Saturday, December 30, 2006

Apple Computer's Stock Options Back Dating Scandal: An Ex-felon's View

The pursuit of criminal conduct in America should not be affected by the ideology and prejudices of those seeking justice and the persons being pursued. The pursuit of Justice must be blind.

Steve Jobs and individuals at Apple Computer must face the same amount of scrutiny as those involved in Enron and other major corporate frauds.

The disclosures in Apple's report are very troubling and require an appropriate investigation by the SEC and US Attorney for possible criminal conduct.

Steve Jobs should welcome such an inquiry if he is in fact not guilty of any misconduct. Mr. Jobs himself must also provide the public with a forthright, reasonable, and transparent explanation without any spin if he is to have any integrity.

I above is a response I wrote to Professor Larry E. Ribstein regarding a commentary he posted on his Ideoblog entitled “The Backdating Zealots’ Apple Problem.” In his commentary he wrote in part:

Just to summarize the emerging blackletter law: It's ok to commit “fraud” (which is what we are repeatedly told backdating is) if (1) you are a media darling who produces fancy products that everybody loves; (2) you can get Al Gore to sign off (I guess this particular truth isn't too inconvenient); and (3) you can get somebody else in your company to do the dirty work.

I am troubled by Steve Jobs picking what I see as a political ally to oversee Apple Computer’s internal investigation. Mr. Jobs has contributed large sums of money to the Democratic Party and its candidates.

I read Apple Computer’s recent 10-K report filed with the Securities and Exchange Commission. Apple Computer’s report said that were 6,428 back dated option grants on 42 separate dates over a five year period it concluded that there was no misconduct by current management.

The report said the following about Steve Jobs and certain individuals who had worked at Apple Computer:

Although the investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications. The Special Committee also found that the investigation had raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants.

The New York Times in an article entitled “Apple Panel on Options Backs Chief” written by John Markoff and Eric Dash on December 29, 2006 wrote the following:

It appears as if Jobs is playing the role of a monkey: See no evil, hear no evil, speak no evil,” said Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission. “If he truly were fulfilling his role as C.E.O., it is highly questionable as to why he didn’t know about such poor management and oversight of the option granting process.

I am very troubled about this too.

In a previous commentary on this blog entitled “The Art of Spinning: How to Identify Possible White Collar Criminals or at least Unethical and Deceitful People You Should Avoid” I wrote:

When you cannot dispute the underlying facts, accept them as true but rationalize your actions. You are allowed to make mistakes as long as you have no wrongful intent. Being stupid is not a crime.

While I hope this is not that the case with Steve Jobs there are compelling reasons for the Securities and Exchange Commission and the United States Justice Department to pursue a vigorous investigation of the actions of individuals at Apple Computer.

If Steve Jobs and others in current management have done nothing wrong, they should welcome it. They must cooperate in a transparent way with any investigation.


Sam E. Antar (former Crazy Eddie CFO & ex-felon)

Monday, December 25, 2006

The Art of Spinning: How to Identify Possible White Collar Criminals or at Least Unethical and Deceitful People Who You Should Avoid

White collar-crime is a crime of persuasion and deceit. Since the white-collar criminal uses persuasion and deceit to commit their crimes, it follows that such felons are artful liars.

People often ask me what characteristics I look for in other people that alert me to possible criminal activity or at least unethical and deceitful people.

Not all questionable conduct is illegal. A person can be unethical or deceitful (however they are defined) without committing any illegal acts as defined under the law.

However, most criminals use tools like spinning (see below) in the conduct of their crimes.

The Art of Spinning

Sell people hope. My cousin ‘Crazy Eddie’ Antar taught me that “people live on hope” and their hopes and dreams must be fed through our spin and lies. In any situation, if possible, accentuate the positive.

Make excuses as long as you can. Try to have your excuses based on at least one truthful fact even if the fact is unrelated to your actions and argument.

When you cannot dispute the underlying facts, accept them as true but rationalize your actions. You are allowed to make mistakes as long as you have no wrongful intent. Being stupid is not a crime.

Always say in words you “take responsibility” but try to indirectly shift the blame on other people and factors. You need to portray yourself as a “stand up” person.

When you cannot defend your actions or arguments attack the messenger to detract attention from your questionable actions.

Always show your kindness by doing people favors. You will require the gratitude of such people to come to your aid and defend you.

Build up your stature, integrity, and credibility by publicizing the good deeds you have done in areas unrelated to the subject of scrutiny.

Build a strong base of support. Try to have surrogates and the beneficiaries of your largess stand up for you and defend you.

If you can, appear to take the “high road” and have your surrogates do the “dirty work” for you. After all, you cannot control the actions of your zealots.

When you can no longer spin, shut up. For example, offer no guidance to investors or resign for “personal reasons.” Your surrogates and so-called friends can still speak on your behalf and defend you.

If you are under investigation always say you will “cooperate.” However, use all means necessary legal or otherwise to stifle the investigators. Remember that “people live on hope” and their inclination is to believe you.

When called to testify under oath (if you do not exercise your 5th amendment privilege against self-incrimination) have selective memory about your questionable actions. It is harder to be charged with perjury if you cannot remember what you have done rather than testify and lie about it.

However, before you testify have other friendly witnesses testify before you to defend you. You need to “lock in” their stories first (before they change their minds) so your testimony does not conflict with their testimony and your story will appear to be more truthful.

Try not to have your actions at least appear to rise to the level of criminal conduct or a litigable action. Being stupid or being unethical is not always a crime or a tortious action.

One last rule, to be a most effective spinner always keep your friends close and your enemies closer. The kindness you show your enemies will reduce their propensity to be skeptical of you.

Closing comment

If you see some of the above similarities in people who are in authority such as executives, politicians, and others, you are forewarned to watch out. Before a person can be a white collar criminal, they must be deceitful and be able to follow most of the above rules of spinning.

Written by,

Sam E. Antar (former Crazy Eddie CFO and convicted felon)

I used to tell and write financial fairy tales as a white collar criminal.

Tuesday, December 19, 2006

Why I Do Not Fear Auditors

White collar crime is a crime of persuasion and deceit. Since the white collar criminal uses persuasion and deceit to commit their crimes it follows that such felons are artful liars.
Most accounting professionals are never taught about the nature of white collar crime in college or in their continuing professional education courses after becoming Certified Public Accountants.

The “Challenge of Audit” Blog written by someone called the Thoughtful Auditor recently posted a commentary entitled “Why Sam E. Antar Doesn’t Fear Auditors.”
He (she) wrote in part:

Mr. Antar clearly had no fear of either external or internal auditors while he was committing fraud. He includes some reasons on his site, such as new audit staffers being young and inexperienced, following out of the box and checklist programs, and not receiving adequate supervision from more experienced managers and partners. Although there has been much hype recently about strengthening audits, I tend to think that these conditions still exist in many companies. These criticisms can, in my experience, pertain equally to both internal and external auditors.

Please read the rest of his blog post and my answer posted on his web site here.

Managing Earnings: Playing the Numbers Game

Did you ever wonder why some companies always consistently beat their earnings targets?

Many accounting professionals have written extensively about how companies “manage earnings.” A company can arbitrarily reduce “excessive profits” in good quarters or fiscal years to “save” such earnings and apply them to future leaner accounting periods in order to avoid earnings disappointments.

Jeff Matthews has an interesting commentary in his recent blog post entitled, “And Beware CEOs Trying to ‘Hit the Numbers?" He wrote in part:

Not only can the focus on hitting a meaningless, and often unsustainable, profit forecast result in stupid, short-term decision making; it can also, as in the case of Tyco, Fannie Mae, Enron, and a list of other companies large and small too lengthy to bother with, result in fraud.
The problem is that management can become so focused and obsessed with hitting earnings targets that certain improper decisions will be made relating to the application of accounting principles to “smooth over” earnings. Ultimately the so called “professional judgment” that management uses in the application of accounting principles can lead to aggressive accounting techniques and even fraud. 

