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Crazy Eddie: Biggest Fraud in America — Gary Weiss

Crazy Eddie: Biggest Fraud in America — Gary Weiss

Real Talk: The Charles Mizrahi Show podcast

Crazy Eddie: Biggest Fraud in America — Gary Weiss

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He was known to millions as Crazy Eddie. Eddie Antar turned a tiny Brooklyn store into the largest electronics retailer. In the 1970s and 1980s, his commercials were everywhere.

“Crazy Eddie! His prices are insaaaaane!” They were even spoofed on Saturday Night Live. But Crazy Eddie’s success was a fraud from day one.

In fact, before Enron, Madoff, and The Wolf of Wall Street, Antar’s corruption was second to none. When it was uncovered, it turned out to be one of the largest SEC frauds in American history.

I recently sat down with Gary Weiss, author of Retail Gangster: The Insane, Real-Life Story of Crazy Eddie. What Weiss told me affirms the old adage that truth is often stranger than fiction.

Topics Discussed:

  • An Introduction to Gary Weiss (00:00:00)
  • Who’s Crazy Eddie? (00:02:42)
  • Fraud from Day 1… (00:13:25)
  • Taking the Scam to Wall Street (00:25:03)
  • Two of the Unluckiest Takeover Artists in the History of Takeovers (00:41:50)
  • What Happens to the Antars? (00:48:34)

Guest Bio:

Gary Weiss is an American journalist and author. He’s been uncovering Wall Street wrongdoing for nearly two decades. He’s written for Barron’s, Businessweek, as well as Conde Nast Portfolio.

His latest book is “Retail Gangster: The Insane, Real-Life Story of Crazy Eddie.”

Resources Mentioned:

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Read Transcript

Charles Mizrahi: Gary, thanks so much for coming on the show. I greatly appreciate it. I have been looking forward to it ever since I read your book. Folks, the name of the book is Retail Gangster: The Insane, Real-Life Story of Crazy Eddie.

What you’re going to teach us here, Gary, is this man on the cover is not Crazy Eddie. In fact, there’s only a few pictures of Crazy Eddie out there and it’s usual criminal ones. This is the actor, interviewer, radio personality, Jerry Carroll.

Gary Weiss: Thanks for having me. I appreciate it.

Charles: My pleasure. Especially if you lived in New York in the 80s, there’s no way you could not know of the Crazy Eddie consumer retail electronic chain. Impossible. They were masters in terms of advertising. I think you put somewhere in the book here that their brand was more well-known than something. I think it was than who was president or some crazy stat.

Gary: Reagan. Ronald Reagan.

Charles: Yeah, you put something in there that most people knew Crazy Eddie more than they knew something else. It was amazing. What made you write this book?

Gary: I’ve always been interested in Crazy Eddie. It was an interesting background project I had always been thinking about doing. I actually got to know Sam E. Antar, who was the whistleblower, about 15 years ago I got to know him. It’s described in the book.

Even though I had never actually been in a Crazy Eddie store, it was a major cultural influence. It combined two things you don’t see that often. It was a major fraud and at the same time it was a major asset to New York City, a major cultural influence. You don’t see that very often.

No one can say that about Enron or Madoff that they had any positive qualities. Crazy Eddie is remembered to this day and in a favorable way by generations of New Yorkers and people throughout the Northeast and America.

Charles: Let’s take a step back. What was Crazy Eddie? What was this guy Eddie Antar, who started it, and what was this retail phenomena he created with marketing glitz that turned out to be one of the largest security frauds, I think, in SEC history?

Gary: Eddie Antar was just a kid from Brooklyn. He was a high school dropout. He was very bright, but not very well educated. He had dropped out of high school at 14. I think he’s proof of the adage that you don’t necessarily need a lot of schooling to become a success because, well, he became a success.

Not through the most legitimate means, but he certainly did. He got his early training on Times Square working in places that ripped off tourists. They’re still there just as much as they were back then. Very profitable business. You overcharge people for cameras, binoculars and stuff, but that’s how Eddie learned his business.

He was setup in the electronics business by his father on Kings Highway, which is a lower middle class neighborhood. He said, “Look, you gotta start earning your living. You’re 21, you’re getting married and now you gotta stand on your own two feet.”

Eddie came up with some really brilliant ideas in terms of how to make money in electronics at a time when it was hard for a little guy to make money in electronics. He figured it out.

Charles: Most people don’t remember that electronic stores and electronic companies — Sony, Panasonic — made retailers sell their stereo equipment and electronic equipment at MSRP (manufacturer’s suggested retail price). You couldn’t break price or they wouldn’t sell you. Is that right?

