How 'Crazy Eddie' Electronics Chain Scammed America (thehustle.co) 68
In 1983 the annual revenue at the electronics chain Crazy Eddie was roughly $134 million (or about $372 million today), remembers The Hustle. The next year they'd sold $44 million just in computers and games — and eventually grew to 43 stores. The company's stock ticker symbol was CRZY.
"There was just one major problem," the article notes. "Crazy Eddie had been lying about its numbers since its inception — and the higher the stock soared the further founder Eddie Antar went to maintain the illusion."
It's a colorful story from the early days of home PC sales. Antar's uncle hid up to $3.5 million in cash in a false ceiling at Antar's father's house, according to The Hustle. "Eddie Antar kept close tabs, usually calling his uncle twice a day to see how much money they were skimming.... The skimming strategy allowed Antar to not only hoard cash but also evade sales taxes. His employees were also paid off the books so Crazy Eddie could avoid payroll taxes." "Money was always in the house," said Debbie Rosen Antar, Antar's first wife, to investigators in the late 1980s. "And if I needed it and I asked him, he would say, 'Go underneath the bed and take what you need....'"
Why would a company built on a family fraud go public? Somebody told Antar he could keep making millions skimming cash, but he could make tens of millions if the company traded on the stock market. Strangely, Crazy Eddie's fraudulent history gave it an advantage. To provide the illusion of quickly increasing profits ahead of the IPO, the Antars simply reduced the amount of cash they were skimming. With millions more on the ledger instead of in the family's pockets, the company's profits looked more impressive.
As a public company, Crazy Eddie then made up for its inability to skim cash by initiating new fraud streams.
- The company embellished its inventories by millions of dollars to appear better-stocked and better positioned for profits.
- The Antar family laundered profits it had previously skimmed — and deposited in foreign bank accounts — back into the company to inflate revenues....
In November 1987, a hostile investment group led by Houston entrepreneur Elias Zinn pounced, purchasing Crazy Eddie. As Antar's cousin later recounted, Antar thought the sale would at least give them an opportunity to pin the fraud on the new owners. But Zinn immediately discovered $45 million of listed inventory was missing. Stores soon closed, and the company went bankrupt in 1989.
Two disgruntled ex-employees then brought fraud allegations to America's stock-regulating agency, the article reports, while the FBI "started sniffing around, too." Crazy Eddie fled the country, using forged passports to escape to Tel Aviv, Zurich, São Paulo, and the Cayman Islands. But he was eventually arrested in Israel, sentenced to 12.5 years in prison, and ordered to repay investors $121 million (though he apparently served only seven).
But Crazy Eddie also became a cultural phenomenon -- sort of. In the 1984 movie Splash, Darryl Hannah's character even watches a Crazy Eddie TV ad. The Hustle's article also includes photos of a Crazy Eddie stock certificate — and an actual "Wanted" poster issued the next year by the U.S. Marshalls office.
Yet just four years before his death in 2016, Antar — a high school dropout — was telling an interviewer from The Record that "I changed the business...."
"There was just one major problem," the article notes. "Crazy Eddie had been lying about its numbers since its inception — and the higher the stock soared the further founder Eddie Antar went to maintain the illusion."
It's a colorful story from the early days of home PC sales. Antar's uncle hid up to $3.5 million in cash in a false ceiling at Antar's father's house, according to The Hustle. "Eddie Antar kept close tabs, usually calling his uncle twice a day to see how much money they were skimming.... The skimming strategy allowed Antar to not only hoard cash but also evade sales taxes. His employees were also paid off the books so Crazy Eddie could avoid payroll taxes." "Money was always in the house," said Debbie Rosen Antar, Antar's first wife, to investigators in the late 1980s. "And if I needed it and I asked him, he would say, 'Go underneath the bed and take what you need....'"
Why would a company built on a family fraud go public? Somebody told Antar he could keep making millions skimming cash, but he could make tens of millions if the company traded on the stock market. Strangely, Crazy Eddie's fraudulent history gave it an advantage. To provide the illusion of quickly increasing profits ahead of the IPO, the Antars simply reduced the amount of cash they were skimming. With millions more on the ledger instead of in the family's pockets, the company's profits looked more impressive.
As a public company, Crazy Eddie then made up for its inability to skim cash by initiating new fraud streams.
- The company embellished its inventories by millions of dollars to appear better-stocked and better positioned for profits.