The issue here is known as “managing earnings.” Accounting is more of an art than a science because of certain judgments regarding accounting principles by management with the acceptance of its Audit Committee and external auditors. For example, accounting principles relating to sales, leases, depreciation, accounts payable, and inventory all involve some amount of judgment or leeway.

In the Crazy Eddie fraud, one technique we used to manage earnings was by taking excessive arbitrary reserves against inventories in good years and reducing such reserves against inventory in lean years. In fiscal year 1986, we inflated our earnings by about $16 million due to fraudulent means. When Main Hurdman, Crazy Eddie's external auditors, completed their initial computation of the company's earnings, our gross margins were over 40% in the last quarter. Historically, Crazy Eddie’s gross margins were only about 20%. Our excessive earnings inflation should have been a "red flag" for Main Hurdman to investigate further.

Rather than investigate the red flag, Main Hurdman simply agreed to Crazy Eddie booking extra arbitrary “loss reserves” against our inventory valuations. The auditors thought that Crazy Eddie was being “conservative” but in fact they unwittingly helped us reduce our overly excessive fraudulent earnings inflation.

The use of such arbitrary reserves was known as “accountant’s legal liability insurance,” since the rationale was that no company was ever sued for being too conservative or under-reporting earnings. When I asked the auditors about what Crazy Eddie should do with these “excessive” reserves in future years, they replied to me that such excessive reserves was like “money in the bank.” The auditors explained to me that such excessive reserves can be reduced in future lean years to help Crazy Eddie make its future earnings targets.

In the next fiscal year, when Crazy Eddie started losing money and no amount of fraud could turn such losses into profits, we reduced our excessive arbitrary reserves that we had set up in the prior year, with our auditors’ collusion.

While the external auditors were not involved in falsifying inventory, they were unwitting accomplices to our fraud, since they helped us “manage earnings” through the use of arbitrary inventory reserves.

In many of my conversations with Wall Street analysts, underwriters, and other CFO’s, I found out that the practice of “managing earnings” was prevalent and an accepted business norm. Wall Street does not like surprises and the extra swing that management gets from applying so called judgment to accounting principles allows them to constantly beat their earnings targets. In good years, certain companies will save “unneeded excess earnings” through arbitrary excessive reserves, to save such earnings for the lean quarters or years when they do not make their earnings targets.

Written by,

Sam E. Antar

PS: I am not making this up.

Friday, December 15, 2006

Cooperation: Andrew Fastow vs. Sam E. Antar

Andrew Fastow the former Chief Financial Officer of Enron and now a convicted felon has signed a “cooperation” agreement with the class action plaintiff law firms involved in recovering losses on behalf of many victims of the Enron fraud.

According a D & O Diary blog article entitled "Enron, Halliburton, and the Milberg Weiss Criminal Investigation" written by Kevin M. LaCroix:

In return, Fastow received “the formal support of the Enron investors in a plea for leniency (a factor the Judge explicitly noted).” Fastow was also dismissed as a defendant from the civil suit and “even got the plaintiffs’ lawyers to pay his legal fees for his deposition.” As a result of the plea for leniency, the 10-year sentence to which Fastow agreed when he first entered his guilty plea was reduced to 6 years.

In the Crazy Eddie fraud investigation I also “cooperated” with the government, civil plaintiff’s attorneys, and victims of my crimes. As a result of such “cooperation” they wrote letters to my sentencing Judge noting my “extensive cooperation” which probably kept me out of prison and left me without any civil judgments.

In the Wall Street Journal Law Blog I commented on an article entitled “Are Sentences for These Men Too Long?” written by Peter Lattman about my own cooperation and sentencing:

I have made no secret of the fact (as disclosed on my web site and public appearances) that my reason for “cooperating” with the government and civil plaintiffs was out of self interested fear of a very long prison sentence.

The government had me “cornered” and other family members more culpable than me had set me up to take the fall. Had I not been caught and learned from the consequences of my criminal actions I would still probably be a criminal today.

However, when I did “cooperate” for whatever reason, I did so without the protection of any plea bargain agreement and met thousands of times with investigators without my attorney present. I cooperated (yes of out self interest) and protected myself later with a plea agreement (unlike most felons today).

After about four years of cooperation (which included thousands of meetings without my attorney present) I first signed a plea agreement for two felonies with the US government. A little later they wanted three felony counts after I had agreed to two felony counts and I obliged them by pleading guilty to three felonies.

My “cooperation” was the cornerstone of the Crazy Eddie criminal and civil investigation which resulted in the victims recovering almost all monies made by the Antar family on the Crazy Eddie stock and having an unprecedented percentage recovery by victims of the fraud.

At sentencing I did not bombard the Judge with letters from everyone who I did a good deed for, family members, etc. There were only about 5 letters that went to the Judge – The US Attorney, the SEC, and the balance from attorneys representing all victims of the crimes. They all took note of the value of my “cooperation.”

At sentencing I told the Judge “For most of my adult life I was involved in a massive fraud. I’m embarrassed to…say that I always knew what I did was wrong” and I was ready to fully accept the consequences of my actions. The US Attorney recommended a downward departure sentence of about 2 years from my sentencing guideline exposure of about 4 to 5 years.

The Judge (a “law and order” Ronald Reagan appointee) sentenced me to 6 months house arrest, 1,200 hours of community service, three years probation, and fines.

While you may disagree with this “law and order” Republican appointed Judge’s decision regarding my admittedly light sentence the fact is that he took into account the truthfulness of my testimony, the fact that I made no excuses, the fact the I used no handler’s (attorneys) in making myself fully accessible to both criminal and civil plaintiff investigators and most of all the fact that I was willing to risk everything (by having no legal protection for 4 years) in helping the government and civil plaintiffs obtain justice (yes, for selfish reasons).

I have always disclosed my feeling that my sentencing was lenient and never said otherwise. I have learned that it is better to face the mercy of your victims and a sentencing Judge rather than face their anger.”

The difference between my self interested cooperation and Mr. Fastow’s is that I took the shot of helping the government, various civil plaintiffs attorneys and victims without the benefit of any legal protection in the hope that I would face their mercy rather than anger.

It seems that Mr. Fastow would have been wiser to cooperate with them the same way I did instead of covering himself first. He may have spent less time in prison.

The civil plaintiff’s attorneys could learn a lesson here too. You would not face the criticism leveled at you had you treated Andrew Fastow like me.

Sunday, December 10, 2006

Hiding Your Dirty Laundry in the Footnotes: Anatomy of the Crazy Eddie Accounts Payable Fraud

I once listened to a presentation about white collar crime by reformed criminal now Pastor, author, and crime fighter Barry Minkow (ZZZZ Best fraud) at the Value Investing Congress in New York City.

Barry Minkow explained to the audience of large investors something called the “iceberg” analysis. According to Barry, an iceberg is only 10% visible and the rest of it lies beneath the surface. It is often difficult to detect fraud and misrepresentation just by looking at financial statements.

Financial statements are often accompanied by footnotes which are seldom read and more often not thoroughly analyzed by investors. A great blog written by Michelle Leader sorts through the footnotes of companies and provides excellent analysis.

One of the many frauds committed by me at Crazy Eddie involved manipulating just two words in our footnotes.

Prior to 1987, Crazy Eddie accounting policy for purchase discounts and allowances was:

Purchase discounts and trade allowances are recognized when received.

This accounting policy meant that even if Crazy Eddie had “earned” a discount it could not be recognized as income until a credit was received from the vendor.

In fiscal year 1987, I changed Crazy Eddie’s accounting policy (as reflected in the footnotes) to:
Purchase discounts and trade allowances are recognized when earned.
Now, in theory, Crazy Eddie could recognize a discount as income when it is earned (for example when we reached the manufacturer’s benchmark of buying 10,000 units to qualify for a volume rebate) and not have to wait for a credit from the vendor. I could simply write a debit memo (an offset to what I owed the vendor) to recognize the discount and increase our reported profits.

A change of accounting policy would normally give rise to a separate disclosure about its effect on earnings. However, in the Crazy Eddie fraud we made no such disclosure and the auditors made no relevant computations despite change in accounting principle. The auditors simply ignored the effects of the change in accounting for discounts.