Gary: Yeah. They were at war. Not just electronic goods, but all kinds of goods. They were at war with discounters. Since the 1940s there was this massive war. The manufacturers won. They got something called fair trade. It’s ironic that they called it fair trade because it wasn’t fair, not from the consumer standpoint certainly.

But fair trade allowed manufacturers to set the price of goods down the supply chain. It was ridiculous. Eddie, he figured out ways around that.

Charles: So Eddie is how old? 22, 23, somewhere around there?

Gary: Early 20s.

Charles: Early 20s. He takes over a store which was called Sights and Sounds, if I recall, on Kings Highway. I pass that often. I still live in the neighborhood. I do remember the Crazy Eddie stores. On the cover of the book you have the Crazy Eddie store.

Gary: That’s right.

Charles: He opens up an electronic store that sells records, right? Records was a big part of it. All sorts of electronic stereo equipment. What happens? What’s so unique about what he does?

Gary: He figured out a way of pitching to people outside his neighborhood. He wasn’t going to make any money selling to people in Brooklyn and the immediate area. He had to sell to people in Manhattan. He figured out a way of appealing to people in his age group, the Baby Boomers.

They absolutely loved music. They had their parents buy them music. He advertised in the Village Voice. He used a technique that’s as old as the hills: The crazy merchant technique. It goes back decades and decades. It’s where you say, “I’m so nuts, I’m charging less than I can to make money.”

It’s hokey. He figured out a way to make it work. It was the whole basis of his marketing until it all came collapsing. He was a marketer. He hired the right people. He hired some really smart people and this is how he marketed his products. That was the legitimate side of Crazy Eddie, he was the marketing genius.

Charles: Before you go into that, let me set the stage and put a little context. You walk into a store back in the old days, a Panasonic stereo system is marked $299. You say, “I want that one.” They wrapped it up, put it in the box and you paid $299 plus tax.

You walked into Crazy Eddie’s store on Kings Highway and you looked at it, he would advertise it, which cost him let’s say $250, he would advertise it at $199. You’d walk in there and say that’s a good buy. Did you walk out with it?

Gary: You might. One of two things would happen. He’d either switch you away from that advertised product. He’d say, “Look, that’s Sony. That’s no good. Here’s a Sharp. Here’s a brand you’ve never heard of that’s better.” He’d make more money on that lower-margin product.

People didn’t think that was bait and switch because they weren’t being switched to a higher price product, but it’s still bait and switch. It’s not kosher. That’s one thing that would happen to you.

The other thing that would happen to you is, OK, you insist upon that name brand product. He would sell it to you and that’s when the scam started to work. That’s when the scam started. He would figure out a way of doing that involving collecting tax and not passing it on to the taxing authority.

That gave him a built-in profit margin. If you are collecting tax — it was 7% in those days — that’s quite a profit margin. Because he collected the tax but didn’t hand it in, he was able to charge the advertised price. That’s how he did it. He was never caught. That was one way.

The other thing he used to do is he used to repackage returned goods and sell as new, which you’re not supposed to do. That was the other way he would be able to beat the competition.

Charles: When does he come up with it? It’s not leveraging your brand if you’re the only guy doing this. He had a couple cohorts in the store with him at the time. You still need a stream of people to come in. How did all that change when he hires Jerry Carroll?

Gary: Jerry Carroll was absolutely brilliant. He was a disc jockey at WPIX FM radio station and he had this unique way of selling. I don’t want to imitate because you can see him on YouTube videos. To this day, people just marvel at this guy and what a super salesman he was.

As soon as he had this personality, this TV personality growing up over this product, over this consumer electronics chain, as soon as you had that you had almost like the electronics chain created a star. This start was bringing people into the store.

This began around 1977. His sales just took off through the roof. He was all over the TV. Eddie was buying advertising everywhere in the Northeast. It was called a craze. It was recognized at the time for what it was, which was a cultural phenomenon. It was way up there with other cultural phenomena taking place in the early 70s.

Charles: Saturday Night Live did a spoof on it. It was in the movie Splash. I remember seeing it. This morning, before our conversation, I went on to YouTube for the doo wop Crazy Eddie commercial. It was 1977 or so. I remembered all the words. It was phenomenal.

I grew up in Brooklyn. Eddie was in the community I lived in. He was looked at as an amazing businessman. We didn’t know any of the stuff behind all that of course. I was a young kid. In fact, when I worked one summer job in a restaurant I did deliver to Crazy Eddie.

