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.