By now being able to recognize discounts "when earned” instead of having to wait for credits to be received from vendors, I had the opportunity to add $20 million on phony debit memos (phony discounts and trade allowances) charged to vendors.

Crazy Eddie’s accounts payable was reduced from about $70 million to $50 million through the use of phony debit memos that was facilitated by our change in accounting policies for purchase discounts and trade allowances by changing just two words in our footnotes.

You may ask: How did we do it and how could the auditors allow this to happen?

The staff auditor primarily responsible for the accounts payable part of the audit had no retail accounts payable audit experience and only six months experience in auditing. He did not know what a debit memo was until he came to the Crazy Eddie audit.

We engaged in a scheme of obstruction by distraction. Most staff accountants feel that audits are boring and they really are. As soon as the young relatively inexperienced staff members walked into our premises, my staff was instructed to be overly friendly so that they could be distracted from their work. We would constantly take the staff auditors out for long coffee breaks and lunches and engage in friendly conversations about mutual topics of interest unrelated to the audit in an effort to distract them from their work.

About two weeks before the audit was due to be completed and the accountants should have completed about 85% of the their work, they would have only about 25% of their work done. During the remaining two weeks they would scramble to finish the audit on time.

When people “cram” or rush they make extra mistakes and tend to skimp on their work. In addition, the auditors could not blame the overly friendly Crazy Eddie staff for obstructing them. Therefore, in a mad scramble to “cover their asses” they covered ours. In the process they left out some very important audit procedures.

In fiscal year 1987, the staff auditor assigned to analyze accounts payable did not begin his work until the very day his firm had signed off on Crazy Eddie’s “clean” audit opinion.

The actual audit of the accounts payable was concluded weeks after the auditors signed off on our financial statements and gave our Board of Directors their approval for its release.

For fiscal year 1987, the auditors did not compute how many debit memos offseted our gross accounts payable and they never generated an aging schedule of accounts payable. (Note: In the previous fiscal year audit the auditors generated an accounts payable aging schedule.) An aging schedule would have listed for how long we owed vendors amounts listed in accounts payable at year end and likewise how long such debit memos were not applied against amounts owed to vendors.

The computation of the total debit memos was especially important in determining the effects of the change in accounting for discounts and allowances. Such a computation combined with an accounts payable aging schedule would have determined that excessively large amounts of debit memos were never actually used to offset amounts owed to vendors. This procedure would have alerted the auditors to the excessive amounts of phony debit memos and their lack of validity.

The auditors only received three accounts payable balance confirmations from our vendors and suppliers. One vendor confirmation received by the auditors had over $4 million in phony debit memos. They simply traced those debit memos to our accounts payable records which listed the phony debit memos. They never contacted the vendor after receiving the confirmation about reconciling items.

There are many lessons to be learned from the Crazy Eddie accounts payable fraud

People (even sophisticated investors) do not read footnotes. Had they read the footnotes carefully perhaps the proper critical questions would have been asked. All too often audits are over-used as training grounds for relatively inexperienced staff accountants who are not adequately supervised.

The audit was poorly planned, executed, and supervised. The auditors lost their requisite professional skepticism and objectivity by permitting Crazy Eddie staff to distract them from their work by “bonding” with them. They did not follow basic audit procedures and permitted deadlines to guide to quality of their work.

Crazy Eddie had weak internal controls over the issuance of debit memos. There was no documentation from external sources supporting any of the phony discounts. Sarbanes-Oxley would have required the auditors to evaluate our internal controls.

Finally, as Joseph T. Wells (retired founder and Chairman of the Association of Certified Fraud Examiners) who wrote about this same fraud in his award winning article “So That’s Why They Call it a Pyramid Scheme” published in the Journal of Accountancy in October 2000:
....Were the auditors stupid? No, just too trusting. After all, no one wants to think the client is a crook. But it happens too often. That's why the profession requires the auditor to be skeptical.
Written by:

Sam E. Antar (former Crazy Eddie CFO & convicted felon)

Monday, December 04, 2006

In Class Action Securities Litigation Sometimes I Wonder Who are the Clients

Recently Floyd Norris in his blog Notions of High and Low Finance and Peter Lattman in the Wall Street Journal Law Blog posted articles about William S. Lerach (formerly a partner of the indicted Milberg Weiss law firm).

In his post entitled “Making Lerach Pay” Norris wrote:

William S. Lerach, the class-action securities lawyer most hated in Silicon Valley, and his law firm have been ordered by a federal judge in Houston to pay some of the legal costs incurred by Alliance Capital after Mr. Lerach sued the company in the Enron case. The judge says that Mr. Lerach pursed the case after it became clear it had no merit.

Mr. Norris asked the following question:

Would the deterrent have been greater if the penalty had been assessed against the lead plaintiff in this class action, the regents of the University of California, rather than against Mr. Lerach’s law firm? Might such a ruling make institutional investors less willing to serve as lead plaintiffs in class action suits?

In his post entitled “Judge: Lerach Should Pay Attorney’s Fees in Enron Litigation” Peter Lattman wrote:

Securities litigators are also surprised by her suggestion in the opinion that Lerach’s law firm, the lead counsel in the case, pay the legal fees and costs of Alliance (now known as AllianceBernstein), rather than the plaintiffs themselves.

I wrote the following comment in both of their Blogs:

I have learned from my training as a CPA to look at “substance over form.” In “form” many of law firms in the “class action” bar represent shareholders who are in theory their clients.

Unfortunately, in “substance” when we examine the pattern of behavior of certain law firms it appears that they have given up the ideals of the legal profession and now act as self serving businesses that represent not their client’s interest but their own interests.

Since the passage of the Private Securities Litigation Reform Act of 1995 was passed in law, large institutional investors (such as large public pension funds) have more power in the selection of the lead plaintiff’s counsel in class action securities litigation.

An unintended consequence the law has created is at least in appearance and possibly in practice is a “pay to play” situation.

Certain class action law firms funnel political contributions to politicians who serve as fiduciaries or politicians who appoint various fiduciaries to the large public pension plans who often exert considerable influence in the selection of lead counsel.

As a result, other law firms who are “less politically connected” that are vying to be appointed lead counsel are at a disadvantage due to the political contributions of competing law firms. These law firms who do not make such political contributions may be able to represent shareholders interests more effectively and economically.

There has been an increasing concentration of power in a few selected class action plaintiff law firms since this legislation has been enacted. Many such firms are those that seem to use their political clout.

We have seen the recent indictment of the Milberg Weiss law firm and more indictments may be coming. It is alleged that certain individuals at Milberg Weiss bribed people to be lead plaintiffs in shareholder litigation so it would increase the law firm’s chances of being selected lead counsel.

In many of these class action law suits the law firms make out much better economically than the supposed “clients” they represent – unless of course such clients have received bribes or are the beneficiaries of political contributions via “pay to play.”

Therefore, I can understand the Judge’s decision to make Mr. Lerach’s law firm pay some legal costs.

Mr. Lerach was a partner in the Milberg law firm and is no stranger to actions that create at least the appearance of “pay to play.”

Certain law firms of the class action plaintiff’s bar by bringing unwarranted law suits, possibly bribing potential “clients”, engaging in possible “pay to play”, and charging excessive legal fees are violating the same principles of transparency and accountability they claim to defend.

By such actions they give ammunition to those who seek to reduce accountability and responsibility of corporate executives who violate the integrity of our capitalist free market economic system.


Sam E. Antar


I was rightfully sued by Milberg Weiss in the Crazy Eddie class action litigation.

If the allegations against the law firm and certain defendants in the indictment are true it would be particularly distressing for me that members of the very same firm that prosecuted me in the name of rooting out criminality have possibly succumbed to the same level of my former immorality.

Sunday, December 03, 2006

D & O Insurers Can Help in Corporate Governance

The D & O Diary features a commentary Kevin LaCroix entitled “Why Aren’t D & O Insurers Better Corporate Governance Monitors?

Insurance carriers can play a major role (and they have an economic incentive to do it) in pushing companies to have better corporate governance and financial transparency.