I delivered lunch. Not to him, but to someone in the store. I remember I made my first tip. The lady gave me $10 for $8 of meal. I said, “I don’t have $2 change.” She said, “No, that’s your tip.” That’s how stupid I was. I remember walking into that store. My mother actually worked in the warehouse.

She got a job. It was a few blocks from our house. She was a bookkeeper back in the very early days. It was amazing at the amount of coverage. If you lived in the tri-state area back in the 70s and 80s, it’s impossible for you to have not heard of Crazy Eddie. It was your first stop any time you bought electronics.

Gary: Oh yeah. He advertised much more than all the other electronics retailers combined. Over time he became the largest electronics chain in the Northeast, probably the whole country. He had 43 stores. It was very unusual to have so many stores and to be raking in all that cash. He became a national phenomenon.

Charles: The thing that you brought up and I remember back in the day: He was a ghost. He was not in the press. He did not want publicity. People didn’t know who he was. He could have passed you in the street and you would not have known you were walking by Eddie Antar.

Gary: He craved anonymity. His motto, which he articulated to the people around him, was: In anonymity there is security. He didn’t want to be recognized. He wanted to have Jerry Carroll out there as the front man. It turns out he was actually pretty good when he finally did wind up giving interviews to the press.

He was not bad. He was good. He was articulate. He very good when he did wind up talking to people, but he didn’t want that. He wanted to stay out of the limelight. That helped when he began to commit crimes because he didn’t have a public profile.

Charles: So from day one, he is in business as a fraud because any sales tax that’s coming in is never getting paid to the government. From day one.

Gary: Right.

Charles: Tell me how the crime started to multiply before Sam Antar, his cousin, who became the CFO and the whistleblower and now is a consultant to the FBI and other law enforcement on how fraud is committed. The man is a genius in that sense. They go to him.

It’s almost like Catch Me If You Can, Frank Abagnale. They go to him and say, “How do we catch forgers?” Sam Antar really reformed in that sense. I know he appears at universities and shows them how the books are cooked and everything.

After the sales tax, you write that everything from that point on had the guise of a legitimate business but underneath was extremely corrupt and fraudulent from day one. Walk us through that.

Gary: Stealing the sales tax, skimming the profits, was a gateway drug. You’re not supposed to steal sales tax. That’s a felony and he got away with it. That was what I called a gateway drug. He’s going to do other things. He used to commit insurance fraud as if it was no big deal.

If they had a leak in the pipes or some water coming in through the roof, fine, he’d take advantage. They called it spiking the claim. They’d truck in merchandise that wasn’t selling and bring it in the store where there was a leak. They’d hose it down and make it part of the claim.

They call that spiking the claim. They had an insurance adjuster working for them who they paid off who helped them in this endeavor. That was one way. Insurance fraud was something they were doing all the time and they continued to do it for years; it wasn’t just in the beginning.

Then there was warranty fraud. That was a big thing. Eddie brought in a guy who was trained in warranty fraud by his father who ran some electronics stores. They brought in the guy. If you brought in a product that needed service, he would put in the claim.

He would put in the claim for more than it was worth. He would put in the claim even if he didn’t’ do the work.

Charles: Let me walk us through that. When you bring in a claim for a Panasonic or Sony and you fix it, the retailer sends that claim — like an insurance claim — to the company. The company sees that the object or item was repaired and pays you for that repair.

Gary: Right. They didn’t have very stringent ways of proving you in fact did it. You just give them the model number. They trusted you. Big mistake. They trusted Eddie and all of retailers. Eddie did warranty service. If he didn’t do warranty service, it wouldn’t be allowed.

But he did it. That’s how it worked out. He made hundreds of thousands of dollars doing this. You bring in your unit, he’d put in a fraudulent claim. Maybe you didn’t even get it repaired. He put in a claim. He did it repeatedly, ripping off the manufacturers. Only at the end did they find out what was going on.

Between the warranty fraud and the skimming of profits, which they were doing systematically, and stealing sales tax, engaging in bait and switch, there was always something going on that wasn’t quite kosher, if you’ll pardon the expression. That’s the way it was forever.

That’s the way it was up until the time when things started to heat up, when they learned to get into the big time fraud. That’s when Sam Antar became involved, as you mentioned. Sam Antar was the cousin of Eddie. He had been put through school by Eddie. He was trained as an accountant.

Now in order to really steal, you need an accountant. You need an accountant to help you commit securities fraud. Sammy was able to figure out a way of maximizing the securities fraud to really do it right in the run up to them going public, which took place in 1984.

