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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 “fr…

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 d…

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 s…

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…

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 letter…

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 footnoted.org 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 recogni…

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 en…

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.

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 …

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 t…

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 trade mark 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 o…

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 audit…

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 f…

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 invol…

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 …

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 …

Spreading the Message

The competition of ideas makes our great democracy stronger. It is our duty as citizens to seek out the best ideas from both sides of a debate so we can continue progressing as a society. Debate can be passionate without being personal. Spirited and positive debates are the cornerstones of our democracy. We should not fear alternative ideas but should carefully consider them on their merits. As a nation we must embrace the debate and discussion of ideas about the various issues concerning us.Over the last several weeks, my input about white collar crime has been published in the blogs below.I thank these blogs for covering my side of the issue on white collar crime, SarbanesOxley, internal controls, the accounting profession, and more. Their readers have agreed and disagreed with me. I respect them all and hope that my input on the issues that we discussed may contribute to helping prevent white collar crime, strengthening the integrity of financial information, and help strengthen ou…

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 i…

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

An article published in CFO.com 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 CFO.com 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 …

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 commit…