I strongly suggest you read Mr. Lacroix’s blog about his other ideas.

Saturday, December 02, 2006

When Regulatory Relief Really Means Relaxing Standards of Transparency and Integrity

The Committee on Capital Markets Regulation released its interim report this week. According an article in USA Today entitled “Group: Sarbanes-Oxley needs to loosen up” written by Greg Farrell and published on November 29, 2006:

…the study was funded by the Starr Foundation, a group headed by former AIG chairman Maurice "Hank" Greenberg, and a philanthropist who didn't want to be named.

Floyd Norris commenting in his New York Times blog “Notions on High and Low Finance” wrote in a post entitled “Who Paid for the Anti-Regulation Report?

The report of the Committee on Capital Markets Regulation…has a distinct anti-regulation tinge, arguing that excessive regulation is hurting the United States competitively.

I wrote the following comment in Mr. Norris’s blog:

Perhaps a more appropriate name for the “Committee on Capital Markets Regulation” would be the “Political Action Committee on Reduction of Standards for the Integrity of our Capital Markets.” 
Members of this Committee under the guise of seeking regulatory relief from burdensome rules are seeking to relax standards of transparency and integrity which are vital to our financial markets. Need I remind you the about the disastrous results of loosening educational standards in America a generation ago?
If this Committee whose purpose is to help capitalism by promoting transparency and integrity in our capital markets wishes to lift itself of the “Political Action Committee” designation, it should start by making full disclosure of its funding sources at the very least.
Many of the solutions offered in the report are downright defeatist. Rather than seeking liability protection for external auditors and outside directors, the report does not address the basic issues that cause these litigations to occur – auditor and outside director negligence.
The Committee recommends “risk based approach” to regulation and audits. However, we have an education system that does not adequately prepare our Certified Public Accountants to be sufficiently judgment oriented in their professional responsibilities. That is why we have an audit process that is nothing more that “fill in the blanks” and “check the boxes.”
Most CPAs will never take a single specific college level course in fraud, internal controls, securities law, and many other crucial subjects prior to graduation. After graduation and obtaining a CPA license the American Institute of Certified Public Accountants only “recommends” but does not require that 10% of annual continuing education courses be taken in the subject of fraud – hardly enough.
Audits are over-used as training grounds for relatively inexperienced, under skilled, and under trained staffers who are not adequately supervised by more knowledgeable senior accountants.
We have outside directors who can still have stock options and own stock in the company of the Board’s they serve on.
Many of these Board Members have very nice resumes. However, they have no experience in the company’s industries whose Board they serve on. They have no relevant experience and education to fulfill their role of effective Board Members. In fact, their sole reason for being appointed as Board Members with their nice looking but irrelevant resumes is purely “window dressing.”
The external auditors are supposed to be monitored by the Audit Committee of the Board of Directors. In practice such Audit Committees are no better prepared (if not worse) to handle their responsibilities than the external auditors they oversee.
Many Audit Committee members receive compensation in stock options or own company stock of the Board they serve on which provides a disincentive to effective independent oversight and can affect their objectivity and professional skepticism.
In addition, many members of Audit Committees have no formal accounting, auditing, internal control, and fraud education or backgrounds. Their requisite education, skills, training, and experience required to fulfill their responsibilities are lacking.
The convergence of “ill trained” auditors and “window dressed” Audit Committees creates ineffective oversight of the financial integrity of companies and provides a “perfect storm” for more massive frauds to come.
My message to the Committee on Capital Markets Regulation and the readers here is that transparency and financial integrity while difficult is necessary and achievable.
Companies obtaining capital from public markets have a fiduciary duty not only to their shareholders but to the integrity of our great capitalist free market economic system to invest resources in good internal controls and oversight to provide comfort as to the transparency and integrity of their financial reports.
The accounting profession talks about an “expectations gap” regarding the public perception of what audits are supposed to achieve. Most problems arising today involve material fraud which has nothing to do with such an excuse.
I challenge the accounting profession to self evaluate and improve itself and move away from the defeatist attitude of looking to cut your losses. With educational reforms you can capably perform your tasks and reduce your risks.
The SEC should revise corporate governance rules regarding the qualifications of Board Members (especially Audit Committee Members) and not permit such members to own stock, receive stock options, and receive earnings based compensation in the company of the Board they serve on.

Saturday, November 18, 2006

Wall Street Journal Law Blog Asks Are Sentences Meted Out for White Collar Felons Too Long and I Answer Their Blog

In a recent commentary written by Peter Lattman in the Wall Street Journal Law Blog entitled “Are Sentences for These Men Too Long?” he listed the following sentences recently given to white collar felons:
Twenty-five years for WorldCom’s Bernie Ebbers. Twenty-four years, four months for Enron’s Jeff Skilling. Twenty years for Adelphia’s Timothy Rigas. Twelve years for CA’s Sanjay Kumar. 8 1/3-to-25 years for Tyco’s Dennis Kozlowski. Six years for Enron’s Andrew Fastow. Five years for WorldCom’s Scott Sullivan.
His commentary was based on an article posted in the Sentencing Law and Commentary blog entitled “The realities of mass US incarceration” which is based on a report by National Council on Crime and Delinquency entitled “US Rates of Incarceration: A Global Perceptive" by Peter Hartney.

The report specified that:
  • The US incarcerates the largest number of people in the world.
  • The incarceration rate in the US is four times the world average.
  • Some individual US states imprison up to six times as many people as do nations of comparable population.
  • The US imprisons the most women in the world.
  • Crime rates do not account for incarceration rates.
  • The US has less than 5% of the world’s population but over 23% of the world's incarcerated people.
Peter Lattman asks his readers the following question:
Law Blog Question of the Day: Is our criminal justice system broken? And specifically in the white-collar realm, are the sentences recently meted to the above individuals too harsh?
I posted the following response on his blog which was followed by some very passionate and sometimes personal debate:
The sentences given to recent white collar felons are not too harsh. White collar crime while not a violent crime can be more brutal to society in its consequences. White collar crime inflicts a collective harm on society far beyond the companies affected.

White collar crime adversely affects the integrity and reliability of financial information which is the main pillar of our great capitalist free market economic system. When the financial markets lose faith in the integrity and reliability of financial information the costs of capital and debt increases and the collective market capitalization of all companies are adversely affected. As a result our national wealth is diminished and pensions, 401 k plans, and life insurance policies lose value. The collective reduction of wealth further erodes tax collections to our government.
Employees lose their jobs and are often faced with the future stigma of having worked for a company affected by massive fraud. Creditors do not get paid and often must lay off employees.
The long prison sentences often given to white collar criminals while serving the purpose of imposing responsibility and accountability for felons does not materially prevent white collar crime. No crimes in progress are stopped and no current criminals find morality after learning about the long sentences given to convicted felons.
To prevent and reduce white collar crime we require strong legislation like Sarbanes-Oxley and strong internal controls reviewed by adequately educated, trained, experienced, and skilled independent external auditors. Companies require effective oversight from independent audit committees composed of members adequately suited to perform their responsibilities and not members who are appointed for “window dressing” purposes. Such audit committee members must not be permitted to hold stock or stock options in companies where they serve on such audit committees. We must require strengthened standards of education and capabilities of those board members who are permitted to serve on audit committees.
Our society is coming to the realization of the collective harshness of white collar crime in the long prison sentences imposed on convicted felons. It must now take appropriate steps to prevent white collar crime from happening. We must eliminate the opportunity to commit white collar crime.
Sam E. Antar (former Crazy Eddie CFO & ex-felon)

I suggest that you read the rest of the comments that followed from other readers.

Crazy Eddie Trademark - Not very Valuable

I read other blogs and from time to time post my comments. Recently I came across the Strategic Name Development blog and took notice of a commentary posted “Trademarks and Superstitions” about trademark issues.

At the bottom of the commentary written by William Lozito published on November 6, 2006 was the following observation:

And sometimes, as is the case with the Crazy Eddie trademark, you may think you have a valuable trademarked brand name… and be unable to sell it.