Charles: Right. Hold up on that. I just want to build up this business. So it’s a local business with a humongous footprint in marketing, much bigger than their stores could possibly be. Nobody advertised as much as them. Their stores are full. I remember they used to run promotions.

They used to give away a color TV. They used to have lines down the whole city block waiting to get into the store. Brilliant marketing. You went back behind it and everything was corrupt. Sales tax wasn’t being paid. Insurance fraud. Warranty fraud. Bait and switch. All those things were taking place.

You put it in the book as well that Eddie surrounds himself and his organization with very close people, predominantly family members and people he knows for a long time. Touch on that for us.

Gary: He was the head of his family. He became head of the Antan family that was formerly headed by his father, Sam M. Antar. It was a tightly knit Jewish family. He took over from his father in the 70s after Crazy Eddie’s became big. His father resented it. There was a lot of friction between himself and his father, but they worked together for the most part.

As head of the family, Eddie hired relatives. That satisfied his relatives. It helped his relatives, but they also helped him. If you’re going to commit securities fraud or crime at any level, you need to have a nucleus of loyal people. It really helps if you have family members and close friends.

That’s what Eddie did. He surrounded himself with family members and close friends. That’s why his accountant, his Chief Financial Officer, was his baby cousin Sam E. Antar.

Charles: How old was Sam E. when he takes that job? He’s 20-something? He’s a young guy.

Gary: He became the de facto Chief Financial Officer when he was in his early 20s. He graduated from Baruch College in the late 70s. I believe it was 1979. He immediately went to work. He had always worked for Eddie. He became an accountant, a CPA, went immediately to work for Crazy Eddie’s auditors who were working on their books.

At the same time, he was being groomed to be the Chief Financial Officer, which he in fact became. This was at a very early age.

Charles: What was it that you could see as the business grows and before we get into the company going public when the real fraud kicks in? I think you wrote here and or maybe your publicist wrote this, I think it’s a great line:

“Before Enron, before Madoff, before the Wolf of Wall Street, Eddie Antar’s corruption was second to none. The difference was that it was a street franchise, a local place that was in the bloodstream of everyone’s daily life in the 70s and early 80s. Eddie pulled it off with a certain style and an in-your-face chutzpah.”

He did it in plain sight. There was no hiding. What about his personality that enamored people to want to be close to him, to want to be in his sphere of influence?

Gary: He had a very magnetic personality. To this day, one way you know he had a magnetic personality almost like a cult figure is that, to this day, six years after his death, he’s still getting the loyalty. People still love him. The people who worked for him still love the man.

Despite everything that happened, they still love the man. There is still a lot of loyalty to him among the people who knew him. Even the people who were ripped off, the people who were close to him were ripped off, basically it’s all forgive and forget. They still love the man.

They still love the man even after all that happened. To this day, even though he’s dead, they still remember him. He had this cult-like ability, a cult leader ability, magnetic leadership qualities that people wanted to do what he told them to do.

He was very persuasive and very charming. It worked. The rest is history.

Charles: OK, so the business starts to grow. They go from one store to several stores. I remember when they went to 10 stores. I think it was in 79 or 80. It was early on. They have them in the Bronx. You tell a fascinating thing. I remember it clearly.

In 1977 when there was the blackout in New York. Everyone is looted, except Crazy Eddie stores.

Gary: That’s because he hired off-duty police officers to be security guards. He shipped off a bunch to the Bronx store, which was on Fordham Road in the Bronx. That’s my old neighborhood. By the late 70s it was pretty bad.

Charles: It was terrible.

Gary: He had shotgun-wielding guards right there in the Bronx. Nobody looted a Crazy Eddie store, but the looted everything else on Fordham Road.

Charles: I remember. I knew some people who were policemen. When I mentioned I was from the community — this was years later — they said, “Oh, I used to work for Crazy Eddie.” All the off-duty cops who needed to moonlight, he paid them handsomely. They loved the position. They loved being his security detail.

Gary: He got along well with the police. He resented it some years later when the police would call him, but that’s going ahead of our story.

Charles: So now the business continues to expand. The money skimming continues to go on. Sales tax and all these things. They continue to grow. How did they come up with the idea of “let’s go public”?

Gary: They always wanted to go public. In the 70s and early 80s, going public was starting to be a big thing. The market was in decline. Sam E. Antar, Eddie’s cousin, was a devotee of the stock market. He pointed out to them if you are going to go public, they want to see a growing business.