- The Antar family laundered profits it had previously skimmed — and deposited in foreign bank accounts — back into the company to inflate revenues....
In November 1987, a hostile investment group led by Houston entrepreneur Elias Zinn pounced, purchasing Crazy Eddie. As Antar's cousin later recounted, Antar thought the sale would at least give them an opportunity to pin the fraud on the new owners. But Zinn immediately discovered $45 million of listed inventory was missing. Stores soon closed, and the company went bankrupt in 1989.
Two disgruntled ex-employees then brought fraud allegations to America's stock-regulating agency, the article reports, while the FBI "started sniffing around, too." Crazy Eddie fled the country, using forged passports to escape to Tel Aviv, Zurich, São Paulo, and the Cayman Islands. But he was eventually arrested in Israel, sentenced to 12.5 years in prison, and ordered to repay investors $121 million (though he apparently served only seven).
But Crazy Eddie also became a cultural phenomenon -- sort of. In the 1984 movie Splash, Darryl Hannah's character even watches a Crazy Eddie TV ad. The Hustle's article also includes photos of a Crazy Eddie stock certificate — and an actual "Wanted" poster issued the next year by the U.S. Marshalls office.
Yet just four years before his death in 2016, Antar — a high school dropout — was telling an interviewer from The Record that "I changed the business...."
I guess it finally imploded on him (Score:2)
Scam (Score:2)
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Corporation tax fraud, payroll tax fraud, almost certainly wage theft by paying workers under the counter
Did you just skip those things in your rush to make it all about “scamming a rich guy” instead?
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almost certainly wage theft by paying workers under the counter
Wage theft is when you [under]pay workers, not when you pay them under the table... where they actually get to keep more of the money. However, it's also more tax fraud.
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They indeed were paying them under the table - but what makes you think they weren't also probably skimming the wages at the same time?
The employees cant complain, because either they aren't paying taxes as well or they aren't eligible to work in the first place, so they have as much to lose as the employers, but that doesn't make wage theft acceptable in these circumstances.
We have established that the owners of Crazy Eddies aren't exactly fine upstanding members of society, so you really think they are pa
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We don't know one way or the other, but the one thing doesn't automatically mean the other.
However, it's smartest to not underpay your employees if you're running a bunch of other scams. Sooner or later one of them will complain. Maybe one of those employees who don't have permission to work will get busted for something, and have nothing to lose.
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Consider this: businesses get to declare their payroll on their taxes and use it for a deduction. If they're paying employees under the table then they don't get to do that. So, it only makes sense as a business to do that if actually save more money paying under the table than the deduction you would have gotten. That makes it highly likely that the employees are being paid low enough that just not having to pay taxes (in probably a really low bracket with lots of deductions) is unlikely to improve their s
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It's not drink, it's a beverage (Score:2)
> It's not a deduction, it's an expense of doing business.
Perhaps you're thinking about *credits*?
Business expenses are precisely what you can deduct. "Deduction" and "expense of doing business" are pretty much synonyms, in the context of a business.
You pretty much just said "it's not a drink, it's a beverage".
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Yes, but the money they were paying under the table was some of the money they received under the table and didn't pay tax on in the first place.
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Yes, but the money they were paying under the table was some of the money they received under the table and didn't pay tax on in the first place.
It's not clear why that would mean that they would not take a payroll deduction for it. The only logical explanation I can see not to is that they saved more money paying under the table than getting the deduction because they were underpaying employees or violating labor laws in some other way. Although, I suppose it could also be to artificially reduce their operating expenses as part of a pump and dump scheme for their own stock.
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Payroll taxes are generally higher than deduction you get on corporate income tax.
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Payroll taxes are generally higher than deduction you get on corporate income tax.
But you can pay your employees with the money without declaring it as income. It's not really an either/or sort of thing when you're already cooking the books.
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If the amount a business can save with those deductions is as much as the employee would be paying in taxes then the government wouldn't be keeping anything. That wouldn't make any sense.
So there should be some under-the-table pay rate where the business is paying less than they would over the table, the employee is keeping more than they would if they payed taxes and the government is the loser.
I'm not saying that is or is not what was going on. Only that it should be possible.
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The employees cant complain
The first one to rat out their employer can usually get immunity.
When a fraudulent scheme collapses, the FBI sometimes gets phone calls from multiple participants within minutes of each other.
If you are going to commit tax fraud, do it alone and keep your mouth shut.
