1 00:00:10,880 --> 00:00:13,960 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,040 --> 00:00:18,960 Speaker 1: I'm Joe Wis and I'm Tracy Alloway. Tracy remember when 3 00:00:18,960 --> 00:00:23,279 Speaker 1: we were going to do that series all about accounting. Yes, 4 00:00:23,640 --> 00:00:26,400 Speaker 1: I still hold hopes that we will one day do that. 5 00:00:27,080 --> 00:00:29,360 Speaker 1: Why No, No, I mean I do. I think it's 6 00:00:29,360 --> 00:00:33,120 Speaker 1: a really interesting topic and I do think that at 7 00:00:33,159 --> 00:00:35,800 Speaker 1: some point we should do a series, but I don't 8 00:00:35,800 --> 00:00:38,640 Speaker 1: know when it's gonna happen. Okay, that's fair. Are we 9 00:00:38,760 --> 00:00:42,519 Speaker 1: doing accounting today? Yes, we are, so today we are 10 00:00:42,600 --> 00:00:45,360 Speaker 1: doing an accounting episode. It's not part of a series, 11 00:00:45,400 --> 00:00:47,800 Speaker 1: but it should be. It would have been really good 12 00:00:47,800 --> 00:00:49,440 Speaker 1: part of a series. It should be a really good 13 00:00:49,440 --> 00:00:53,600 Speaker 1: one because obviously one of the most interesting aspects of 14 00:00:53,600 --> 00:00:58,960 Speaker 1: accounting is forensic accounting, spotting, fraud, deceit, how you could 15 00:00:59,000 --> 00:01:01,680 Speaker 1: look at a balance she an income statement and cash 16 00:01:01,680 --> 00:01:04,800 Speaker 1: flow statement and find things that are unusual. In fact, 17 00:01:04,840 --> 00:01:08,000 Speaker 1: I think we uh one of our accounting episodes, or 18 00:01:08,040 --> 00:01:10,360 Speaker 1: maybe the one we did was with a professor who 19 00:01:10,520 --> 00:01:14,479 Speaker 1: specialized in spotting that stuff. Yeah, I remember that one, 20 00:01:14,520 --> 00:01:17,560 Speaker 1: and Joe you must know this. I love forensic accounting 21 00:01:17,720 --> 00:01:20,480 Speaker 1: so much that it's been in my Twitter bio I 22 00:01:20,520 --> 00:01:23,240 Speaker 1: think for as long as I have had that Twitter account, 23 00:01:23,680 --> 00:01:27,000 Speaker 1: I recall that, Well, today we are not going We're 24 00:01:27,000 --> 00:01:30,720 Speaker 1: not speaking with a professor. We are speaking with a practitioner. 25 00:01:30,880 --> 00:01:34,600 Speaker 1: And he's not just any accountant. He's someone who famously 26 00:01:35,280 --> 00:01:41,720 Speaker 1: engaged in accounting fraud. Wait, a fraudster turned an accounting expert, 27 00:01:41,880 --> 00:01:45,320 Speaker 1: or an accounting expert turned fraudster and then turned accounting 28 00:01:45,360 --> 00:01:48,840 Speaker 1: expert again. Yeah, I think it's that it's an accounting 29 00:01:48,880 --> 00:01:54,560 Speaker 1: expert then infamous accounting fraudster who now speaks about accounting 30 00:01:54,760 --> 00:01:58,080 Speaker 1: and spotting fraud. So it's right in the sweet spot. 31 00:01:58,120 --> 00:02:02,520 Speaker 1: Nothing no theory here, this is it's all practice, all right, 32 00:02:02,600 --> 00:02:05,000 Speaker 1: We'll go ahead and tell me who it is. So 33 00:02:05,200 --> 00:02:07,680 Speaker 1: people who have lived in the Northeast for a while 34 00:02:07,800 --> 00:02:14,040 Speaker 1: may recall the famous or infamous electronics dealership Crazy Eddie. 35 00:02:14,280 --> 00:02:17,880 Speaker 1: Have you ever seen their old commercials? So I didn't 36 00:02:17,880 --> 00:02:21,639 Speaker 1: really live in the Northeast in the nineteen eighties, but 37 00:02:21,960 --> 00:02:24,800 Speaker 1: I did have a VHS player, and I had a 38 00:02:24,840 --> 00:02:29,400 Speaker 1: copy of Splash, and I remember one of the ads 39 00:02:29,440 --> 00:02:33,680 Speaker 1: I think popped up on Splash. I think anyone like 40 00:02:33,800 --> 00:02:36,680 Speaker 1: who has ever seen them will remember what they were. 41 00:02:36,840 --> 00:02:40,679 Speaker 1: Just this guy who was really sort of hyper actively 42 00:02:40,960 --> 00:02:47,239 Speaker 1: touting discounted electronics equipment. Right, exactly right. So this company 43 00:02:47,560 --> 00:02:51,800 Speaker 1: grew like crazy. It was a cultural phenomenon, and part 44 00:02:51,840 --> 00:02:55,440 Speaker 1: thanks to their commercials, they ended up going public, and 45 00:02:55,520 --> 00:02:58,720 Speaker 1: not too long after going public, the entire thing more 46 00:02:58,800 --> 00:03:01,600 Speaker 1: or less imploded it as people have discovered all different 47 00:03:01,639 --> 00:03:04,240 Speaker 1: kinds of fraud. Well, today we are going to be 48 00:03:04,320 --> 00:03:09,000 Speaker 1: talking to the CFO of Crazy Eddie. He's in studio. 49 00:03:09,480 --> 00:03:12,640 Speaker 1: Sam Antar is with us. Uh, Sam, thank you very 50 00:03:12,720 --> 00:03:14,720 Speaker 1: much for joining us, Thank you for having me on. 51 00:03:15,240 --> 00:03:18,200 Speaker 1: So you're a convicted felon, right, that is correct. Okay, 52 00:03:18,200 --> 00:03:19,760 Speaker 1: but you never did any we'll get to it. But 53 00:03:19,800 --> 00:03:22,360 Speaker 1: you never did any prison time. No, I got house arrest, 54 00:03:22,440 --> 00:03:24,600 Speaker 1: but believe me, after one month of house arrest, I 55 00:03:24,639 --> 00:03:28,359 Speaker 1: wanted to be with the inmates. Okay, So, um, let's 56 00:03:28,560 --> 00:03:30,960 Speaker 1: let's go back. We'll get to that obviously, uh in 57 00:03:30,960 --> 00:03:34,480 Speaker 1: a little bit, But let's get started. Where did Crazy 58 00:03:34,600 --> 00:03:37,600 Speaker 1: Eddie come from? I know, like you were, it's CFO 59 00:03:37,760 --> 00:03:41,000 Speaker 1: and so obviously intimately involved with the fraud. But what's 60 00:03:41,040 --> 00:03:45,280 Speaker 1: the history of this, uh electronics dealership? Crazy Eddies was 61 00:03:45,280 --> 00:03:48,360 Speaker 1: his single store retail of starting in nineteen sixty nine. 62 00:03:48,360 --> 00:03:51,520 Speaker 1: It was originally known as E R S Electronics Doing Businesses, 63 00:03:51,520 --> 00:03:54,440 Speaker 1: Sights and Sounds. It was run by my cousin Eddie. 64 00:03:54,600 --> 00:03:59,040 Speaker 1: His dad's Sam Eman, taught my cousin Ronnie Gindi. Originally 65 00:03:59,080 --> 00:04:02,040 Speaker 1: we were just a run of the mill um electronics 66 00:04:02,080 --> 00:04:06,120 Speaker 1: retail store, engaged in skimming and UH insurance for that. 67 00:04:06,160 --> 00:04:08,600 Speaker 1: So stuff you have to understand something about Crazy Eddies 68 00:04:08,720 --> 00:04:11,480 Speaker 1: is that we were not business men turned criminals. We 69 00:04:11,520 --> 00:04:17,880 Speaker 1: were criminals running businesses in front um. Now. In other words, 70 00:04:17,880 --> 00:04:20,920 Speaker 1: we didn't have this momentary lapse and judgment where we 71 00:04:20,960 --> 00:04:23,800 Speaker 1: fell into crime. Crime was part of the business plan. 72 00:04:24,800 --> 00:04:27,839 Speaker 1: Back in the late nineteen sixties early nineteen seventies, there 73 00:04:27,920 --> 00:04:30,400 Speaker 1: was something known as fair trade where the manufacturers are 74 00:04:30,440 --> 00:04:32,720 Speaker 1: allowed to set the price at the retail level and 75 00:04:32,839 --> 00:04:36,240 Speaker 1: if you didn't follow the manufacturer's guidelines on pricing, they 76 00:04:36,279 --> 00:04:41,359 Speaker 1: would cut you off. That practice allowed larger retailers to 77 00:04:41,440 --> 00:04:44,120 Speaker 1: bring in the customers because they had the advertising budgets. 