His advice was, OK, you’re growing, but there’s a problem. You are skimming all this cash. You are skimming profits. That means that you’re shooting yourself in the foot. You don’t want to skim your profits. True, you’re saving on taxes. You want a lot of profits, even if it means overpaying taxes.

You want profits and profits. He figured out a way of manipulating all the skimmed money to give the appearance of profit growth far beyond their actual profit growth. They were growing, but when you grow as a store, sure you are getting more and more revenue, but you may not necessarily be getting more and more profits.

He fixed that. He fixed that by systematically reducing the profits — skim. The skim of the profits year after year after year. This was between around 1979 and 1983. They went public in 1984. They were able to produce this prospectus.

They got a top-notch underwriter. They conned Wall Street. She said to Wall Street, “Look at the wonderful profits.”

Charles: You want to know something, Gary? It didn’t take much to con Wall Street. I remember that time. 83 I started as a floor trader on the New York Futures Exchange. They went public in 84. I think Oppenheimer was the underwriter.

Gary: Oppenheimer was.

Charles: I do remember speaking to some friends of mine who happened to be analysts at some stock firms. These analysts were excited to buy shares because everyone knew the name or even shopped there. You have Wall Street, the people who work on Wall Street — young people especially — who are in the business all know the name.

They’ve all shopped in store. They’ve seen the crowds. They want to get in on this. So the due diligence, Sam E. Antar’s brilliant mastermind of fixing this, diabolical in doing an illegal thing. I don’t want to say Wall Street was complicit, but Wall Street kinda didn’t do their due diligence. They really bought into the Crazy Eddie story.

Gary: Complicit would not be an overstatement. They really were complicit. They were enthusiastic. They were enthusiastic because of phony numbers. Their profits were, in real terms, going up like 2% a year.

Charles: It’s electronics. There’s not much money in electronics.

Gary: There wasn’t that much. Sam and Eddie, by reducing the amount of money they were skimming — and they were skimming this money in cash, mind you, and sending it to Israel — less and less skimming. They were able to turn 2% real increases to as high as 48%. That’s an extraordinary profitability.

Charles: I think you start talking about in the book, which I did not know about, how they did it with the warehouse being complicit and the people there because they started looking for inventory to decrease their inventory or report more inventory to make fake numbers look real.

Gary: That was after they went public. After they went public the skim reduction aspect of the securities fraud came to an end. They went public. Once you go public on the basis of fraud, you kinda have to continue fraud because real numbers are not going to look that good.

You have to continue. It’s a little bit like Madoff and his Ponzi scheme. You gotta continue. So the warehouses became the center of one of his frauds. And he got away with it. ‘

One of the reasons he got away with it so easy and he was able to convince people to help him with is warehouse fraud is that most people don’t know the more you have in your warehouse, the value of stuff in your warehouse, has a direct relationship to your profitability. Most people, that doesn’t occur to them.

There’s a little formula they use in computing profits that involves what’s in your warehouse. You inflate what’s in your warehouse and you’re going to inflate your profits. That’s exactly what Eddie did. He started inflating profits through inflating what’s in the warehouse.

Charles: Right and the problem is, as you point out, when you inflate you have to continue that inflation every quarter. You cannot stop it. It becomes 5%, 10%, now by year two it’s 30% and you can’t look back. Once you’re in, you’re in.

Gary: They call it feeding the beast. You have to just feed the beast. He’d go to his warehouse manager and say, “I want you to increase the amount.” For this year in order to reach the profit goal Wall Street is looking for, they had to increase the number by a certain percent.

So he’d say, “I want you to increase the value of what’s in the warehouse by X number.” They didn’t understand. I think it’s true that most of the people most of the time didn’t really grasp what was going on over there. “Alright, we’ll do it.” They’d simply just take notations in pencil and increase what’s in the ledgers.

That’s how they did it. They had to do other things because after a while increasing what he was doing with the warehouses was hard to sustain. You can only do that — at a certain point it starts to run out of steam. So he figured out other ways of increasing your profits.

He was very good at it for as far as he went. He really knew how to do that.

Charles: The person, the whistleblower who eventually worked with the government and provides incredible detail behind the scenes, lets the government build the case because they were still in the dark as to how this was getting done. It was Sam E. Antar.

Gary: Yes, Sam E. Antar was his cousin. Sam E. he came up with the initial scheme to reduce the skim. He assisted with — well, actually it was Eddie who came up with the original warehouse inflation scheme, but they worked together to inflate profits.