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It is a subtle form of wage theft, in the sense that they have no reportable income. As a result, their earnings history with Social Security will be averaged lower, meaning they won't get as much payout in the future, and they cannot contribute to various retirement vehicles (a Roth IRA, for instance).
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Yeah, he got us cheaper Atari 2600 carts and VCR's.
I guess if Eddie paid taxes we would have had fewer games.
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This is true. I remember standing in the store when the salesman yelled out to call everyone's attention to demonstrate how Intellivision, ColecoVision, and the Atari 5200 controllers differed and why we should buy the system with the controllers we liked the most.
The store was *always* busy. It was crazy.
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What is the lesson here, though, is that our systems are really not that resilient against those that are actively trying to subvert them. Take, for example, the nuisance lawsuits filed by the sovereign citizens. How easy it is for a person with
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The ability to deduct and carry forward capital losses is what make the risk profile low enough for middle class investors to be investors in the first place.
With that most of the middle class would have to take an approach a lot more bias toward capital preservation. So they could fully absorb losses in their growth risk class investments.
The problem here is a general lack of understand about their own social standing much of the American public has. Everyone in America is, told, they are middle class. Out
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I got some really good deals in electronics at Crazy Eddie's. It didn't hurt regular people at all until they CLOSED.
I remember Crazy Eddie (Score:2)
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Same here, back when a memory upgrade came in a plastic tube. He may have scammed investors, but his customers did OK. Kinda the opposite of how things too often go now.
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Yup. Ads were everywhere.
It's weird to read up on it, if he had just said "I'm rich enough" when making the transition to going public and stopped right then, he may never have had the legal problems, or at least very few. At that point he already had millions stashed away in addition to several hundred million in the stores. If the skimming were discovered he and the company could have called it a past tax mistake when the business was smaller, paid the fine, and moved along. He was in the same time and p
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Yup. Ads were everywhere.
It's weird to read up on it, if he had just said "I'm rich enough" when making the transition to going public and stopped right then, he may never have had the legal problems, or at least very few. At that point he already had millions stashed away in addition to several hundred million in the stores. If the skimming were discovered he and the company could have called it a past tax mistake when the business was smaller, paid the fine, and moved along. He was in the same time and place and could have been just like Michael Dell and Dell Computers today worth billions of dollars if he had stopped the fraud after the first ten million bucks or so.
Yea, but he should never have gone public. As long as it was family running the show everyone had a vested interest in keeping quiet (at least until your wife catches you on a date with your mistress). He got greedy, as do many, and thought he was smarter than everyone else no doubt since he had pulled it off for so long. Paying employees under the table might have been his downfall eventually, as you point out. One fired employee trying to claim unemployment or wondering why their wages aren't showing u
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There are two things that are usually the undoing of every such criminal enterprise.
1) (Most Common) The perps were never really very smart of sophisticated enough to pull it off; never understanding the mechanics of what they were doing fully. They got luck a couple times, but the clock was always running and they were always going to be discovered sooner or later once some normal event took place like a audit, appraisal, etc.
2) The guys who really do have it mostly figured out and have covered most the an
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I used to love that store. The one near me had unopened pallets of returned electronics from other stores (mostly Sears and Montgomery Wards). They would sell the pallets in part or piecemeal without testing the items, as-is. I remember I got an IBM XT 286, complete system that retailed for like $3500 for $500, and a VHS recorder (had two tape decks to record one to another) for $100. Place was an absolute steal.
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The actor in the thousands of TV commercials is disk jockey Jerry "Dr. Jerry" Carroll.
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The actor in the thousands of TV commercials is disk jockey Jerry "Dr. Jerry" Carroll.
Peopel thaought he was Crazy Eddie and became quite famous around the city during the commercials heyday.
I remember his commercials (Score:2)
They'd always ended with, "His prices are insane!"
Good times. They were out at the same time as Fudgie the Whale [youtube.com] and Brigantine Castle [youtube.com]. They were almost always on right before or during Star Blazers [youtube.com].
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Wow! We have a vacation condo in Brigantine, but we weren't there when the castle was still around.
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Nothing better than Star Blazers. Was in Texas in those days, so we had "Mattress Mack [youtu.be]" of Gallery Furniture.
Jim McIngvale is still going strong! [youtube.com]
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That's a 1-800 number. According to Wikipedia, "The company operates in more than 75 metropolitan areas within the United States." They're from Illinois, fwiw.