78 00:04:44,360 --> 00:04:48,599 Speaker 1: Smaller retailers like Crazy Eddies that had the efficiencies to 79 00:04:48,640 --> 00:04:51,120 Speaker 1: compete on price, couldn't compete on pricing. We're going out 80 00:04:51,160 --> 00:04:53,719 Speaker 1: of business. So what Eddie decided to do with thumb 81 00:04:53,760 --> 00:04:56,880 Speaker 1: his nose at the manufacturer's fight fit rate. He won 82 00:04:56,960 --> 00:04:59,039 Speaker 1: that war, and then the process he becomes the hero 83 00:04:59,360 --> 00:05:04,000 Speaker 1: of the New York Metropolitan Area consumer. Now this count 84 00:05:04,000 --> 00:05:06,279 Speaker 1: thing was you know, we were discount is, but the 85 00:05:06,320 --> 00:05:09,159 Speaker 1: discounting was subsidized by the fact that we were skimming 86 00:05:09,160 --> 00:05:11,520 Speaker 1: and stealing the sales tax. Especially if you're in a 87 00:05:11,600 --> 00:05:14,360 Speaker 1: cash based business, sales tax is a license to steal 88 00:05:14,640 --> 00:05:17,800 Speaker 1: because the government trusts that you're gonna take those cash sales, 89 00:05:17,839 --> 00:05:20,600 Speaker 1: properly record them, and give the government to share of 90 00:05:20,680 --> 00:05:24,280 Speaker 1: this its sales tax. We were basically stealing the sales 91 00:05:24,279 --> 00:05:26,760 Speaker 1: tax and using part of what we were stealing to 92 00:05:26,839 --> 00:05:30,279 Speaker 1: give customers discount that gave us the competitive advantage over 93 00:05:30,320 --> 00:05:33,640 Speaker 1: other retailers. So, Sam, I'm curious, I just want to 94 00:05:33,720 --> 00:05:36,039 Speaker 1: back up for one second. You say you were criminals 95 00:05:36,160 --> 00:05:41,719 Speaker 1: turned into businessmen. How exactly did the plan for the 96 00:05:41,839 --> 00:05:45,520 Speaker 1: Crazy Eddies business model come about? Did you sit down 97 00:05:45,600 --> 00:05:47,960 Speaker 1: around a table and sort of plan out how the 98 00:05:48,080 --> 00:05:51,839 Speaker 1: entire thing would work, or did opportunities for fraud sort 99 00:05:51,880 --> 00:05:54,599 Speaker 1: of come up as you ran the business? What was 100 00:05:54,640 --> 00:05:58,720 Speaker 1: the inception of it all? Both? First of all, planning 101 00:05:58,760 --> 00:06:01,680 Speaker 1: is a very important part business, and it's also important 102 00:06:01,720 --> 00:06:04,800 Speaker 1: part of crime. From the very beginning, you know, this 103 00:06:04,880 --> 00:06:08,159 Speaker 1: is the late nineteen sixties early nineteen seventies, when most 104 00:06:08,240 --> 00:06:11,640 Speaker 1: sales of consumer electronics were made in cash. To use 105 00:06:11,680 --> 00:06:13,680 Speaker 1: a credit card back in those days, you had to 106 00:06:13,720 --> 00:06:15,520 Speaker 1: call it in the retail, had to call it in 107 00:06:15,760 --> 00:06:18,360 Speaker 1: look through this very thick book of numbers would take 108 00:06:18,400 --> 00:06:21,000 Speaker 1: a half an hour, so most customers paid in cash. 109 00:06:21,440 --> 00:06:24,520 Speaker 1: So the the original intent was to take the cash 110 00:06:24,560 --> 00:06:28,880 Speaker 1: sales skim under report your income, which you invade income tax, 111 00:06:29,080 --> 00:06:31,760 Speaker 1: but also to steal the sales tax. The sales tax 112 00:06:31,760 --> 00:06:33,760 Speaker 1: in New York City now is I think eight point 113 00:06:33,800 --> 00:06:36,960 Speaker 1: eight seven. Back then it was six percent. But even 114 00:06:36,960 --> 00:06:40,240 Speaker 1: at six percent, that's more than the operating profits of 115 00:06:40,279 --> 00:06:43,560 Speaker 1: most American businesses. So if you can steal the sales tax, 116 00:06:43,600 --> 00:06:46,440 Speaker 1: you can become wildly profitable, even if you're not making 117 00:06:46,520 --> 00:06:49,159 Speaker 1: money on everything else. I mean, I think about this 118 00:06:49,240 --> 00:06:52,000 Speaker 1: a lot with like modern businesses, and there's so many 119 00:06:52,080 --> 00:06:55,520 Speaker 1: things like bar codes that gets scanned and credit cards 120 00:06:55,560 --> 00:06:58,720 Speaker 1: that gets scanned, But it just seems like at the time, 121 00:06:59,040 --> 00:07:03,479 Speaker 1: without much of digital interaction or digital trades, it must 122 00:07:03,520 --> 00:07:06,120 Speaker 1: have just been really easy to lie right. We took 123 00:07:06,160 --> 00:07:09,640 Speaker 1: advantage of the opportunities that came to us. The crazy 124 00:07:09,720 --> 00:07:13,400 Speaker 1: Eddie freud evolves over time. For instance, I started when 125 00:07:13,440 --> 00:07:15,880 Speaker 1: I was fourteen. I was a nerdy kid. I used 126 00:07:15,880 --> 00:07:17,760 Speaker 1: to read the Wall Street Journal as a kid and 127 00:07:17,800 --> 00:07:21,040 Speaker 1: barons in the Wall Street Transcript. My cousin put me 128 00:07:21,120 --> 00:07:23,840 Speaker 1: through college the major in accounting to get a c 129 00:07:24,040 --> 00:07:27,080 Speaker 1: p A. So I would have that implied credibility to 130 00:07:27,120 --> 00:07:30,679 Speaker 1: be the future CFO of the company when it became public, 131 00:07:31,040 --> 00:07:34,240 Speaker 1: so we can steal more money. See, criminals don't cheat 132 00:07:34,280 --> 00:07:38,520 Speaker 1: themselves out of getting a good education. Well, that's a 133 00:07:38,600 --> 00:07:41,360 Speaker 1: lot of preparations. I got straight as an accounting I 134 00:07:41,480 --> 00:07:44,760 Speaker 1: passed the CPA exam on the first sitting when people 135 00:07:44,840 --> 00:07:46,920 Speaker 1: used to fail the CPA exam, and I had a 136 00:07:47,040 --> 00:07:50,520 Speaker 1: ninety one average on the CPA exam. Well okay, so 137 00:07:50,520 --> 00:07:53,160 Speaker 1: so you get the credibility which you already mentioned. But 138 00:07:53,200 --> 00:07:55,880 Speaker 1: what else did you learn from that college degree and 139 00:07:55,920 --> 00:07:59,920 Speaker 1: from the accounting experience that made you able to perpetuate 140 00:08:00,000 --> 00:08:03,080 Speaker 1: the fraud for longer or in a more efficient way. 141 00:08:03,400 --> 00:08:06,800 Speaker 1: How to screw people, how to take advantage of people. 142 00:08:07,240 --> 00:08:11,080 Speaker 1: To understand crime, you have to understand the human element 143 00:08:11,280 --> 00:08:16,680 Speaker 1: around you, Ethics, morality, the presumption of innocence. Our laws 144 00:08:16,720 --> 00:08:22,160 Speaker 1: are rules those limit the behavior of decent people. To me, 145 00:08:22,200 --> 00:08:24,680 Speaker 1: as a criminal, I don't have those limitations on my 146 00:08:24,720 --> 00:08:29,600 Speaker 1: behavior when I was practicing crime. So your good nature, 147 00:08:29,640 --> 00:08:35,840 Speaker 1: your ethics, your commitments to society. That limits your behavior, 148 00:08:35,920 --> 00:08:39,600 Speaker 1: but makes the criminals behavior easier. That makes the criminals 149 00:08:39,600 --> 00:08:42,560 Speaker 1: execution of their crime easier. In terms of what you 150 00:08:42,720 --> 00:08:46,200 Speaker 1: learned or when you were sorry when you studying so 151 00:08:46,200 --> 00:08:48,560 Speaker 1: an other words, I learned I learned that ethics when 152 00:08:48,600 --> 00:08:50,840 Speaker 1: I took an ethics course, I learned that ethics limits 153 00:08:50,920 --> 00:08:53,679 Speaker 1: your behavior, didn't limit mine as a criminal. So I 154 00:08:53,720 --> 00:08:57,080 Speaker 1: was learning things differently than everybody else was learning things. 