One of the things he did that they worked together to do was they had something called debit memos. That’s where you send a memo, it’s like an invoice, to the supplier. You say, “You owe me money because of a discount. You owe me money on this.”

The most you write one of those debit memos, whether it’s legit or not, whether they ignore it or not, makes no difference. As soon as you write one of those debit memos, it immediately becomes profit. It’s almost as if they were writing their own ticket.

By writing debit memos, they were increasing their profits. That’s because the rules of accounting are set up for basically legitimate people. They are not set up for liars or criminals. Therefore, the rules of accounting allow debit memos to become legal profit machines.

Charles: They go public in 1984 at $8 a share. The stock starts to fly. It goes to what? 60 something?

Gary: Goes up to over $70 a share. They split the stock. Splitting is something you do when the stock is zooming and you want to reduce the share price. It means you cut the price of the stock in half and you give people double the number of shares. So you split the shares.

The stock was going up. The reason was that he had continue this fraud and feed the beast, in addition to survival, Eddie and his father and members of the family, Eddie was the biggest shareholder. He wasn’t just going to hold on to this garbage stock. He knew it was garbage.

He knew it was sustained by fraud. He started selling and selling and selling. Dumping shares because he didn’t want to hold on to the stock. Dumping shares to such an extent that it started to make people suspicious. Why are you dumping shares? It doesn’t look good when the CEO of a company starts to dump shares.

So he used to put out an excuse. “I have the right to diversify my portfolio so I am diversifying my portfolio.” And people believed him. Diversifying his portfolio by selling 205 of his holdings? You’re diversifying? That’s ridiculous. People believed him. Newspapers, intelligent financial journalists, quoted Eddie’s diversifying bologna in articles about CEOs diversifying their portfolio.

It was something. The way he was able to con people because the analysts and financial press all believed CEOs are basically honest people. This was before Madoff. This was before Eddie was captured. It was believed that CEOs weren’t just going to lie or be criminals. That’s why it was believed.

Charles: Describe to us what the “Panama Pump” was and how it’s still studied today in business school?

Gary: It all had to do with the skim. Skim had been reduced in order to provide paper profits in the run up to the IPO. They reduced the skim but, nevertheless, Eddie and his father and members of his family still had a lot of cash in Israel and in bank accounts in Israel.

They had money there that they had skimmed over the years from Crazy Eddie when it was a private company. It came the time late in our saga when Crazy Eddie needed to increase sales in its stores. You see, the store sales were lagging. It’s all about Wall Street analysts.

Wall Street analysts like to look for increased sales in stores that have been around for a while. They want to be sure the sales are increasing because people are going into the stores, not because you are opening up more stores. They wanted to see more sales in places like Fordham Road in the Bronx, which had been around forever.

The neighborhood was fast declining, but they wanted to see sales in the older stores increase. Sam E. came up with the idea. He said, “We have all this cash in Israel, let’s bring it into the United States. Let’s put all that cash into the stores’ cash registers to make it seem as if people are actually going into the stores and buying stuff.”

That’s where the Panama Pump originated…

Charles: Let me just stop you. It would then make the numbers look even better, which would then satisfy Wall Street analysts, which would then make the stock price rise, which would then let Eddie sell more shares at a higher price.

Gary: Exactly. In order to do this, you need money to go in the cash register. That’s where the Panama Pump originated. It was just instead of taking money out of the stores like they used to, they simply brought money in from Israel. They did it through Panama.

The idea with that was if we do it through Panama and it was directly through Israel, let’s do it through Panama because they have bank secrecy laws. Eddie was under the impression also that it was just like in the James Bond movies. That’s bank secrecy laws really meant something.

They didn’t really mean much by then. The U.S. government was cracking down on bank secrecy. We’re going to bring in this money through Panama. Panama, mind you, because of bank secrecy laws will never get wind of it. So they brought the money through a Bank Leumi branch in Panama.

Then they were transferred into bank drafts. They were physically carried from Panama up to the United States. The bank drafts were deposited into the individual store accounts. Each store had its own corporate structure, which is something you see in chain stores.

Sometimes every store will have its own little independent company. So they put these bank drafts from Panama into the individual store accounts and, voila, it worked. It had to work. They were putting money in the cash register. It gave the impression that store sales were doing well.

This was at a time when Eddie was starting to get competition. His discount model was starting to be imitated. People were seeing this wildly successful discount store model. They said, “We can beat Eddie at his own game.” He was getting competitors. They were cutting into his profits in 86, 87. He was getting hammered.