Recently the owners of the Crazy Eddie trademark attempted to sell it on ebay but were unable to sell it at the price they were seeking.

I posted the following comment on his blog:
It is ironic that you chose November 6 (the same day we lost control of Crazy Eddie in a hostile takeover) for your post about the value of trademarks - specifically ‘Crazy Eddie.’

A trademark is only as good as the public's perception of the integrity behind it. The Crazy Eddie name is and probably always will be associated with one of the greatest securities frauds in corporate history.
For the current owner of the (Crazy Eddie) trademark it is like trying to sell the Enron trademark to an energy company.

Sunday, November 12, 2006

Audit Committees and External Auditors: A Perfect Storm for Disaster

We are supposed to believe that public company external auditors working with audit committees pose an effective deterrent against corporate malfeasance.

However, from my own experience at Crazy Eddie and listening to the experiences of others audits are over-used as training grounds for inexperienced, under trained, and not adequately educated staffers no more than a couple of years out of college.

Worst yet, is the lack of sufficient supervision and oversight their managers and audit partners exercise over them. Many of these managers and partners too suffer from an educational background that did not adequately prepare them to deal with clients such as criminals like I was.

As a result we get “packaged” and “process oriented audits” where a “fill in the blanks” and “check the boxes” approach on audit programs are prevalent. The criminal like I was who always has the initiative and uses a judgment based approach has a fundamental advantage over the external auditors. The external auditors are almost always outmaneuvered by the criminal at every turn.

The external auditors are supposed to be monitored by the Audit Committee of the Board of Directors. In practice such Audit Committees are no better prepared (if not worse) to handle their responsibilities than the external auditors they oversee.

Many Audit Committee members receive compensation in stock options or own company stock of the Board they serve on which provides a disincentive to effective independent oversight and can affect their objectivity and professional skepticism.

In addition, many members of Audit Committees have no formal accounting, auditing, internal control, and fraud education or backgrounds. Their requisite education, skills, training, and experience required to fulfill their responsibilities are lacking.

Over the last week two blogs I read were Jeff Matthews Is Not Making This Up (It Took Apollo Group How Long to Figure This Out?) and (The Political Graveyard?).

Their commentary reinforced to me that the “perfect storm” of convergence of ill trained auditors and “window dressed” Audit Committees is a built in recipe for more massive fraud to come.

In Jeffrey Matthew’s blog when discussing possible stock option back dating he asked:

“So it took the educational geniuses at Apollo Group how long to figure this out and hold somebody accountable?
My detailed answer to Mr. Matthews was contained in a four part post on his site discussing at length the issues outlined above (see my comments to Mr. Matthews post).

In the basic question asked was:

“So where do former members of the House and Senate, not to mention Governors and former Cabinet members go when they exit from the political stage?”
Well, many of these former politician’s end up on company Boards and their Audit Committees.

My short answer to is that I am reminded of what General Douglas MacArthur once said “"old soldiers never die; they just fade away.”

I say we should not let these politician’s fade away on our company Boards especially Audit Committees unless they are fully specifically qualified to serve their functions.

With regards to both blog commentaries I am reminded of the “Peter Principle” that people rise to their level of incompetence.

No doubt that many such Audit Committee members will defend their status saying the have complied with applicable laws.

However I ask you as it is written in The Apollo Group’s 10-k (and many other company 10 – ks too) what level of education, knowledge, training, and skills would you demand of Audit Committee members who job function is:

“…reviewing the financial information which will be provided to shareholders and others, the systems of internal controls, which management and the Board of Directors have established, the performance and selection of independent registered public accounting firm, and our audit and financial reporting processes.”
Would you want Audit Committees composed of members with an accounting, auditing, internal control, and fraud background at the very least? Mere exposure to these issues in their past by such members does not cut it with me.

Under the item 401 (h) of SEC Rule S-K at least one Audit Committee member must be a “financial expert.”

The problem with that rule is that it allows persons who have experience in supervising people more qualified than them for their specific functions to be considered a “financial expert.”

A good CEO without an educational background in accounting, auditing, internal controls, and fraud hardly qualifies to serve on an Audit Committee. Too make matters worse many such persons in Committees have no background in the business the company operates.

From inadequately prepared accountants to inadequately staffed Audit Committees I see here is a “perfect storm” for the future massive financial frauds that surely will occur.

Therefore, anyone reading this post be forewarned – the worse is yet to come!

Friday, November 03, 2006

Response to Senator Schumer and Mayor Bloomberg Commentary on Sarbanes-Oxley “Reform”

Dear Senator Charles E. Schumer and Mayor Michael R. Bloomberg:

I read with great interest you commentary entitled “To Save New York, Learn from London” published in the Wall Street Journal on November 1, 2006.

While your commentary raises many valid issues, there are some issues I respectfully ask you to consider before you decide on any “reform” of the Sarbanes-Oxley Act.

In your commentary you wrote:

Since its passage, auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated.

Prior to Sarbanes Oxley accounting firms used to offer consulting services to the client’s they audited. I ask you to consider that prior to Sarbanes Oxley accounting firms would keep audit fees artificially low (as a loss leader) so they could attract higher margin consulting business from their current and future clients.

In addition I would caution against “turning back the clock” and having the inherent “conflict of interest” of having such accounting firms offer consulting services to the client’s they audit.

I agree with your commentary that:

…we must not in any way diminish our ability to detect corporate fraud and protect investors.

However, any “reform” of Sarbanes Oxley must include higher educational standards for the accounting profession.

Today a significant majority of accounting students prior to obtaining their CPA license never take a single specific college level course in white collar crime, fraud, securities law, internal controls, criminology and other crucial subject areas they require to be effective auditors. Even as licensed certified public accountants they are only recommended (and not even required) by the American Institute of Certified Public Accountants (AICPA) to take 10% of their continuing education requirement courses in fraud (at most 4 hours a year). We must require as a minimum more a more educated, trained, skilled, and experienced accounting profession as part of any “reforms.”

Legislation like Sarbanes-Oxley can only be as good as the profession who is called on to police it – our accounting profession.

Senator Schumer, you may seek the advice of your brother Robert B. Schumer now a partner at Paul, Weiss, Rifkind, Wharton, and Garrison. Before, becoming a partner he handled Crazy Eddie’s securities issues on behalf of his law firm.

Robert Schumer and the other attorneys at Paul, Weiss, Rifkind and Garrison asked many important questions to Crazy Eddie management and its auditors. Such questions made my co-conspirators and I fear the consequences of their determined efforts to obtain the truthful answers.

However, at almost every turn we found our auditors unwittingly aiding us because the corrosive affects their lack of independence (from consulting work which impeded their objectivity and professional skepticism) and their lack of enough education, skills, training, and knowledge which caused them to give inaccurate answers to the attorney’s very good questions.

While the law firm of Paul, Weiss, Rifkind, Wharton, and Garrison was rightfully never held in any way responsible or negligent regarding the Crazy Eddie fraud, as innocent victims of our lies, they paid a heavy price in legal fees defending their competence.

Senator Schumer and Mayor Bloomberg, I am quite sure you agree that the main pillar of great free market capitalist economic system is the integrity and reliability of financial information.

As an ex-felon I caution you to be very careful that any steps taken to “reform” Sarbanes Oxley do not have the unintended result of later causing our financial markets to lose faith in the reliability and effectiveness of external audits performed by competent independent external auditors. Any loss in the faith of our financial markets in the integrity of financial information will cost much more than the compliance costs of Sarbanes-Oxley that certain people are trying to reduce.


Sam E. Antar (former Crazy Eddie CFO and ex-felon)

Saturday, October 28, 2006

Guilty Defendants (You know who you are) The Best Defense May not be the Most Expensive

Floyd Norris of the New York Times recently posted in his Notions on High and Low Finance blog an excellent commentary about Jeff Skilling’s $70 million defense in the Enron fraud in a post entitled “The Worthless $70 million Defense.”

He wrote in part:

“Jeffrey Skilling’s $70 million defense got him 24 years in prison and an order to forfeit $24 million.”