155 00:08:57,280 --> 00:08:59,280 Speaker 1: I was learning things from the vantage point of how 156 00:08:59,360 --> 00:09:01,880 Speaker 1: do you take an advantage of human nature? How do 157 00:09:01,920 --> 00:09:04,640 Speaker 1: you take advantage of accounting rules? How do you take 158 00:09:04,679 --> 00:09:11,040 Speaker 1: advantage of the limitations of audits? Or it's based on samples? 159 00:09:11,080 --> 00:09:15,760 Speaker 1: First of all, the word audit really is a false term. 160 00:09:15,840 --> 00:09:19,400 Speaker 1: What happens is accounting from us come in, they take 161 00:09:19,480 --> 00:09:23,839 Speaker 1: sample counts, They check around to see if the financial 162 00:09:23,880 --> 00:09:29,359 Speaker 1: statements are by and large accurate, materially accurate. The reality 163 00:09:29,520 --> 00:09:32,240 Speaker 1: is audits as they are practiced today a nothing more 164 00:09:32,280 --> 00:09:35,920 Speaker 1: than reviews. It's kind of like running Microsoft spell check 165 00:09:36,280 --> 00:09:39,200 Speaker 1: on Microsoft worre and looking for typos or It's are 166 00:09:39,280 --> 00:09:43,120 Speaker 1: really not designed to find fraud, and that makes my 167 00:09:43,360 --> 00:09:46,040 Speaker 1: job as a criminal much easier. The other thing that 168 00:09:46,120 --> 00:09:48,040 Speaker 1: I learned was is that, well, this is back in 169 00:09:48,040 --> 00:09:52,360 Speaker 1: the nineties when accounting was a male dominated profession. The 170 00:09:52,880 --> 00:09:56,240 Speaker 1: females that entered accounting back in those days were considered 171 00:09:56,480 --> 00:10:00,400 Speaker 1: token females. It was a male dominated fiefdom, was all 172 00:10:00,440 --> 00:10:03,200 Speaker 1: about the men, and most of the legwork done on 173 00:10:03,240 --> 00:10:06,120 Speaker 1: the orders where these kids one to three years out 174 00:10:06,120 --> 00:10:09,240 Speaker 1: of college, mostly single. So I learned that most of 175 00:10:09,280 --> 00:10:12,360 Speaker 1: the work is done by inexperienced kids right out of college, 176 00:10:12,440 --> 00:10:16,280 Speaker 1: real no training into the mind of criminals like I 177 00:10:16,360 --> 00:10:19,280 Speaker 1: was practicing to be. So, how exactly did you go 178 00:10:19,320 --> 00:10:22,400 Speaker 1: about fooling the auditors? Walk us through like step by step? 179 00:10:22,400 --> 00:10:25,679 Speaker 1: How do you do it well? In fraud? The distraction 180 00:10:25,920 --> 00:10:30,240 Speaker 1: is always more important and more effective than the law law, 181 00:10:30,360 --> 00:10:32,400 Speaker 1: of course. I mean, you can ask me any questions 182 00:10:32,440 --> 00:10:34,120 Speaker 1: on the air. If I can handle a law just 183 00:10:34,160 --> 00:10:36,400 Speaker 1: like a criminal, it's not a problem. I'm only kidding. 184 00:10:36,520 --> 00:10:39,280 Speaker 1: But my point being is that if you can get 185 00:10:39,320 --> 00:10:43,320 Speaker 1: away with distracting somebody from asking the right question, it's 186 00:10:43,440 --> 00:10:46,520 Speaker 1: less risky than having the person asked the question than 187 00:10:46,520 --> 00:10:49,400 Speaker 1: you're lawing. So let's Tay say orders to take eight 188 00:10:49,440 --> 00:10:52,680 Speaker 1: weeks to get completed. So by week six of eight, 189 00:10:53,200 --> 00:10:55,560 Speaker 1: you should have seventy five percent of you work done 190 00:10:55,559 --> 00:10:58,240 Speaker 1: in seventy five percent at a time, and twenty five 191 00:10:58,280 --> 00:11:01,199 Speaker 1: percent of you work done and the remain of time. 192 00:11:01,520 --> 00:11:04,520 Speaker 1: My job, as eventually the CFO of Crazy Nie, was 193 00:11:04,840 --> 00:11:06,920 Speaker 1: for them to have in weeks six out of a 194 00:11:08,160 --> 00:11:10,240 Speaker 1: of the work done in seventy five percent at a time, 195 00:11:10,440 --> 00:11:12,800 Speaker 1: and then in the remaining twenty percent at a time 196 00:11:12,960 --> 00:11:16,079 Speaker 1: they would have seventy of the work left to do. Now, 197 00:11:16,080 --> 00:11:19,599 Speaker 1: how did I accomplish that? Through the process of distraction? 198 00:11:19,640 --> 00:11:22,719 Speaker 1: Remember these are young males doing the legwork on order. 199 00:11:22,720 --> 00:11:24,880 Speaker 1: It's what's the best way to distract a young male. 200 00:11:25,880 --> 00:11:29,800 Speaker 1: I'm going to women, that's correct. So we picked up 201 00:11:29,920 --> 00:11:35,720 Speaker 1: very very beautiful, lovely sexy ladies to work work side 202 00:11:35,720 --> 00:11:37,920 Speaker 1: by side what our orders, and they would end up 203 00:11:37,920 --> 00:11:41,920 Speaker 1: being distracted. They'd miss key ordered procedures year in and 204 00:11:42,040 --> 00:11:44,680 Speaker 1: year out. That was really one of the tactics that 205 00:11:44,720 --> 00:11:47,440 Speaker 1: you took. That was the tactic that we took. In 206 00:11:47,480 --> 00:11:51,680 Speaker 1: other words, the distraction was always more important than the lie. 207 00:11:52,280 --> 00:11:56,719 Speaker 1: So obviously stealing the sales tax massively profitable. It is 208 00:11:56,800 --> 00:12:00,280 Speaker 1: a huge margin, easy money. What else did you do 209 00:12:00,440 --> 00:12:04,480 Speaker 1: in the fraud department at Crazy Eddy to UH from 210 00:12:04,559 --> 00:12:08,640 Speaker 1: nineteen nineteen sixty nine to nine four Crazy Eighties was 211 00:12:08,679 --> 00:12:11,760 Speaker 1: a private company. I joined the company in nineteen seventy one. 212 00:12:12,000 --> 00:12:16,360 Speaker 1: We're mostly income tax evasion insurance for a New York 213 00:12:16,440 --> 00:12:19,480 Speaker 1: cold witness is before the days of global warming. You know, 214 00:12:19,679 --> 00:12:22,320 Speaker 1: pipes with the with the water and the pipes with freeze, 215 00:12:22,320 --> 00:12:25,080 Speaker 1: they burst, merchandise would be water damage and we would 216 00:12:25,120 --> 00:12:27,520 Speaker 1: save the water damage merchandise for the next flood in 217 00:12:27,559 --> 00:12:30,480 Speaker 1: the next flood, the next flood. They were called flood goods. 218 00:12:30,840 --> 00:12:33,800 Speaker 1: Around nineteen eighty four, years before we go public, we 219 00:12:33,840 --> 00:12:37,280 Speaker 1: conceive of a plan to go public. In other words, 220 00:12:37,320 --> 00:12:40,480 Speaker 1: we were gonna stop screwing the internal Revenue Service, stop 221 00:12:40,480 --> 00:12:43,160 Speaker 1: our income tax evasion. We were gonna do a fraud 222 00:12:43,200 --> 00:12:46,319 Speaker 1: by going legit. How do you do that? You gradually 223 00:12:46,320 --> 00:12:50,199 Speaker 1: reduce your skimming down to zero, which increases your reported 224 00:12:50,240 --> 00:12:52,800 Speaker 1: profits year in and year out. It shows that you're 225 00:12:52,840 --> 00:12:56,400 Speaker 1: growing faster because you're reporting more of your profits each year. 226 00:12:56,720 --> 00:12:59,840 Speaker 1: Most of the growth and reporter profits is only accomplished 227 00:12:59,840 --> 00:13:02,440 Speaker 1: by the gradual reduction in the skimming. So we go 228 00:13:02,600 --> 00:13:06,600 Speaker 1: public in the only year where we produce legit financials. 