Charles: When did the wheels fall off and the government steps in?

Gary: After a time because even with all this fraud he couldn’t really sustain the profitability the way he wanted to. Profits started to decline. There’s only so much you can do. You can only do so much fraud without making it look really ridiculous. You could only inflate the warehouses so much.

You could only pump in so much cash from Panama. So profits started to decline. When profits started to decline — and there was a sharp decline in profits mind you. This was in 1986, early 87. There was a sharp decline in profits and a sharp decline in the stock price.

You see, when the stock price declined, one of the disadvantages of going public came to the fore. They were focusing on the advantages of going public with all their schemes, it didn’t occur to them — or it did occur to them and they didn’t focus on it — that once you go public , once you’re selling stock to the public, anybody can buy up your stock.

They can buy up the stock and get in control of the company, kick you out. Once they kick you out they gain access to your books. Your books are just — well, before you know it you’re going to go to jail. That is precisely what happened.

They attracted the interest of two of the unluckiest takeover artists in the history of takeovers. It was this fella Victor Palmieri. He was a very intelligent man. He got brilliant press. This was a guy who was around for many years. He took over a lot of suffering companies. He was one of the princes of Wall Street.

Then there was this fella, Elias Zinn, who was a Texas retailer. The press loved these guys. They were colorful characters. Elias Zinn was this guy, a college dropout. He built up this big chain of electronics stores in Texas.

Elias Zinn and Victor Palmieri combined forced to take over Crazy Eddie’s because they were under the impression because they believed what they read in financial statements that this was a company that used to be really profitable and could be restored to profitability because they were smarter than the Antars.

They launched a takeover bid and they got what they wanted. It’s like the old saying: Be careful what you wish for because you may get it. They got it. There’s a funny scene in the book. Eddie Antar met with Palmieri and Palmieri said, “I want this company.” Eddie said to him, “Mr. Palmieri, you don’t know what you’re getting yourself into.”

Charles: It was true. I think earlier on Milton Petrie also. He was just outclassed then. He probably got a wind of what was going on and backed off.

Gary: Petrie was a real genuine. Unlike some of the other people in the book, Petrie was one of the ones that was genuinely a good person. Sam E. Antar is a cynical hard guy, the cousin. This guy is a philanthropist for people who are down on their luck. Do we really want to cheat Milton Petrie, we don’t want to do it.

But they also felt Petrie is such a smart guy, he is going to find out what is going on. They can’t hoodwink Milton Petrie. So they met with this guy on the upper east side, they served him a nice kosher meal, they talked.  He expressed interest in buying the company and they politely said no.

The fact that Milton Petrie, a guy like him would consider buying this company showed the extent to which they were really hoodwinking people about the company.

Charles: Let’s speed up ahead. The wheels fall off the cart. Zinn and Palmieri buy the company. They are missing tens of millions of dollars that never existed. Eddie flees the country, goes into hiding. Eventually he gets caught, brought back to the United States and at that time Sam, the accountant, his cousin, becomes a whistleblower.

I love how you put in the book that originally when Sam volunteers all his knowledge to tell them exactly how things went out, they push him off. They don’t want to know. Talk to us about that. By the way, I want to point out that Sam Antar was the person you got most of the information on this book. Am I right?

Gary: Well, a lot of the information. I would say the majority of the book, a good 70%, is out of public documents. Like the trial transcript, depositions. But certainly of all the people I interviewed Sam was by far the most cooperative and helpful. There’s no question about it.

Sam E. Antar, one of Eddie’s mistakes as the fraud crumbled is that he started to neglect his coconspirators. That’s a big mistake. You don’t neglect coconspirators because they can rat you out. It didn’t occur to him apparently that if you treat your principal coconspirator badly, he might become a witness against you.

Eddie had this blindspot in that regard. Sam E. was in hell. He needed money to pay his lawyer bills. His lawyer bills he was racking up to the defend the family and to defend Eddie. Despite that, Eddie wouldn’t give him a nickel. He loaned him money. He had him sign a promissory note for crying out loud.

He wouldn’t give him a penny for legal bills. Sam E. decided, “I gotta turn in state’s evidence. I have to protect myself. I have to protect my father who is in the business too.” He goes to the Feds who are in the Newark office of the U.S. District Attorney. He went to the prosecutor and spilled his guts.

He hired a great lawyer. Spilled his guts and spent three hours there. The prosecutor turned to him and said, “I don’t believe you. This is bologna. Panama Pump? Come off it. I don’t believe you. I have two witnesses. They are the best witnesses. They were inside Crazy Eddie’s, they know what’s going on. You want to plead guilty, go ahead and plead guilty. You have to go to prison for five years.”