With regards to other corporate scandals he wrote:

“HealthSouth and CUC International, admitted there was a scandal, but insisted they were victims of crooked subordinates. Sometimes the defense worked, sometimes it did not.”

I posted the following thoughts on his blog in response to his commentary:

My Comment and Advice to Guilty Defendants (You Know Who You Are):
The exposed criminal’s “best defense that money can buy” is the truth. A person must take full responsibility for their actions and hold themselves fully accountable without any excuse. They should never rationalize their criminal conduct.
About 20 years ago after 18 years involvement in the massive fraud at Crazy Eddie’s and an additional two years spent obstructing justice and covering up my crimes and others from the government I decided to “cooperate” for the purely selfish reason of avoiding a very long prison sentence.
I cooperated for 4 years thereafter and was the main witness in the criminal trial and five years later in the SEC civil trial.
During my initial 4 years of cooperation (which included over a thousand meetings and discussions) with government investigators and the US Attorney my lawyer was never present (except my initial meeting) and I had no benefit of any legal protection whatsoever. I finally signed a plea agreement after 4 years which was amended at the request of the government twice to increase my criminal exposure.
My sentencing Judge received only 5 letters – 2 from the government and 3 from attorneys representing crime victims. There was none of the usual letters from friends, relatives, and community members.
My sentencing guidelines exposure was 5 years incarceration and the US Attorney recommended 2 years jail time. My statement to the Judge was simple, “I am embarrassed to say I knew what I did was wrong when I did it.”
I never went to prison and my criminal defense cost me far less than any of the criminal defendants mentioned directly or indirectly above in Mr. Norris’s commentary.
While you may disagree with this “law and order” Republican appointed Judge’s decision regarding my admittedly light sentence the fact is that he took into account the truthfulness of my testimony, the fact that I made no excuses, the fact the I used no handler’s (attorneys) in making myself fully accessible to both criminal and civil plaintiff investigators and most of all the fact that I was willing to risk everything (by having no legal protection for 4 years) in helping the government and civil plaintiffs obtain justice.
Everyone has a right to a legal defense. However, I caution the guilty (you know who you are), from my own experience as an admitted venomous criminal it is far better to settle earlier and take responsibility and put it all behind you than to build wings to law firms.
There is a saying among criminals, “some lawyers will defend you to your last dollar.”
Every dollar you save in legal fees and resources you save the prosecutors and civil plaintiffs reduces the damages to your victims and their suffering.
If you are guilty, it is far better to face the mercy of the Court than its anger.
Sam E. Antar (Former Crazy Eddie CFO)
— Posted by Sam E. Antar

Thursday, October 26, 2006

The Private Securities Litigation Reform Act of 1995: The Unintended Consequence of "Pay to Play"

The Private Securities Litigation Reform Act of 1995 in effect gave large institutional investors (such as large public pension funds) more power in the selection of the lead plaintiff’s counsel in class action securities litigation.

One unintended consequence the law has created is at least in appearance and possibly in practice is a “pay to play” situation.

Certain class action law firms funnel political contributions to politicians who serve as fiduciaries or politicians who appoint various fiduciaries to the large public pension plans who often exert considerable influence in the selection of lead counsel.

As a result, other law firms who are “less politically connected” that are vying to be appointed lead counsel are at a disadvantage due to the political contributions of competing law firms. These law firms who do not make such political contributions may be able to represent shareholders interests more effectively and economically.

We have seen an increasing concentration of power in a few selected class action plaintiff law firms since this legislation has been enacted. Many such firms are those that seem to use their political clout.

Law firms should not be permitted to make political contributions (directly of indirectly) to any fiduciary of a public pension fund or any politician who appoints them.

Anything less in my book is “pay to play.”

Tuesday, October 24, 2006

Skilling's Sentence: What It is Good For and What Is Still Required

White collar crime while not a violent crime can be in many ways more brutal in the collective harm in inflicts on our society. White collar crime harms not only the company and its direct victims (shareholders, employees, and company creditors) but the integrity of our financial markets.

When there is any doubt as to the reliability of financial information the collective market capitalization of our public companies suffer resulting in lost wealth such as reduced pensions benefits to retirees, higher costs of capital, and higher costs of debt. Higher costs of doing business reduce employment and taxes. Therefore, white collar crime is a scourge that destroys our economic fabric.

The sentencing of Jeffrey S. Skilling to 24 years and 4 months in prison recognizes these important facts. White collar crime must be taken seriously for what it is – a brutal crime which inflicts collective harm on the innocent and often inflicts collateral damage on society.

However, while we must hold white collar criminals fully responsible and accountable for their actions long prison terms do not by themselves prevent white collar crime.

The sentencing of Mr. Skilling will not stop any crimes in progress or cause any criminal to wake up the next day with any new found morality. Criminals can only be prevented though effective deterrents though barriers such as strong internal controls, effective oversight, and “checks and balances.”

We must require all organization types (businesses, non-profits, and governmental organizations) to have strong and verifiable internal controls. Such internal controls must be monitored, evaluated, and audited by competent fully independent external auditors.

We cannot retreat from the reforms legislated under Sarbanes-Oxley as some persons have proposed but must instead strengthen them with increased educational standards on the accounting profession that enforces this important law. Auditors must do no consulting work for their clients.

We must require the internal audit function to report to an Audit Committee made up of only independent members of the Board of Directors and not report to the CEO or CFO. The internal audit profession must be licensed by the states similar to way CPAs are.

Punishment and prison are important. However, unless integrated with prevention, professionalism (competence), and power (legislation) there will be many more Enron’s to come.

Tuesday, October 17, 2006

Memo to Warren Buffett from an Ex-Felon on White Collar Crime

Memo to Warren Buffett from an Ex-felon:

I commend your memo to your managers urging them to be ethical and compliant with the law.

Recently, Alan Greenspan a man like you of high moral character whom I am sure you respect as I do said the only thing good about Sarbanes Oxley is that CEO’s and CFO’s should sign certifying documents and rest of it should be swept away.

However, white collar crime and criminality cannot simply be attacked or prevented with well intentioned memos and directives, codes of ethics, and having CEO’s and CFO’s sign certifying documents.

Criminals (like I was) do not respect memos directing them not to commit crime, codes of ethics, and certainly have no problem signing false certifications in furtherance of their crimes.Simply said, we cannot attack white collar crime with paper.

However, an en ex-felon I can say that criminals fear barriers such as a strong internal control structure, well educated, skilled, and trained external public accountants who are truly independent. Criminals fear oversight.White collar criminals think in terms of the successful execution of their crimes (like a project) and are undeterred by strong prison sentences (which we require to exact responsibility and accountability on criminals, but are not a significant preventive measure).

No criminal changes their moral compass and no crimes in progress are stopped as they read about long prison terms imposed on felon like Bernie Ebbers. White collar crime cannot be attacked simply by saying criminals violated memos, codes of ethics, and signed false certification documents. Such measures while important are means to make criminals responsible and accountable (after being caught) and do not prevent crimes from happening in the first place.

I therefore, respectfully urge you to support legislation like Sarbanes Oxley and take greater measures within your company to increase internal controls such as establishing better procedures and oversight to make sure crime does not happen in the first place, including strengthening its internal audit function, increasing oversight by independent board members.

Furthermore, I urge you to send a memo to your external auditors. Please use your credibility and prestige to urge them to push for reforms in the education of their CPA’s including better training in the areas of fraud and white collar crime. Would you believe most accounting students never even take a fraud course in college? Ask them how much of their required continuing professional education credits taken each year are devoted to fraud? Would you believe that the AICPA only recommends (but does not require) them to take only 10% of such credit hours in the area of fraud?

I respect your intentions but your well intended solutions are not respected by the criminals you are trying to stop. You want to stop white collar crime - then prevent it because a model that relies strictly on prosecution and accountability after the fact cannot reverse damage to investors, creditors, employees, and the integrity of our great capitalist free market economic system.


Sam E. Antar (Former Crazy Eddie CFO and Ex-felon)

Note: I have posted this memo on various blogs that have covered Mr. Buffett's memo.