229 00:13:06,640 --> 00:13:09,640 Speaker 1: But the previous years we showed the huge growth only 230 00:13:09,679 --> 00:13:12,480 Speaker 1: because we were gradually reducing our skimming down to zero. 231 00:13:13,040 --> 00:13:16,040 Speaker 1: Then we go public and we take the money that 232 00:13:16,120 --> 00:13:19,760 Speaker 1: we skimmed from Crazy Eddies and evaded taxes on we 233 00:13:19,840 --> 00:13:21,679 Speaker 1: put it back in the company that was known as 234 00:13:21,720 --> 00:13:24,040 Speaker 1: the Panama Pump. It was the plot of the movie 235 00:13:24,040 --> 00:13:26,800 Speaker 1: The Accountant with Ben Affleck when he goes crazy in 236 00:13:26,840 --> 00:13:29,240 Speaker 1: the Panama Pump crazy eating the platform. Well, let me 237 00:13:29,240 --> 00:13:31,319 Speaker 1: explain to you how that works. Fight skim a million 238 00:13:31,360 --> 00:13:35,440 Speaker 1: dollars in the income tax rates, I'm evading four hundred 239 00:13:35,480 --> 00:13:39,280 Speaker 1: thousand dollars in taxes. Now if I instead put the 240 00:13:39,320 --> 00:13:42,160 Speaker 1: money into Crazy as a million dollars and the tax 241 00:13:42,240 --> 00:13:46,600 Speaker 1: rates um overpaying on my taxes four hundred thousand dollars, 242 00:13:46,960 --> 00:13:50,079 Speaker 1: but I still have an inflated net income of one 243 00:13:50,160 --> 00:13:53,200 Speaker 1: million dollars, less than four hundred dollars in overpay taxes 244 00:13:53,440 --> 00:13:56,480 Speaker 1: of six hundred thousand dollars. If my stock is trading 245 00:13:56,480 --> 00:14:01,640 Speaker 1: at thirty times earnings, which is UH six thousand, inflated 246 00:14:01,679 --> 00:14:05,520 Speaker 1: net income times UH thirty is eighteen million dollars. By 247 00:14:05,520 --> 00:14:09,280 Speaker 1: overpaying my taxes by four hundred thousand dollars, I'm creating 248 00:14:09,320 --> 00:14:12,480 Speaker 1: eighteen million dollars of inflated market value and the antos 249 00:14:12,520 --> 00:14:25,520 Speaker 1: almost at a stock. I have so many questions, but 250 00:14:26,120 --> 00:14:29,280 Speaker 1: just before we get into what changes when you turn 251 00:14:29,320 --> 00:14:32,240 Speaker 1: from a private into a public company, could you maybe 252 00:14:32,320 --> 00:14:34,880 Speaker 1: talk a little bit about the advertising strategy, because I 253 00:14:34,920 --> 00:14:38,560 Speaker 1: think it was so important and integral to a lot 254 00:14:38,600 --> 00:14:41,520 Speaker 1: of people's memories of what Crazy Eddies was. Where did 255 00:14:41,560 --> 00:14:46,200 Speaker 1: that strategy come from? That actually came from Eddie. Jerry Carroll, 256 00:14:46,320 --> 00:14:48,800 Speaker 1: who is the face of Crazy Eddie, he's the pitchman 257 00:14:48,840 --> 00:14:51,560 Speaker 1: that you see on the commercials, was poking fun at 258 00:14:51,560 --> 00:14:54,160 Speaker 1: Crazy Eddies when Eddie brought a series of spots on 259 00:14:54,360 --> 00:14:56,280 Speaker 1: I think it was w p i X FM when 260 00:14:56,280 --> 00:14:59,640 Speaker 1: people used to listen to FM radio and Eddie hard 261 00:14:59,680 --> 00:15:02,400 Speaker 1: Um too be the pitchman and we were doing these 262 00:15:02,400 --> 00:15:06,200 Speaker 1: spots day in and day out twenty four seven. Crazy 263 00:15:06,280 --> 00:15:08,920 Speaker 1: Eddie at the time had better name recognition than Coca 264 00:15:08,960 --> 00:15:12,600 Speaker 1: Cola and mayor read Cotch. Even today, people talk about 265 00:15:12,640 --> 00:15:16,520 Speaker 1: crazy Eddie when they're making fun of Trump or Bernie Sanders, 266 00:15:16,680 --> 00:15:20,560 Speaker 1: or they're talking about deep discounts. The advertising helped us 267 00:15:20,720 --> 00:15:25,400 Speaker 1: gain widespread name recognition. Saturday Night Live, dan Ackroyd did 268 00:15:25,400 --> 00:15:28,560 Speaker 1: a parody parodies like that. And the fact that you 269 00:15:28,600 --> 00:15:31,520 Speaker 1: mentioned that it was on the movie Splash that gave 270 00:15:31,600 --> 00:15:34,960 Speaker 1: us more implied credibility, that that gave us legitimacy to 271 00:15:35,000 --> 00:15:38,440 Speaker 1: screw over more people. So just on that note, you 272 00:15:38,520 --> 00:15:41,480 Speaker 1: have all these these ads which people are seeing, You're 273 00:15:41,520 --> 00:15:46,480 Speaker 1: boasting about these really deep discounts. Did anyone raise red 274 00:15:46,560 --> 00:15:49,880 Speaker 1: flags around the business in the lead up to going public? 275 00:15:49,920 --> 00:15:52,280 Speaker 1: Did anyone go wait a second, how are they actually 276 00:15:52,280 --> 00:15:56,240 Speaker 1: doing this? Yes, Barons did a real hit piece on 277 00:15:56,360 --> 00:15:59,240 Speaker 1: us about four or five months before we won public. 278 00:15:59,600 --> 00:16:01,760 Speaker 1: From the outside looking and I see a lot of 279 00:16:01,800 --> 00:16:06,119 Speaker 1: companies they called battleground stocks, and people attack short sellers, 280 00:16:06,160 --> 00:16:08,720 Speaker 1: They sue short sellers, they sue critics. I see a 281 00:16:08,720 --> 00:16:11,640 Speaker 1: lot of that. Eddie's strategy was the best way to 282 00:16:11,680 --> 00:16:13,840 Speaker 1: handle a critic is to ignore them, don't give them 283 00:16:13,840 --> 00:16:16,320 Speaker 1: a pedestal, because once you pay attention to a critic. 284 00:16:16,800 --> 00:16:19,000 Speaker 1: You're giving them there five minutes of fame, and people 285 00:16:19,080 --> 00:16:22,600 Speaker 1: pay attention to them too. So we basically ignored the 286 00:16:22,720 --> 00:16:25,760 Speaker 1: barons article in one public anyway, even though the Baron's 287 00:16:25,840 --> 00:16:29,280 Speaker 1: articles I would say about correct. Well, first of all, actually, 288 00:16:29,320 --> 00:16:31,760 Speaker 1: what did the Baron's articles see. They obviously didn't know 289 00:16:31,800 --> 00:16:34,960 Speaker 1: the inner workings, but they obviously saw something about They 290 00:16:35,040 --> 00:16:39,360 Speaker 1: saw the incestuous relationship between the andtrs and the business 291 00:16:39,360 --> 00:16:43,160 Speaker 1: and all of the related party entities, and also the 292 00:16:43,200 --> 00:16:46,400 Speaker 1: fact that the key positions were all manned by relatives, 293 00:16:47,000 --> 00:16:51,160 Speaker 1: and they raised they raised very, very, very tough questions, 294 00:16:51,640 --> 00:16:53,960 Speaker 1: and Eddie felt that the best way to deal with 295 00:16:54,040 --> 00:16:57,280 Speaker 1: barons is to ignore them, just be positive. Could the 296 00:16:57,360 --> 00:17:02,320 Speaker 1: business have worked legitimately? Some people say yes. I say no. 297 00:17:02,600 --> 00:17:05,359 Speaker 1: The reason that Crazy As was successful was because we 298 00:17:05,440 --> 00:17:08,480 Speaker 1: were stealing the sales tax. Once we won public and 299 00:17:08,520 --> 00:17:12,480 Speaker 1: no longer skimmed anymore, we lost that competitive edge and 300 00:17:12,480 --> 00:17:14,960 Speaker 1: there was only a matter of time before that momentum 301 00:17:14,960 --> 00:17:17,960 Speaker 1: caught up with us, which eventually did. In seven three 302 00:17:18,040 --> 00:17:20,439 Speaker 1: years after going public, we started losing money for the 303 00:17:20,480 --> 00:17:23,040 Speaker 1: first time, and maybe twenty years on that note, you 304 00:17:23,080 --> 00:17:25,359 Speaker 1: say it was inevitable once you went public that that 305 00:17:25,359 --> 00:17:28,720 Speaker 1: would start to happen. I mean, what was the endgame 306 00:17:28,920 --> 00:17:31,840 Speaker 1: for Crazy Eddies. What was the plan? At what point 307 00:17:31,880 --> 00:17:34,280 Speaker 1: did you sort of exit the whole fraud and you know, 308 00:17:34,440 --> 00:17:37,800 Speaker 1: right off into the sunset with a million dollars or whatever? 