Summary of Fraud Background: Crazy Eddie became a major retail consumer electronics company in the tri-state area in the late 1970s and 1980s. Three partners, Sam M. Antar, Eddie Antar and Aaron Gindi as “Sights and Sounds”, founded it in 1969 in Brooklyn, NY. Each of the partners owned approximately one-third interest in the business. When the business was incorporated as ERS Electronics, Inc., Eddie bought out Aaron to acquire two-thirds interest in the company. Sam M. formed a new corporation, “Ultralinear Sound Corporation”, later known as “Crazy Eddie” that succeeded the previous business. Crazy Eddie became “INSANELY” popular and built up customer loyalty by circumventing fair trade and offering customers reduced prices on popular electronic …show more content…
Description of the Fraud: The Antar family orchestrated this major fraud by engaging in a variety of deceptive practices and schemes in order to personally profit off of the “success” of Crazy Eddie. As described by Sam E. Antar, there were approximately three phases involved in the fraud. The first phase of the fraud occurred between 1969 and 1979, prior to the company’s plan of going public, the second phase of the fraud occurred between 1980 and 1984, in preparation for the initial public offering, and the third phase between 1984 and 1987, when the company became a publically traded company. The first phase of the fraud began as early as 1971, shortly after the creation of “Sights and Sounds”. The primary schemes that were involved during this time period included cash skimming, tax evasion (income, sales and payroll taxes), and reporting of phony or exaggerated insurance claims. Operating as a private company, Sam M. Antar and …show more content…
By the end of 1983, Sam M. and Eddie Antar had taken substantial steps to launch an IPO of Crazy Eddie stock. They believed that they would receive greater profits from the sale of stock than their previous schemes. In order legitimize their business, the Antar family needed to change many of the schemes it had implemented prior to their intentions of becoming public. As a result of the cash-skimming scheme, Crazy Eddie’s reported income figures were significantly reduced compared to what they should have been. By reducing the cash skimming, it would artificially increase growth and give the appearance that the company was rapidly growing. This enticed investors to purchase shares of the company at inflated values. Additionally in order to go public, Crazy Eddie needed to pay all employees on the books and reduce its cash-skimming scheme. All the employees that had previously been paid “off the books” had to be paid on the books to help avoid a drop in the net payroll income. In order to make up for the loss of “off the books” compensation and pay higher payroll and income taxes, they grossed up the employees total compensation to aid in this effort. On September 13, 1984, Crazy Eddie had its initial public