He practically commits suicide. He says he’s the CFO of the company, I know everything that’s going on and he doesn’t believe me. That’s how he was greeted when he went to the Feds. His lawyer advised him that he was in bad shape here. The chief prosecutor doesn’t believe you.

He said there was an FBI man here who I trust and you should trust him. You should go to this FBI man. His name is Paul Hayes. Go to this FBI man and tell him everything you know. Anything you say will be held against you, but you should do it anyway.

If you go to this guy you are putting yourself at his mercy, but I think you can trust him. It was a risky play, but that’s exactly what he did. He told everything to this FBI man, Paul Hayes.

Charles: What happens at the end? Is Eddie caught?

Gary: Eddie is caught and he goes to trial. Now these two wonderful witnesses that the Federal prosecutor absolutely adored turned out to be a couple of bozos. One of them committed perjury in the course of giving his testimony. They were completely useless.

Sam became the principal witness. He testified against Eddie and Eddie went to prison. That did not end the story. I noticed when I was reporting on the story nothing ever seemed to go in a linear fashion. There was always something weird that happened right afterward.

They got a conviction. They had this judge who couldn’t stand the sight of Eddie and threw the book at him and threw the book at his brother who was also in the codefense. And it was overturned. It was overturned on ridiculous grounds. The Third Court of Appeals misinterpreted something the judge said during the sentence.

So they threw it out. They threw out this two-week trial and everything. They had to start all over again. However, Eddie and his brother Mitchell were both convicted. I mentioned his brother Mitchell was also convicted of securities fraud. They both cut plea deals and Eddie went to prison.

He served a total of seven years in prison, including the time he spent in Israel fighting extradition, which was one of the more peculiar aspects of the book because he believed that Israel was going to give him refuge. He had become a citizen of Israel.

He thought, “I’m a citizen of Israel, they are going to give me refuge.” But he also became a citizen under an alias. He created a phony citizenship. Despite doing that, despite making a mockery of the law, he thought, “The Israelis are going to protect me.”

Can you imagine? He created a phony persona and made this guy a citizen of Israel. He didn’t think there were going to be any repercussions. Israel was happy to get rid of the guy.

Charles: How does the story end?

Gary: Anyway, he finally goes to prison.

Charles: He goes to prison seven years. And then?

Gary: Then he gets out in 1999 and the whole world has changed, certainly in the electronics business. There are efforts made to revive the Crazy Eddie brand, but they didn’t succeed. He died a few years ago. The reputation lived on. His reputation outlived Eddie you might say.

Charles: Lastly, and we’ll end on this, what happens to Sam Antar? Does he serve any prison time?

Gary: Sam — there are two Sams involved. There’s the father Sam and the accountant Sam. The father Sam who was neck deep in the scam, he didn’t serve any time in prison. He was very lucky. Now Sam E., the whistleblower and informant, he plead guilty to two felonies.

He was lucky. He got a judge who was a great believer in informants. Not every judge would do this. He gave him a sentence that he had to serve time at home. Home confinement was the worst he got. Just home confinement. Now, home confinement is no picnic.

You don’t want to get locked up in your home for whatever it was — a year or two. But he didn’t spend any time in prison.

Charles: Amazing. Why is the Crazy Eddie fraud scheme still taught in every business school across the United States?

Gary: I’d say it’s because it covered the Waterford of fraud. He committed securities fraud. He committed securities fraud in several ways. Madoff committed only one kind of fraud, it was a pyramid scheme. Eddie committed fraud in several ways.

If you study the Crazy Eddie fraud you can study how he committed securities fraud in several different ways. Each individual can be utilized. He committed warranty fraud, tax fraud. You study Eddie and you learn from the master. He’s no longer alive, but if you study how this master criminal carried out fraud, it can be educational to people on both sides of the law.

Charles: Absolutely amazing. Gary, fantastic. Folks, the name of the book is Retail Gangster: The Insane, Real-Life Story of Crazy Eddie by Gary Weiss. Highly suggest you go out and get a copy of it. Extremely entertaining. More so insightful into the mind of someone who creates an amazing fraud and perpetuates it right on Wall Street for years until the wheels fall off.

Sometimes it takes a little longer than others, but it usually does, right? Frauds collapse under their own weight. Gary, thank you so much for coming on the show. I greatly appreciate it.

Gary: I really appreciate you having me. Thanks.

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