To view his memo in its entirety see

Sunday, October 15, 2006

Who Should Internal Auditors Report To? How This Very Important Function can be More Effective.

An article published in on October 13, 2006 by Sarah Johnson entitled "Should Internal Audit Report to the CFO?" reports that Moody’s Investor Service issued a “best practices for audit committees’ oversight of internal auditors” which recommends that such internal auditors not report to the company’s CFO but instead the CEO and the independent audit committee of the Board of Directors.

Currently the practice is to have the internal auditors report both to the Chief Financial Officer and the Audit Committee of the Board of Directors. Explaining their recommendations according the article:
"It creates a potential conflict if the internal auditors report directly to the CFO," says Dave Roberts, president of the Institute of Internal Auditors and a member of the city of Orlando's audit committee.
I respectfully disagree with Moody’s recommendations in that they do not solve the overall problem of potential conflicts of interest.

I wrote a response published on’s web site which said:
“I believe this idea of having the internal auditors not report to the CFO is sound. However, as a former CFO (who participated in the Crazy Eddie fraud with my CEO – Eddie Antar) I believe we should take it a step further and have the internal auditors report directly only to the Audit Committee of the Board of Directors and not the CEO too.”
The internal auditors must report only to the independent Audit Committee of the Board of Directors since in most cases frauds committed by CFO’s also include collusion with the CEO – WorldCom, Enron, Crazy Eddie,etc.

I made an additional recommendation in my comments published on their web site:
In addition I believe that similar to the way States certify and license CPA’s, we must have a similar accreditation of internal auditors. They must be licensed. The effect would be to raise the level of professional responsibility and stature for this very important profession.
Furthermore, the certification of financial reports by CEO’s and CFO’s should be expanded in that any person in the corporate hierarchy that makes representations to the external auditors must certify their information in some form.
If for example, internal auditors were licensed by the states they practiced in and certified their reports to external auditors it would raise by default their level of responsibility, accountability, and create greater awareness of the serious work they perform.”
I believe that my recommendation's set forth above would result in meaningful results in increasing the integrity if financial information which is the life-blood of our great capitalist free market economic system.

Sunday, October 08, 2006

The Battle for the Soul of American Capitalism

I can see the day in the not too distant future when Sarbanes Oxley “reform” passes the Congress for approval and is ready to be signed by the President in office at that time. On that day many will crowd around the cameras as the new legislation is ready to be signed into law. They will herald it as a step forward for our great capitalist economic system. They will say that the new reforms will free companies from unnecessary regulatory burdens and increase capital formation. They will claim that investors will be protected.

Imagine then that Sam E. Antar is there too with them at the signing of this new "reform."

Imagine me who has said the following:

“I was the worst of the worst, the scum of the scum” (1)

And who openly admits as a criminal that:
“I broke and corrupted the sacred trust that was put upon me by the shareholders, the employees and the vendors and the public. I corrupted the main pillar of the free market system—the integrity of our financial statements—by committing fraud” (2)
- standing there with the chorus of supporters for this new “monumental reform.”

Imagine that the CFO of Crazy Eddie who helped mastermind one of the largest securities frauds of its time changing his mind and now saying that these "reformers" are right. We do not require stronger internal controls, we do not require that internal controls be evaluated by external independent auditors, and it does not affect the independence of accounting firms if they give consulting services to the firms that they audit, and so on. Imagine me saying that the new reforms will help investors, creditors, and increase the integrity of our financial markets. Imagine that I say that Sarbanes Oxley in its present form can be watered down and that investors and the capital markets need not worry.

I would say to the press at this gathering as this new reform legislation is passed that I am convinced that despite my previous criminality that investors and others do not require strong protections as required by Sarbanes Oxley in its present form.

Maybe then people would take notice to the destruction of American capitalism (the greatest economic machine ever known) by those who say they champion it.

Maybe by endorsing the arguments of the reformers (however well intentioned they may be but still wrong) I can be more effective in stopping this sort of lunacy than anything I can say intelligently on this subject.

It would be an equivalent to when President Bush hugged Senator Lieberman and as a result it was a rallying cry to those who helped the Senator lose his Democratic nomination. (Don’t get me wrong I voted for Bush and supported Lieberman and still continue to support them on most issues).

Therefore, I am personally considering endorsing any critic who is looking to water down Sarbanes Oxley rather that to look for ways to strengthen it as “the kind of SEC Chairman” I wish were around during my days at Crazy Eddie.


In the words of Michael Corleone, “We are both part of the same hypocrisy.”

That goes for the "reds" the "blues" and the "black holes" of American free market capitalism like criminals such as me (or was).

(1) The Boston Herald in a column entitled "Crazy, maybe, but listen to this crook" by Brett Arends published on October 2, 2006

(2) Compliance Week, Q & A Interview by Melissa Aguilar with Sam E. Antar on May 16, 2006

Friday, October 06, 2006

Warning to Business: We require better education for accountants and auditors, more independent audits, and better barriers to white-collar crime

I recently told five audiences in Bowling Green, Ohio and Toledo, Ohio that white collar crime can be just as brutal as violent crime.

White collar crime inflicts a collective harm on society that does not affect only the companies that were defrauded. It affects the integrity of our financial markets, raises the cost of capital and debt, causes unemployment, and is a cancer on capitalism.

Michael Chertoff who prosecuted the Crazy Eddie criminal case called Eddie Antar the "Darth Vader of Capitalism." White collar criminals are economic predators and are the scum of our free market capitalist economic system.

An article entitled, “In BGSU talk, 'Crazy Eddie' figure backs better audits” written by Homer Brickey in the Toledo Blade published on October 5, 2006 said in part:

This week Antar is telling four Toledo-area audiences the business world needs better education for accountants and auditors, more independent audits, and better barriers to white-collar crime. The four-year-old Sarbanes-Oxley Act, intended to clean up corporate fraud, is just a beginning, he said.
"Our capitalistic system depends on the integrity of financial information," Antar told a classroom of graduate accounting students at Bowling Green State University yesterday. But, he cautioned them: "The word 'trust' is no longer in the dictionary. [For you] it's a professional hazard."
And he warned them they'd better be prepared to detect frauds committed by "the scum of the scum, like me."
Antar, 49, former chief financial officer of electronics-retailer Crazy Eddie and now a convicted felon, told The Blade, "The entire [accounting] profession is not being properly trained to detect white-collar crime."
Fewer than a third of 1,000 colleges offering accounting majors have fraud-detection courses, although BGSU does, and too few students are required to take the ones that are offered, he said. He planned to encourage members of the area chapter of Financial Executives International to go beyond requirements in Sarbanes-Oxley, imposing more stringent internal controls to ensure that no more disasters like Enron and WorldCom occur.

Monday, October 02, 2006

Crazy maybe, but listen to this crook

Boston Herald business columnist Brett Arends published my comments about government action to weaken Sarbanes-Oxley and my response to a recent speech by Former Federal Reserve Chairman Alan Greenspan in his column on October 2, 2006.

To those who want to water down protections for investors, be on notice, you have to contend with me.

Saturday, September 30, 2006

Former Federal Reserve Chairman Alan Greenspan Speaks Out about Sarbanes Oxley and I Answer Him Back

Dear Alan Greenspan:

I have read recent accounts in the press about your views on Sarbanes-Oxley. According to an article in the Boston Herald in an article entitled, “Greenspan Unleashed” written by Brett Arends and published on September 26, 2006:

The only part he praised was the rule that chief executives had to certify their companies’ accounts personally.

‘‘The rest we could do without,’’ he said.

As an ex-felon, former CPA, and former Chief Financial Officer of Crazy Eddie who helped mastermind one of the largest securities uncovered in the 1980’s I believe, respectfully, that I am uniquely qualified to address this specific issue.

Criminals have no problem signing false certification documents in furtherance of their crimes. It is simply a natural extension of the deceit and lies we use to successfully execute our crimes.

