come from? I know you were its CFO and so obviously intimately involved with the fraud, but what's the history of this electronics dealership?

Sam Antar (3:44)

Crazy Eddie was a single store retailer starting in 1969 It was originally known as ERS Electronics, doing businesses, sights and sounds. It was run by my cousin Eddie, his dad, Sam Emantar, and my cousin Ronnie Gindi.

Originally we were just a run of the mill electronics retail store engaged in skimming and insurance fraud, that sort of stuff. You have to understand something about Crazy Eddie is that we were not businessmen turned criminals, we were criminals running businesses in front.

Joe Weisenthal (4:13)

So there was never any...

Sam Antar (4:17)

No, in other words, we didn't have this momentary lapse in judgment where we fell into crime. Crime was part of the business plan.

Back in the late 1960s, early 1970s, there was something known as fair trade, where the manufacturers were allowed to set the price at the retail level. If you didn't follow the manufacturer's guidelines on pricing, they would cut you off. That practice allowed larger retailers to bring in the customers because they had the advertising budgets, smaller retailers like Crazy Eddie's that had the efficiencies to compete on price, couldn't compete on price and were going out of business. So what Eddie decided to do was thumb his nose at the manufacturers, fight fair trade. He won that war. And then the process, he becomes the hero of the New York metropolitan area consumer.