309 00:17:37,840 --> 00:17:41,719 Speaker 1: It was good question. The plan was to go public, 310 00:17:41,760 --> 00:17:45,199 Speaker 1: sell stock, and inflator prices. Eventually it would catch up 311 00:17:45,200 --> 00:17:47,080 Speaker 1: to itself and then what we would do is use 312 00:17:47,119 --> 00:17:51,280 Speaker 1: Wall Streets money to take it private again and recycle 313 00:17:51,560 --> 00:17:54,679 Speaker 1: all over again. The problem that we had was the 314 00:17:54,800 --> 00:17:56,840 Speaker 1: one floor on the plan, in fact, we were a 315 00:17:56,880 --> 00:17:59,879 Speaker 1: victim of our own success. Is somebody outbid us for 316 00:18:00,000 --> 00:18:03,120 Speaker 1: our own freud using their real money. So they take 317 00:18:03,160 --> 00:18:05,840 Speaker 1: over the company, they take inventory, and they find out 318 00:18:06,040 --> 00:18:08,560 Speaker 1: the Crazy ais is a bunch of empty boxes, a 319 00:18:08,640 --> 00:18:11,560 Speaker 1: house of cards. So we talked about that. The plan 320 00:18:11,800 --> 00:18:15,000 Speaker 1: was the stock I guess had plunged. The stock plunge 321 00:18:15,760 --> 00:18:19,400 Speaker 1: seven because their time in our history, we're reporting losses 322 00:18:19,440 --> 00:18:21,720 Speaker 1: and trying to under report all losses. But that doesn't 323 00:18:21,760 --> 00:18:23,800 Speaker 1: really help the stock price. Right. So in the years 324 00:18:23,880 --> 00:18:26,800 Speaker 1: leading up to the I p O, you artificially inflate 325 00:18:26,840 --> 00:18:30,720 Speaker 1: the profits by reducing the skim. Then it's public, and 326 00:18:30,720 --> 00:18:33,359 Speaker 1: then you have no incentive at that point to actually 327 00:18:33,359 --> 00:18:35,840 Speaker 1: take money out, and the profits are collapsing because the 328 00:18:35,840 --> 00:18:39,160 Speaker 1: business true injectory looks terrible. You were going to take 329 00:18:39,200 --> 00:18:41,960 Speaker 1: a private who bought it? Talk us about the who 330 00:18:42,000 --> 00:18:44,199 Speaker 1: bought the stock and then or bought the company, and 331 00:18:44,200 --> 00:18:46,280 Speaker 1: then realized what had messed the whole thing was, well, 332 00:18:46,320 --> 00:18:48,399 Speaker 1: you have to find a useful idiot to partner with 333 00:18:48,480 --> 00:18:50,639 Speaker 1: you on go on taking the company private. You need 334 00:18:50,720 --> 00:18:54,240 Speaker 1: somebody else's money to finance something that you know is worthless. 335 00:18:54,760 --> 00:18:57,440 Speaker 1: We were approached by Milton Petrie, who was a legendary 336 00:18:57,520 --> 00:19:00,320 Speaker 1: retail investor. We felt that he was in a propriate 337 00:19:00,520 --> 00:19:03,399 Speaker 1: We were approached by the Sam by Sam Bellsburg, the 338 00:19:03,400 --> 00:19:06,480 Speaker 1: Bellsburg firmly of Canada. They were the right amount of 339 00:19:06,520 --> 00:19:08,840 Speaker 1: sleeves for us and at the same time they were 340 00:19:08,840 --> 00:19:10,840 Speaker 1: going to give us the latitude to run the company 341 00:19:10,880 --> 00:19:13,520 Speaker 1: the way we wanted. So Eddie comes up with a 342 00:19:13,560 --> 00:19:16,600 Speaker 1: bit of seven dollars a share. The stock was trading 343 00:19:16,640 --> 00:19:18,919 Speaker 1: in the eighties at one point, So Eddie comes up 344 00:19:18,960 --> 00:19:20,760 Speaker 1: with a bit of seven dollars this year. Of course, 345 00:19:20,920 --> 00:19:26,440 Speaker 1: it wasn't his money in September eighty four. This is 346 00:19:26,480 --> 00:19:29,080 Speaker 1: almost three years later. So Eddie comes up with a 347 00:19:29,119 --> 00:19:31,280 Speaker 1: bit of seven dollars this year, thinking that you know 348 00:19:31,359 --> 00:19:34,520 Speaker 1: it's ours, right, we didn't expect A week later, another 349 00:19:34,560 --> 00:19:37,080 Speaker 1: public company run by a law is in it's called 350 00:19:37,200 --> 00:19:41,560 Speaker 1: Entertainment Marketing, bids eight dollars a share. What happened, ultimately 351 00:19:41,720 --> 00:19:45,919 Speaker 1: is that a law is in buyse enough stock to 352 00:19:46,119 --> 00:19:49,520 Speaker 1: vote us out in at the annual meeting of shareholders. 353 00:19:49,560 --> 00:19:52,159 Speaker 1: In other words, he runs a proxy contest and he 354 00:19:52,200 --> 00:19:55,200 Speaker 1: buys more than enough stock to vote us out of power. 355 00:19:55,480 --> 00:19:58,639 Speaker 1: Because at that time in seven Antar has already milked 356 00:19:58,640 --> 00:20:01,800 Speaker 1: the cow. They already sold about ninety million dollars worth 357 00:20:01,800 --> 00:20:03,760 Speaker 1: of stock. That's why they were going to take over 358 00:20:03,800 --> 00:20:06,720 Speaker 1: the company supposedly on the cheap. In fact, the first 359 00:20:06,880 --> 00:20:10,640 Speaker 1: SEC investigation of Crazy Eddie wasn't about inflating profits. They 360 00:20:10,680 --> 00:20:14,160 Speaker 1: thought we deliberately tanked the company to buy the company 361 00:20:14,160 --> 00:20:16,640 Speaker 1: on the cheap. In other words, the SEC was right 362 00:20:16,680 --> 00:20:18,639 Speaker 1: that there was a fraud, but was wrong us to 363 00:20:18,680 --> 00:20:21,000 Speaker 1: the nature of the fraud. So I was just curious, 364 00:20:21,080 --> 00:20:24,919 Speaker 1: before this other entity bought you out, bought Crazy Eddies, 365 00:20:25,040 --> 00:20:29,120 Speaker 1: how desperately were you trying to dissuade them from doing that, 366 00:20:29,240 --> 00:20:31,240 Speaker 1: because you knew that everything would sort of come to 367 00:20:31,320 --> 00:20:34,560 Speaker 1: light once they did that. Right, Well, you can't exactly 368 00:20:34,600 --> 00:20:36,320 Speaker 1: tell them there was a fraud, But there was this 369 00:20:36,480 --> 00:20:40,640 Speaker 1: meeting with our lawyers, and Eddie was present. Uh. Our 370 00:20:40,760 --> 00:20:44,120 Speaker 1: lawyers were Paul Wise, Riff, clim Warton and Garrison, real 371 00:20:44,160 --> 00:20:47,120 Speaker 1: white shoe firm right over here in Park Avenue. And 372 00:20:47,200 --> 00:20:50,080 Speaker 1: they came with their white shoe lawyers and were sitting 373 00:20:50,080 --> 00:20:53,080 Speaker 1: down at the table and then making all kinds of demands. 374 00:20:53,080 --> 00:20:56,479 Speaker 1: Why don't you give up the company? Now it's our company, 375 00:20:56,520 --> 00:20:59,480 Speaker 1: We have enough stock. Why don't you make a graceful exit? 376 00:20:59,520 --> 00:21:02,280 Speaker 1: And Eddie owes to them and in the sarcastic tones, 377 00:21:02,400 --> 00:21:04,879 Speaker 1: the guys, you really don't know what you're getting into. 378 00:21:05,160 --> 00:21:08,600 Speaker 1: And they had demanding you had taken the company from you? 379 00:21:08,600 --> 00:21:10,919 Speaker 1: You wait and see, Well they took the company from us. 380 00:21:10,960 --> 00:21:13,800 Speaker 1: They entered up with empty boxes, walk us through that. 381 00:21:13,920 --> 00:21:18,040 Speaker 1: So they bought the company. The ultimate winner's curse where 382 00:21:18,119 --> 00:21:21,800 Speaker 1: the winning you always overpay. But they all don't don't 383 00:21:21,840 --> 00:21:24,000 Speaker 1: wish too hard for something because he might get it, 384 00:21:24,040 --> 00:21:27,040 Speaker 1: And they got it. So then what happened They discovered it, 385 00:21:27,119 --> 00:21:30,159 Speaker 1: and then how did that turn into legal proceedings. He 386 00:21:30,240 --> 00:21:33,400 Speaker 1: had the people that took over Crazy Eddies. They decided 387 00:21:33,440 --> 00:21:35,760 Speaker 1: to opt out of the class actions and to us separately. 