If you also mean that regulations under Sarbanes Oxley which prevent public accounting firms from offering consulting services to the client’s they audit should be scrapped (as implied in your remarks and the article quoted above) than I feel I must share my specific experiences as a criminal with you to understand why I respectfully disagree with your views.

White collar criminals use your humanity against you. One of our tools is the use of your gratitude towards us as a means of reducing your objectivity and weakening your skepticism of us. We believe that our victims become so intoxicated with our generosity and largess that they become resistant, scared, and embarrassed to ask critical questions as “red flags” are raised.

For over 15 years Crazy Eddie had certified financial statements. In the early years audited by a small accounting firm and in later years as a public company were audited by a firm which is part of the “big four” accounting firms.

With regards to the smaller firm (by the way I got my CPA experience working for them) Crazy Eddie was the largest client and awarded them consulting agreements whose monetary value was way in excess of their auditing fees. When the larger accounting firm succeeded the smaller firm of auditors we continued to award that firm consulting agreements as much as six times the value of the audits.

Both firms knew that we as “customers” could go else where for such consulting agreements. As a result we as criminals used their gratitude against them.

Whenever “red flags” came up they always accepted management’s version of the truth where any reasonable person would not. As a result they surrendered their “professional skepticism” and required healthy dose of cynicism to conduct their audits in a professional and effective manner.

An additional strength of Sarbanes Oxley is the requirement that companies have strong external controls which are reviewed by independent external auditors. Strong internal controls are the most effective means of preventing white collar crime.

Strong punishment while necessary is not by itself an effective deterrent to crime. Most white collar criminals think in terms of whether they can successfully execute their frauds. We require barriers such as strong internal controls to frustrate such plans.

Audits cannot be effectively conducted in the absence of strong internal controls. Even if the auditors could count even asset and liability to the penny issues remain about how such assets and liabilities were generated.

For example with the absence of effective internal controls the auditor cannot determine if all cash came from sales rather than laundered funds or other means.

Above I have used only a few examples to respectfully criticize your remarks. Please read my submission of comments to the Securities and Exchange Commission and the Public Accounting Oversight Board for in my web site for additional details.

I am willing to approach your remarks with an open mind. However, as a criminal who admits that my crimes were committed “just because I could” with “no rationalization I caution you that the public would not be swayed by my endorsing your position on Sarbanes Oxley.

Rather as a person who has no qualms telling people about the brutal nature of my criminality (from the collective harm it has caused many victims) I believe the public understands that my position carries more credibility than yours by my opposition to any weakening of Sarbanes Oxley.

We both have common ground in understanding that the reliability of financial information is the main pillar that supports of great free market capitalist economic system. I hope that you realize that white collar criminals subvert confidence in our financial markets and economy and as a result we inflict collective harm well beyond our defrauded companies.

I am also unhappy with Sarbanes Oxley as it should include effective competency mandates for an accounting profession that is not adequately educated, lacks necessary skills, and training to effectively implement this legislation.

You are surely a decent person and intelligent person who has lived a far more greater and productive life than a disgraced ex-felon like me. Therefore, when you hear my caution about the dangers of gutting Sarbanes Oxley and its reforms from a criminal it is designed to protect you from, you should carefully heed my warnings.

Monday, September 25, 2006

Asbury Park Press Article One of the Antar's still talks about fraud at Crazy Eddie - Sam E. Antar now spreads the word about white collar crime

An Article entitled “One of the Antars still talks about fraud at Crazy Eddie - Sam E. Antar now spreads the word about white-collar crime” written by Michael L. Diamond for the Asbury Park Press on September 24, 2006 reported about a recent presentation I gave to the New Jersey Chapter of the Association of Certified Fraud Examiners. It accurately stated:

"The Antar empire was crumbling and the government was moving in for the kill when Sam E. Antar, the chief financial officer for Crazy Eddie consumer electronics chain, decided it was time to cooperate.

There was no sudden enlightenment, no overwhelming remorse. Antar just didn't want to go to prison.

"I didn't find God on the footsteps of the courthouse," Antar said. "I did the cowardly thing. I went to the U.S. government and said, "I don't want to go to jail for 30 years.' "

However, another part of my decision was not published and also clearly must be understood. I decided to cooperate (yes, for the reasons above) only after I found out that my Uncle Sam M. Antar and his children (Mitchell and Allen) were trying to set Eddie and I up to take the blame for the Crazy Eddie fraud.

After finding out from me that his own father and brothers were laying the blame on us, Eddie told me, "You are on your own" and eventually skipped town.

Abandoned by Eddie and being set up by his family I was left with no other choice.

Wednesday, September 20, 2006

Ex-Criminal Touts Safeguards such as Sarbanes-Oxley Act

The Corpus Christi Caller-Times in an article entitled "Man's Story of Fraud, Reform" by Elvia Aguliar published on September 20, 2006:

A reformed white-collar criminal who defrauded investors out of millions in the 1980s and '90s told students at Texas A&M-Corpus Christi on Tuesday that safeguards against corporate wrongdoing are essential to protecting not only the economy, but people's life savings.

For 18 years, Sam Antar, along with his uncle and cousin, masterminded one of the largest securities frauds of the 20th century, bilking investors out of more than $120 million.

As the chief financial officer of Crazy Eddie Inc., a retail electronics chain, Antar, then 28, later became the government's key witness in both the civil and criminal prosecutions against his family and fellow co-conspirators.

"There's no rationalization for my crime," Antar said. "We did it simply because we could. I came clean with the government only because I wanted to avoid 20 years in prison."

The 52-year-old now travels around the country telling his story in hopes that the Sarbanes-Oxley Act of 2002 continues to be implemented to stop people who think like he once did. He travels on his own money and doesn't charge for his lectures.

Passed in response to corporate and accounting scandals, the Sarbanes-Oxley Act established new corporate responsibilities for all U.S. public companies. Antar said there is a movement to change the act because, critics say, it is creating more economic damage than good - but he disagrees.

"Criminals like myself, or like I used to be, destroy the fundamental underpinnings of our capitalistic system," he said. "The Sarbanes-Oxley Act should be strengthened because it ensures integrity."

Antar said he would like to see the Securities and Exchange Commission increase educational standards within the accounting profession, starting from college curriculums forward to mandate levels of competency for accountants who audit public companies. He thinks more courses should be established to prevent future accountants from committing crimes like his.

Antar said that during the 18 years he was committing a crime he never once thought about the victims. "Never did it cross my mind that people could be losing their jobs or money because of us," he said. "This securities fraud cost investors hundreds of millions of dollars, cost many people their life savings and careers. Their sufferings can never be measured."

Most of the skimmed Crazy Eddie funds were deposited in secret Antar family bank accounts in Israel. The company was prosecuted for underreporting income before going public, overstating income after going public, money laundering, fictitious revenues, fraudulent asset valuations, concealed liabilities and expenses among others.

Antar said after cooperating with the government he lost all contact with his cousin and uncle. He still does not speak with them.

"The biggest lesson I've learned through it all is that crime does not pay," he said.

Kristen Cope, a junior communications major, said she was shocked at the scope of Antar's illicit activities.

"It's scary what this company was doing and that they weren't caught sooner," she said. "It makes you think that there are probably other companies doing what they did now."

Thursday, July 20, 2006

"SEC Moves Forward on Sarbanes Oxley Inprovements" reads the latest SEC Press Release Issued on July 11, 2006:

My View:

Many people view this as the beginning of a process towards reducing the "burden" of Sarbanes Oxley. Be forewarned. Any so called reform of Sarbanes Oxley must include mandated increases in the education, skills, training, and experience of the entire accounting profession (independent auditors and internal company accountants and internal auditors). Any changes must include more accountability by all persons involved in the accounting, financial, internal control, and reporting processes. It is not enough that the CEO and CFO sign off on financial reports etc. All persons involved in the structure must also be accountable for the work they do too. Reducing the "burden" must not be a retreat from protecting the integrity of financial information. We require our external auditors to be more independent. Frankly, our investors are still not protected enough. Finally, all "reforms" must be carefully thought out. I will have more to say on this.

Link to SEC Press Release

Download SEC Concept Release 34-54122