If I had ever seen any Crazy Eddie commercial as an actual advertisement (rather than a cultural reference), it would have to have been in the early '80s on WOR during their days as a superstation. I think I might have seen one a few times because of that.
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Usually the tagline was "He has prices that are... insane."
Arrested Development (Score:2)
"Money was always in the house"
"There's always money in the banana stand, Michael."
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That's exactly what I thought!
How come not a single mention of _The Mote in God's Eye_ though?
I went to a Crazy Eddies in 1986 ... (Score:3)
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I am guessing Circuit City.
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Crazy Eddie (Score:2)
Still have my yellow Crazy Eddie ball cap. Nothing but fond memories of that place. Sad how things turn out sometimes.
'a hostile investment group' (Score:2)
Crazy Eddie simply ran into someone more corrupt than himself that manages to do it legally, one Mr. Elias Zinn.
Eddie Antar and Donald J.Trump in common... (Score:2)
It kind of makes you wonder... (Score:1)
The article says "Crazy Eddie" was a fraud from the get-go.
It makes you wonder how many of America's now-defunct-but-once-well-respected companies' deaths included significant fraud, not just mere mismanagement or losing "it seemed like the sensible idea at the time" bet-the-company gambles.
Mismanagement happens. It shouldn't, but managers are people, and people aren't perfect decision-makers. Even with good oversight, bad management can sometimes survive. Without good oversight, it can linger long enoug
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It happened with Fry's Electronics:
https://www.mercurynews.com/20... [mercurynews.com]
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Interesting question. What I've seen (Score:2)
That's an interesting question. Here's a pattern I've seen more than once. I'll start with a specific example:
Pay day is tomorrow. The company doesn't quite have the funds to cover payroll. they need $1 million, they have $925K.
Sales tax or withheld taxes are due to be sent over in 3 weeks. The company has $215K in that fund.
They expect to collect $100K in revenue each week - so they'll have enough to cover the taxes.
To cover payroll and not go out of business, fairly honest people will be tempted to bor
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... tell their wife something not-quite-true about where they went last night. I'
Never lie to the wife. Women never forget anything. Sooner or later you will slip up and she will have you!!!! What she will assumes you did will be SO much worse that what really happened. IE, Stopped for a quick beer with friends.
Based on a true story.
The new middle class. (Score:2)
Yet just four years before his death in 2016, Antar — a high school dropout — was telling an interviewer from The Record that "I changed the business...."
After reading this [washingtonpost.com] one can only conclude the best way to succeed is become a "crazy eddie".
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Failure of audit (Score:3)
As a general practice, most large accounting firms use relatively inexperienced kids right out of college to do basic audit leg work. They are supervised by slightly more experienced senior auditors who unfortunately depend on feedback from these inexperienced kids in making informed decisions. During the 1980s, both these kids and their supervisors were mostly young single males between the ages of 22 and 29.
As a 28 year old CPA myself, I understood that audits are very boring and tedious for these young single male auditors. It was difficult for them to pay close attention to their work. It was relatively easy to distract them without ever being blamed for obstructing their work. Rather than overtly interfering, 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. Meanwhile, I took certain higher level PMM auditors to pick-up bars and other establishments frequented by good-looking women.
Our auditors wasted valuable time getting chummy with our management and female employees rather than paying attention to their jobs. As the scheduled completion of the audit neared, our auditors rushed to complete their field work and failed to undertake key audit procedures which enabled us to easily inflate our reported earnings.
That chumminess also helped us become more likable to our auditors and corrode their professional skepticism. They did not want to believe we were crooks. They believed whatever we told them without verifying the truth. You can steal more with a smile!
Insurance fraud (Score:1)
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That was actually one of the cleverest part of his scheme. He consistently overstated inventory via lapping, but the problem with lapping is that eventually you don't actually have the inventory to fill orders.
Getting insurance to replace the missing inventory; while not recording those events, fills the hole.
If you've seen "The Accountant" ... (Score:1)
Highly underrated movie.
Does anyone know ... (Score:2)
Did this "Crazy Eddie" take it's name from the meta-character in Niven and Pournelle's 1974 "Mote in God's Eye [wikipedia.org]", or did the store start considerably earlier than this fraud, probably in the early 1970s ("Mote" was published in 1974)?
Otherwise ... business people are thieving fraudsters. Film at 11.