388 00:21:35,920 --> 00:21:38,600 Speaker 1: Then I had the US Postal Service, I had the UH, 389 00:21:39,000 --> 00:21:42,159 Speaker 1: the inspectors, from them, the SEC, the FBI. But there 390 00:21:42,200 --> 00:21:45,840 Speaker 1: was one problem. Most of the documentation was destroyed. In fact, 391 00:21:45,920 --> 00:21:48,760 Speaker 1: the documentation we couldn't destroy. There was a warehouse full 392 00:21:48,800 --> 00:21:51,280 Speaker 1: of documents, and those days everything was kept in paper 393 00:21:51,359 --> 00:21:54,119 Speaker 1: and boxes. We took an entire warehouse of documents and 394 00:21:54,160 --> 00:21:56,720 Speaker 1: we mixed up all of the paper. Twenty years later, 395 00:21:56,720 --> 00:21:59,160 Speaker 1: I'm eating once with the FB guy, guy that investigated 396 00:21:59,160 --> 00:22:01,960 Speaker 1: the Crazy Eddie case to lead the FBI agents. Is 397 00:22:01,960 --> 00:22:03,720 Speaker 1: the one thing that piste me off more than you 398 00:22:03,840 --> 00:22:06,919 Speaker 1: destroying documents, getting people the law under oath, was the 399 00:22:06,920 --> 00:22:09,160 Speaker 1: fact that you took that whole warehouse and tossed all 400 00:22:09,600 --> 00:22:12,320 Speaker 1: hundreds of thousands, millions of pieces of paper around, and 401 00:22:12,359 --> 00:22:15,280 Speaker 1: we had to go put it back together. As this 402 00:22:15,400 --> 00:22:20,960 Speaker 1: investigation unfolds, how much are people at the SEC or investigators, 403 00:22:21,000 --> 00:22:22,920 Speaker 1: how much are they getting right as they tried to 404 00:22:23,000 --> 00:22:26,920 Speaker 1: uncover what exactly happened at Crazy Eddies. Well, the initial 405 00:22:27,000 --> 00:22:30,840 Speaker 1: two years of the investigation from seven to nineteen eighty nine, 406 00:22:31,400 --> 00:22:34,240 Speaker 1: they had they had immunized witnesses. At the time, I 407 00:22:34,320 --> 00:22:36,919 Speaker 1: was not, of course, cooperating with the Feds. I was 408 00:22:37,560 --> 00:22:41,200 Speaker 1: fighting against the Feds. But the two immunized witnesses protected 409 00:22:41,280 --> 00:22:44,320 Speaker 1: one side of the family that was against Eddie and 410 00:22:44,440 --> 00:22:46,520 Speaker 1: pointed the finger at the other side of the family 411 00:22:46,560 --> 00:22:48,879 Speaker 1: that was with Eddie. So the government was on the 412 00:22:49,000 --> 00:22:52,640 Speaker 1: right track, but not entirely on the right track. Around nine, 413 00:22:52,640 --> 00:22:55,280 Speaker 1: I realized that I was being set up by a 414 00:22:55,320 --> 00:22:58,160 Speaker 1: different faction within the family to take the full with Eddie, 415 00:22:58,359 --> 00:23:00,960 Speaker 1: and Eddie rather than stick with he decides to move 416 00:23:01,040 --> 00:23:05,040 Speaker 1: wolf is remaining dollars overseas. So here I am left 417 00:23:05,040 --> 00:23:09,040 Speaker 1: alone facing years in prison where my mentor, the guy 418 00:23:09,119 --> 00:23:12,560 Speaker 1: that put me through college, the leader of crazy, he's 419 00:23:12,600 --> 00:23:15,040 Speaker 1: he's going against me in his own family that was 420 00:23:15,080 --> 00:23:17,480 Speaker 1: going against him, has set me up to take the 421 00:23:17,480 --> 00:23:19,359 Speaker 1: full And I decided at that point that I'm going 422 00:23:19,440 --> 00:23:21,760 Speaker 1: to cooperate with the FEDS just to be fair. I 423 00:23:21,800 --> 00:23:24,440 Speaker 1: didn't cooperate with the Feds out of any sense of remorse, 424 00:23:24,520 --> 00:23:27,280 Speaker 1: out of any sense of veiling band from my crimes. 425 00:23:27,359 --> 00:23:30,119 Speaker 1: Only did it to save my rear. End you're very 426 00:23:30,160 --> 00:23:32,800 Speaker 1: blunt about this and the fact that you're a criminal 427 00:23:32,880 --> 00:23:36,159 Speaker 1: from the beginning, that you didn't feel any remorse. It 428 00:23:36,280 --> 00:23:40,480 Speaker 1: was purely a selfish motive, because normally when you hear 429 00:23:40,600 --> 00:23:45,280 Speaker 1: from criminals, especially later on in their life, sort of 430 00:23:45,320 --> 00:23:47,679 Speaker 1: like get a little bit more sentimental and how awful 431 00:23:47,880 --> 00:23:50,040 Speaker 1: what they did was, and I'll have some sort of 432 00:23:50,080 --> 00:23:54,480 Speaker 1: moral reflection. No, I'm curious. No, No, it's like I'm 433 00:23:54,520 --> 00:23:58,320 Speaker 1: curious today. Do you feel like, are you still a 434 00:23:58,359 --> 00:24:01,760 Speaker 1: criminal in the sense that, like whatever that chip is 435 00:24:01,840 --> 00:24:03,840 Speaker 1: in your brain or that lack of a chip that 436 00:24:03,960 --> 00:24:06,439 Speaker 1: for most people, um, like you said in the beginning, 437 00:24:06,720 --> 00:24:09,919 Speaker 1: most people just aren't inclined to cheat and steal and 438 00:24:10,040 --> 00:24:12,399 Speaker 1: rob and all this stuff, and criminals take advantage of that. 439 00:24:13,000 --> 00:24:16,280 Speaker 1: Do you feel that you're still that same person today. Well, 440 00:24:16,320 --> 00:24:18,879 Speaker 1: I can make the world feel safe and say, you know, 441 00:24:18,960 --> 00:24:22,000 Speaker 1: I won't never do crime again, I feel remorseful for 442 00:24:22,080 --> 00:24:24,200 Speaker 1: the things that I've done, or I can leave it 443 00:24:24,280 --> 00:24:26,560 Speaker 1: up to you to decide. The reality is you really 444 00:24:26,640 --> 00:24:29,719 Speaker 1: never know anybody's true intentions. And I can get up 445 00:24:29,720 --> 00:24:32,040 Speaker 1: here and I can fake remore is very very easy. 446 00:24:32,280 --> 00:24:33,680 Speaker 1: Or I can tell you that I'm going to commit 447 00:24:33,720 --> 00:24:35,840 Speaker 1: crime in the future. What I would say this is, 448 00:24:35,840 --> 00:24:38,359 Speaker 1: if I were to do it all over again, I 449 00:24:38,359 --> 00:24:41,600 Speaker 1: would just do it better. It's good for anyone in 450 00:24:41,640 --> 00:24:44,399 Speaker 1: the future who wants to go into business with Sam 451 00:24:44,520 --> 00:24:48,320 Speaker 1: Enters a good a good warning. Well, speaking of that, 452 00:24:48,480 --> 00:24:50,760 Speaker 1: what are you up to now? Sam? The one thing 453 00:24:50,880 --> 00:24:54,399 Speaker 1: that can't be taken away from you is your education. 454 00:24:55,320 --> 00:24:57,840 Speaker 1: And I got a very good education on my way 455 00:24:57,840 --> 00:25:01,320 Speaker 1: to becoming a more effective and more a sophisticated criminal. 456 00:25:01,920 --> 00:25:04,879 Speaker 1: So even though my cp A license it took New 457 00:25:04,960 --> 00:25:07,600 Speaker 1: York State fifteen years to pull up. But that's another story. 458 00:25:08,160 --> 00:25:10,879 Speaker 1: Even though I've lost my cp A license, I didn't 459 00:25:10,920 --> 00:25:13,439 Speaker 1: lose the knowledge that got me to the cp A license. 