Q&A with Sam Antar, Former CFO of Crazy Eddie’s

Q&A with Sam Antar, Former CFO of Crazy Eddie’s
‘You can commit more crime with a smile than you can with a gun’

Sam Antar, former chief financial officer of the now-defunct electronics chain Crazy Eddie’s, is a man with a mission. Antar, after orchestrating the accounting fraud behind the Crazy Eddie’s scandal of the late 1980s, served as the government’s key witness in the criminal and civil prosecutions of the case against his cousin and company chief executive officer Eddie Antar.

For his role in the scandal, Sam Antar pleaded guilty to conspiracy to commit securities fraud, conspiracy to commit mail fraud and obstruction of justice. For his cooperation with the prosecution, he was sentenced to six months house arrest, 1,200 hours of community service, three years of probation and approximately $10,000 in fines and fees.

Antar now speaks to a variety of groups around the country about the topic, hoping to promote and strengthen accounting education efforts.

Q. How did you become CFO of Crazy Eddie’s?
A. As a young kid, I was always interested in numbers, the stock market and finance. And even as a kid, I would read Barron’s and the Wall Street Journal. I started as a stock boy at Crazy Eddie’s making $10 a day. In 1971, Crazy Eddie’s only had one store, but it eventually became the biggest electronic chain in the northeast. The business grew, and I grew with the business.

From day one, the [Antar] family was involved in skimming the profit and inflating the inventory. It was never a fully legitimate business. They always wanted a so-called “educated family member” from the inside. So I went to college, and the family offered to pay for my education. Basically I had an all-expenses-paid education to eventually become a CPA, to learn how to do things for the family—both in the legit way and in the nonlegit way.

Q. How did the Crazy Eddie’s securities fraud come about?
A. A lot of people say there’s an underground economy equal to about 10% of our national GDP. A lot of small businesses underreport their income. Some businesses, as they grow, mature and stop doing these things. But Crazy Eddie’s never changed their ways. The skimming grew. People worked off the books, and they were taking a lot of cash for themselves. And in electronics, in New York City and New York state, you have a very high sales tax. Then it was 6 percent. But we just didn’t skim the sales tax, we were skimming the profit as well. Any profit that was left, we would purposely not deposit the cash receipts to avoid paying taxes.

How does skimming translate into the securities fraud? About five years before the company went public, they were getting inquiries, and they decided they were going to skim less money each year. I learned about how audits are done, and I learned it very well from the limited amount of audit work that I had done. We skimmed less money each year, and on paper it looked like we had almost tripled our profits, when, in reality, our profits only went up by 30 percent. That’s securities fraud, pure and simple.

Q. In one of your letters to the SEC, you say that you don’t think the issue of accounting education is getting enough attention. What aspects of accounting education do you think are important?
A. Today, first of all, if you look at all the accounting curriculums, I would say a substantial majority, over 90%, do not offer a fraud course, and even when they do offer a fraud course, it’s an elective. They do not offer a course on internal controls, they do not offer a course on securities law, they do not offer a course on criminology. There’s questioning and there’s knowing how to question somebody. I can tell you as criminal that one of the biggest mistakes that people made—and how we were able to get away with things—people don’t know how to ask the right questions and follow-up. That requires training, and there’s no training in accounting programs for that. Even in two auditing courses, it’s still not enough education. You can commit more crime with a smile than you can with a gun.

You have Sarbanes-Oxley, which requires auditors to review internal controls. SAS 99 has increased the profession’s responsibility regarding the review of internal controls. Laws are good, rules are good, but if the people that have to administer them are not educated in the right areas, does it make a difference? I am for strong criminal sentencing. But that is not a deterrent effect. Let’s face reality: The only way to stop this kind of crime is to create deterrents and prevention.

Q. How widespread do you think securities fraud is now?
A. I don’t know, but I do know that good internal controls reduce crime. Because I’ll tell you, if a lot of the provisions I’ve mentioned were in place 20 years ago, I never would have been able to get away with the crimes I committed at Crazie Eddie’s.

Q. What do you see as being most important for reducing fraud?
A. My main concern, as I mentioned previously, is education. Number two is the weakening of SOX. The fact of the matter is that the integrity of capitalism and the free market system lies on the integrity of financial information. That’s the main pillar of capitalism. I’m pro–free market. Unless people wake up, there’s going to be problems.

And for the final measure, I will tell you this: Fraud hurts the innocent as well as the guilty. Employees who work in accounting departments of companies found guilty of fraud are harmed, even if they were completely innocent of any wrongdoing. They will find other jobs, but the future employer will look at the resume and see that these people are associated with fraud. It happened to plenty of people. Just because you don’t go to jail doesn’t mean you won’t be hurt.

Additional information can be found on Sam Antar’s Web site at www.whitecollarfraud.com.