460 00:25:13,480 --> 00:25:16,760 Speaker 1: And over the years I've worked for the government, I've 461 00:25:16,760 --> 00:25:20,399 Speaker 1: worked from major law firms involved in class actions against 462 00:25:20,440 --> 00:25:24,560 Speaker 1: public companies. I've worked for hedge funds and doing analytical work, 463 00:25:24,600 --> 00:25:28,399 Speaker 1: forensic accounting work. One thing that I'm really struck by again, 464 00:25:28,440 --> 00:25:30,919 Speaker 1: it just seems like if you go back to the 465 00:25:31,119 --> 00:25:34,479 Speaker 1: sixties and seventies where everything was on paper and there 466 00:25:34,520 --> 00:25:38,480 Speaker 1: weren't barcodes and credit card scan like, it didn't seem 467 00:25:38,560 --> 00:25:40,560 Speaker 1: like it was that hard to lie, and so probably 468 00:25:40,600 --> 00:25:44,000 Speaker 1: there are certain styles of fraud, including just sort of 469 00:25:44,040 --> 00:25:47,880 Speaker 1: like very gross theft of the sales taxes that would 470 00:25:47,920 --> 00:25:50,520 Speaker 1: be much harder for any retailer to get away with. 471 00:25:50,960 --> 00:25:54,480 Speaker 1: But has fraud gotten harder or has it just mutated 472 00:25:54,480 --> 00:25:58,919 Speaker 1: into something else? It's so it's gotten easier. What are 473 00:25:58,960 --> 00:26:01,440 Speaker 1: the new avenues of fraud that people should be looking at. Well, 474 00:26:01,440 --> 00:26:03,600 Speaker 1: first of all, people don't care about laws today. In 475 00:26:03,640 --> 00:26:05,600 Speaker 1: the old days, people used to care about laws. You 476 00:26:05,640 --> 00:26:10,240 Speaker 1: see CEOs lying, lying, serially, lying consistently. Over time, we 477 00:26:10,240 --> 00:26:12,720 Speaker 1: could talk about a bunch of battleground stocks where the 478 00:26:12,800 --> 00:26:16,359 Speaker 1: CEOs and are hardly ever truthful, and truth for them 479 00:26:16,480 --> 00:26:18,560 Speaker 1: is just a matter of convenience when they decided to 480 00:26:18,560 --> 00:26:21,200 Speaker 1: be truthful. So today we live in a different world 481 00:26:21,200 --> 00:26:24,920 Speaker 1: where the values changed. Also, as far as white collar 482 00:26:25,000 --> 00:26:27,199 Speaker 1: crime in general, we live in the golden era of 483 00:26:27,240 --> 00:26:31,440 Speaker 1: white collar crime. Today there's less federal prosecutions of white 484 00:26:31,480 --> 00:26:33,600 Speaker 1: collar criminals. And when I was doing crime in the 485 00:26:33,680 --> 00:26:37,000 Speaker 1: nineteen eighties, and the economy was maybe eighty percent lower 486 00:26:37,080 --> 00:26:39,639 Speaker 1: than it is today. So the economy these five times 487 00:26:39,720 --> 00:26:42,400 Speaker 1: larger than when I was doing crime, maybe ten times larger. 488 00:26:42,560 --> 00:26:46,160 Speaker 1: But with prosecuting less white collar criminals. The government has 489 00:26:46,200 --> 00:26:49,720 Speaker 1: effectively taken white collar crime and turned it into a 490 00:26:49,880 --> 00:26:53,760 Speaker 1: civil tort to be litigated into the civil courts. So today, 491 00:26:53,920 --> 00:26:57,719 Speaker 1: very rarely do criminals actually get prosecuted, and very rarely 492 00:26:58,040 --> 00:27:00,520 Speaker 1: do criminals actually go to jail. Yes, once in a 493 00:27:00,520 --> 00:27:03,240 Speaker 1: while somebody gets hit with a twenty year sentence, but 494 00:27:03,359 --> 00:27:06,480 Speaker 1: that's very far few in between. If I were to 495 00:27:06,560 --> 00:27:08,399 Speaker 1: choose when I would have done crime, I would have 496 00:27:08,400 --> 00:27:10,480 Speaker 1: said I should have waited until I was in my 497 00:27:10,560 --> 00:27:13,600 Speaker 1: fifties or sixties instead of doing crime as a teenager. 498 00:27:13,760 --> 00:27:15,399 Speaker 1: I would have been more effective and I could have 499 00:27:15,440 --> 00:27:17,560 Speaker 1: been a legitimate in the eyes of the public, at 500 00:27:17,600 --> 00:27:20,720 Speaker 1: least a legitimate business person today. There's one thing that 501 00:27:20,800 --> 00:27:22,720 Speaker 1: kind of springs to my mind when when you say 502 00:27:22,760 --> 00:27:27,600 Speaker 1: that the difference between crime nowadays versus white collar crime 503 00:27:27,600 --> 00:27:30,439 Speaker 1: in the sixties or seventies, and that's just when it 504 00:27:30,480 --> 00:27:34,320 Speaker 1: comes to company valuation, the amount of intangible assets that 505 00:27:34,359 --> 00:27:38,639 Speaker 1: go into it. Crazy Eddies was all about overvaluating the company. 506 00:27:38,680 --> 00:27:42,720 Speaker 1: When you look at how modern companies build their value, 507 00:27:42,840 --> 00:27:46,159 Speaker 1: and so much of it is on brand recognition and 508 00:27:46,359 --> 00:27:50,120 Speaker 1: intangible stuff that goes into inflating the value. Does that 509 00:27:50,160 --> 00:27:53,680 Speaker 1: strike you as a sort of avenue for white collar crime. 510 00:27:54,200 --> 00:27:56,680 Speaker 1: There are a lot of avues for white color for 511 00:27:57,040 --> 00:28:00,719 Speaker 1: intangible assets could be one of the overvaluation by the public. 512 00:28:01,320 --> 00:28:05,360 Speaker 1: The biggest problem that most people have is that they 513 00:28:05,400 --> 00:28:10,240 Speaker 1: read Wall Street research reports and believe the Wall Street hype. 514 00:28:11,160 --> 00:28:14,920 Speaker 1: I could tell you as a retired criminal you want 515 00:28:14,920 --> 00:28:17,440 Speaker 1: to say formal or maybe a Mcarman criminal who you 516 00:28:17,440 --> 00:28:19,840 Speaker 1: will never know, I can tell you that Wall Street 517 00:28:19,880 --> 00:28:23,639 Speaker 1: analysts are very very easy to fool. They generally just 518 00:28:23,840 --> 00:28:28,040 Speaker 1: parents what management tells them. So that's one of the problems. 519 00:28:28,040 --> 00:28:31,879 Speaker 1: The other problem is people read financial statements the wrong way. 520 00:28:32,040 --> 00:28:33,879 Speaker 1: They read it from the beginning to the end. They 521 00:28:33,880 --> 00:28:36,560 Speaker 1: should be reading from the end to the beginning. Read 522 00:28:36,720 --> 00:28:41,600 Speaker 1: the footnotes first, look for slight inconsistency. Changes in language 523 00:28:41,600 --> 00:28:44,440 Speaker 1: are very very important. Like in the Crazy Eddy fraud, 524 00:28:44,480 --> 00:28:48,880 Speaker 1: we change one word from received to earn, received to 525 00:28:48,960 --> 00:28:51,800 Speaker 1: earn and we were able to inflate our profits by 526 00:28:51,800 --> 00:28:55,960 Speaker 1: twenty million dollars by writing up twenty million dollars of 527 00:28:56,080 --> 00:29:00,760 Speaker 1: phony charge batchs to manufacturers by changing one word. Now footnotes, 528 00:29:01,080 --> 00:29:04,520 Speaker 1: people have to learn to analyze and study rather than 529 00:29:04,560 --> 00:29:06,680 Speaker 1: to just look at the bottom line numbers and look 530 00:29:06,720 --> 00:29:09,920 Speaker 1: at the trends. Any number in the financial statement, even 531 00:29:10,080 --> 00:29:13,240 Speaker 1: cash can be screwed around with and played with. Crazy 532 00:29:13,240 --> 00:29:16,040 Speaker 1: that these Panama pump was an inflation of our cash 533 00:29:16,400 --> 00:29:18,960 Speaker 1: on hand on our balance she people think that cash 534 00:29:19,040 --> 00:29:21,240 Speaker 1: is king. The statement of cash flows can't be thinking 535 00:29:21,320 --> 00:29:25,720 Speaker 1: with it. Can Chinese companies are very very good at 536 00:29:25,720 --> 00:29:28,320 Speaker 1: playing with the statement of cash flows by by playing 537 00:29:28,360 --> 00:29:31,120 Speaker 1: around with entities that they don't control, that they do 538 00:29:31,200 --> 00:29:35,000 Speaker 1: control rather but they don't consolidate. It's called variable interest 539 00:29:35,120 --> 00:29:38,640 Speaker 1: entities cuntities that they control effectively, but they don't consolidate, 540 00:29:38,800 --> 00:29:43,000 Speaker 1: and they use these unconsolidated entities to offfload all of 541 00:29:43,000 --> 00:29:46,880 Speaker 1: their capital expenditures to inflate their statement of cash flows, 542 00:29:46,920 --> 00:29:49,600 Speaker 1: their free cash flows. It's done all the time. There's 543 00:29:49,680 --> 00:29:54,040 Speaker 1: millions of wats manipulate. Crime evolves over time. We cannot 544 00:29:54,400 --> 00:29:57,440 Speaker 1: stop crime. All we can do is try to manage, 545 00:29:57,520 --> 00:30:00,960 Speaker 1: contain it, and minimize it. For every measure a criminals 546 00:30:00,960 --> 00:30:03,280 Speaker 1: figure out account, the measure for every account, the measure 547 00:30:03,320 --> 00:30:06,600 Speaker 1: you figure out, criminals figure out a new measure. Sam 548 00:30:06,640 --> 00:30:10,720 Speaker 1: Antar on that note, really appreciate you coming on. I 549 00:30:10,760 --> 00:30:15,000 Speaker 1: know there's tons more we could get into about exactly 550 00:30:15,000 --> 00:30:17,800 Speaker 1: what you were going into at the end, about all 551 00:30:17,840 --> 00:30:20,560 Speaker 1: the different countermeasures and what criminals do. But I think 552 00:30:20,600 --> 00:30:23,200 Speaker 1: that was a great overview of your career and some 553 00:30:23,360 --> 00:30:26,160 Speaker 1: general guidelines to think about. Really appreciate I thank you 554 00:30:26,200 --> 00:30:45,160 Speaker 1: for having me, Tracy. I really enjoyed that conversation. Now 555 00:30:45,200 --> 00:30:46,920 Speaker 1: I really do think we got to do our whole 556 00:30:46,920 --> 00:30:51,480 Speaker 1: accounting series. Yes, yes, revived the accounting series. I almost 557 00:30:51,520 --> 00:30:53,960 Speaker 1: want to have Sam guest hosted or I would actually 558 00:30:53,960 --> 00:30:56,880 Speaker 1: listen to a Sam Antier podcast because I think that 559 00:30:56,960 --> 00:31:00,000 Speaker 1: he would probably like just all that stuff about differ 560 00:31:00,000 --> 00:31:04,920 Speaker 1: different ways to read the financial statements, different things to 561 00:31:05,040 --> 00:31:07,840 Speaker 1: spot in terms of how companies still cheat, how new 562 00:31:07,880 --> 00:31:11,200 Speaker 1: regulations have different countermeasures. I would really like to listen 563 00:31:11,200 --> 00:31:14,160 Speaker 1: to a Sam Anenter podcast, I think, just on all 564 00:31:14,200 --> 00:31:18,320 Speaker 1: these topics, absolutely, but just listening to the story of 565 00:31:18,440 --> 00:31:22,440 Speaker 1: Crazy Eddies itself. We mentioned one movie at the beginning, 566 00:31:22,440 --> 00:31:24,520 Speaker 1: which was Splash, but I was thinking of at least 567 00:31:24,560 --> 00:31:27,400 Speaker 1: like two other movies while we were interviewing Sam, and 568 00:31:27,520 --> 00:31:30,040 Speaker 1: one of those was The Producers, where you know, they 569 00:31:30,080 --> 00:31:32,440 Speaker 1: try to create a Broadway flop but then it becomes 570 00:31:32,440 --> 00:31:34,880 Speaker 1: a success, and then they get caught out in their fraud. 571 00:31:34,920 --> 00:31:36,720 Speaker 1: That was kind of similar, and the other one was 572 00:31:36,800 --> 00:31:39,680 Speaker 1: catch me if you can right where the fraud ster 573 00:31:40,240 --> 00:31:42,600 Speaker 1: then teams up with the government and becomes a sort 574 00:31:42,600 --> 00:31:46,920 Speaker 1: of fraud expert. But the whole thing is sort of 575 00:31:46,960 --> 00:31:51,320 Speaker 1: surreal but really um interesting to listen to. You know 576 00:31:51,320 --> 00:31:55,040 Speaker 1: what I thought that I hadn't thought about quite uh 577 00:31:55,080 --> 00:31:58,880 Speaker 1: this way before until Sam described it was how the 578 00:31:59,080 --> 00:32:02,680 Speaker 1: motivation of a fraudster change between a private and a 579 00:32:02,720 --> 00:32:07,000 Speaker 1: public company. Because obviously, if you're a private company, your 580 00:32:07,080 --> 00:32:10,800 Speaker 1: only way of sort of cashing out is literally cashing out, 581 00:32:10,920 --> 00:32:12,840 Speaker 1: or it's just you take the money. You don't have 582 00:32:12,880 --> 00:32:16,320 Speaker 1: any other option. Money comes in that's not supposed to 583 00:32:16,320 --> 00:32:19,160 Speaker 1: be yours and you pocket it. In some way, that 584 00:32:19,320 --> 00:32:23,240 Speaker 1: completely changes in a public company because a public company 585 00:32:23,440 --> 00:32:26,880 Speaker 1: is entirely based on the value that you have today 586 00:32:27,040 --> 00:32:30,440 Speaker 1: is based on the public's expectations of earnings tomorrow. So 587 00:32:30,480 --> 00:32:33,920 Speaker 1: if you can do something to confuse those expectations or 588 00:32:33,960 --> 00:32:36,920 Speaker 1: to inflate them, then you don't have to pull any 589 00:32:36,960 --> 00:32:39,520 Speaker 1: cash out of the company itself. You just do something 590 00:32:39,600 --> 00:32:42,960 Speaker 1: very seemingly legitimate, which is called your broker and sell 591 00:32:43,040 --> 00:32:47,000 Speaker 1: some stock and so suddenly your entire relationship with what 592 00:32:47,080 --> 00:32:50,800 Speaker 1: constitutes fraud or what you're trying to do changes, And 593 00:32:50,880 --> 00:32:53,760 Speaker 1: so it makes sense that you steal from the company 594 00:32:53,840 --> 00:32:57,320 Speaker 1: while you're private and then pump profits back into the 595 00:32:57,320 --> 00:33:01,760 Speaker 1: company when it's public to confuse the public interpretations of 596 00:33:01,800 --> 00:33:05,200 Speaker 1: what's going on. Yeah, that's a really good summer and 597 00:33:05,440 --> 00:33:07,880 Speaker 1: definitely an interesting point. The other thing I was thinking 598 00:33:08,600 --> 00:33:10,520 Speaker 1: when he was talking about all of this is, do 599 00:33:10,560 --> 00:33:15,120 Speaker 1: you ever wonder how many frauds go by sort of unnoticed, 600 00:33:15,720 --> 00:33:18,880 Speaker 1: Like what percentage of the world is built on some 601 00:33:18,960 --> 00:33:22,120 Speaker 1: sort of fraudulent basis and it just never gets found out. 602 00:33:22,720 --> 00:33:25,680 Speaker 1: I feel like it's, uh, it's everywhere. I'm sure Sam 603 00:33:25,680 --> 00:33:27,920 Speaker 1: would agree. He's nodding his head because he's still here 604 00:33:27,920 --> 00:33:31,760 Speaker 1: in the studio nodding his head. Should we wrap it up? There? Yes, 605 00:33:31,800 --> 00:33:35,600 Speaker 1: on that happy note, let's wrap it. This has been 606 00:33:35,640 --> 00:33:39,280 Speaker 1: another episode of the Odd Thoughts podcast. I'm Tracy Alloway. 607 00:33:39,360 --> 00:33:42,400 Speaker 1: You can follow me on Twitter at Tracy Alloway, and 608 00:33:42,440 --> 00:33:44,920 Speaker 1: I'm Joe Wise in pal You can follow me on 609 00:33:44,960 --> 00:33:48,520 Speaker 1: Twitter at the Stalwart and you should follow our guest 610 00:33:48,720 --> 00:33:53,040 Speaker 1: on Twitter. He's Sam Antar at sam Antar and don't 611 00:33:53,080 --> 00:33:56,880 Speaker 1: forget to follow our producers on Twitter tofur floor heads 612 00:33:56,960 --> 00:34:02,000 Speaker 1: He's at poor headst and Laura Carl's in at Laura M. Carlson, 613 00:34:02,240 --> 00:34:05,000 Speaker 1: and be sure to follow the Bloomberg head of podcast, 614 00:34:05,080 --> 00:34:09,360 Speaker 1: Francesco Levy at Francesca Today. Thanks for listening.