Thursday, April 29, 2010

Are InterOil's Auditors Capable of Finding Fraud in Plain Sight?

Fraud Discovery Institute (co-founded by convicted felon turned fraud buster Barry Minkow) is putting PricewaterhouseCoopers (PwC), InterOil's (NYSE: IOC) auditors, on notice that they must look out for possible fraud by the company as required by Statement of Auditing Standards No. 99. Fraud Discovery released a video to provide a road map to PwC "in an attempt to give investors clearer picture of the inside workings of the controversial company." Minkow believes that InterOil is "a financial crime in progress." In addition, former LA Times investigative reporter William Lobdell, who now writes for Fraud Discovery's iBusiness Reporting blog, issued a report detailing a "troubling pattern of behavior" by InterOil since its founding in 1997.




However, I am skeptical about PwC's capability to find any fraud at InterOil based on my prior experience with them as the auditors of Overstock.com (NASDAQ: OSTK) another scam company investigated in this blog. I correctly identified certain GAAP and SEC disclosure violations by Overstock.com and PwC still certified the company's financial reports as being in compliance with GAAP and SEC rules. A year later, Overstock.com admitted to those same GAAP and SEC disclosure violations exposed in my blog and restated its financial reports to correct its violations.

Both Barry Minkow and William Lobdell have publicly disclosed holding short positions in InterOil securities. I do research for Fraud Discovery on InterOil and I do not own any securities in InterOil, long or short. More disclosure at the bottom of this blog post.

Statement of Auditing Standards: Consideration of Fraud in a Financial Audit

According to SAS No. 99, "The cornerstone of an effective antifraud environment is a culture with a strong value system founded on integrity." Unethical behavior by company management is considered a red flag for possible fraud and auditors are required to increase the scope of their audits to detect potential fraud to insure that financial reports are free from material errors. Fraud Discovery Institute's InterNoOil.com website and its iBusiness Reporting blog have published many reports detailing a troubling pattern questionable behavior by InterOil management.

Forensic accountants look for a "pattern of inconsistent and conflicting disclosures" in investigating fraud at public companies, like InterOil. Likewise, PricewaterhouseCoopers is required by SAS No. 99 to look at "inconsistent and conflicting disclosures" to determine if InterOil is committing fraud, such as those described below.

Previous examples of a "pattern of inconsistent and conflicting disclosures" by InterOil

In my June 2009 blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme," I detailed how InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a private placement $95 million convertible debt offering. However, documents submitted in another court case reveal that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees, contrary to InterOil's SEC filings.

In March 2010, William Lobdell went to a Texas courthouse to examine documents filed in a litigation by the original investors of InterOil against CEO Phil Mulacek alleging fraud by him dating as far back as 1997 (Details here, here, and here).

In another blog post, entitled, "Did InterOil Commit Securities Fraud?" I detailed how CEO Phil Mulacek made sworn statements in that court case which conflicted with InterOil's financial disclosures to investors. In his sworn court testimony, Mulacek claimed that a $50 million judgment against InterOil would bankrupt the company, while InterOil's financial disclosures to investors claimed that a judgment in excess of $125 million would have a material adverse impact on the company.

Under SAS No. 99, "Misrepresentation in or intentional omission from the financial statements of events, transactions, or other significant information" is considered "relevant to the auditor's consideration of fraud." In both of the situations cited above, InterOil told one story to investors in its SEC filings and financial reports and its management told a conflicting story to the courts in sworn statements. If one story is true, the other story simply cannot be true. In each of the cases cited above, InterOil misrepresented or omitted material information in its financial reports to investors, as evidenced by its management's conflicting disclosures to the courts.

Based on InterOil's conflicting disclosures, PwC is required to investigate such irregularities under SAS No. 99, as part of its audit of the company. However, I am skeptical of PwC's auditing abilities and it's capability to uncover any fraud committed by clients such as InterOil. So far, they seem to have ignored significant management integrity issues at InterOil, like the two issues detailed above.

Why I am skeptical about PwC's capability to find fraud at InterOil

PwC was Overstock.com's auditors from 1999 to 2008. During that period, every initial financial report for every reporting period issued by Overstock.com and reviewed or audited by PwC violated Generally Accepted Accounting Principles (GAAP) or some other SEC disclosure rules. Overstock.com CEO Patrick Byrne blatantly lied to investors over a ten year period about the company's financial performance, internal controls, and compliance with GAAP and other SEC disclosure rules.

Starting in February 2009, I wrote a series of blog posts correctly identifying certain GAAP violations by Overstock.com in 2008 and prior years. Both Overstock.com and PwC ignored my requests for them to correct those GAAP violations and restate the company's financial reports. Patrick Byrne responded by orchestrating a smear campaign to discredit me and other critics who agreed with my findings, while PwC improperly certified the company's financial reports as being in compliance with GAAP.

In March 2009, Overstock.com hired Grant Thornton to replace PwC as its auditors. In September 2009, the SEC started investigating Overstock.com's accounting irregularities that were pointed out in my blog. In November 2009, Overstock.com fired Grant Thornton after they agreed that I correctly identified certain GAAP violations and wanted the company to restate its financial reports. PwC still stuck to its guns and claimed that Overstock.com did not violate GAAP.

In December 2009, Overstock.com hired KPMG to replace Grant Thornton. In February 2010, Overstock.com finally admitted that the company violated GAAP and restated its financial reports to correct GAAP violations, previously identified by me. I was right and Overstock.com and PwC was wrong.

Overstock.com's financial reports that were audited by PwC were restated three times in ten years and every single audit report issued by PwC was wrong. PwC ignored serious management integrity issues at Overstock.com and I have no reason to believe that they will address any management integrity issues at InterOil.

A "troubling pattern of behavior" by InterOil

William Lobdell's latest report details even more questionable behavior by InterOil's management team. Lobdell cites "InterOil’s 12 years of hyping gas and oil fields in Papua New Guinea" and points out that InterOil still has no proven commercially exploitable reserves to date. Lobdell lists ten wells that InterOil hyped to investors, only to abandon them later on.

Many short sellers, including Minkow and Lobdell, are skeptical of InterOil's claimed estimates of contingent resources (not proven reserves). Lobdell examined the track record of GLJ Engineering, a firm hired by InterOil in 2009 to estimate its oil and gas resources. He found three major blunders by GLJ in the past and questioned the reliability of their reports on InterOil.

Then, Lobdell details how InterOil was apparently shopping for a favorable engineering report on its reserves before the company hired GLJ:

InterOil’s Netherland Sewell report is MIA.
GLJ's past mistakes might not be that much of an issue if it weren't for the "Case of the Missing Netherland Sewell Report."
In March 2007, InterOil CEO Phil Mulacek told attendees at a Raymond James conference in Orlando, Florida that three "world-class" firms were in the process of performing reserve analysis on InterOil gas fields. Mulacek named one firm, the iconic Netherland Sewell, stating that InterOil had hired the company, according to a reliable source.
This news of an imminent evaluation from Netherland Sewell was frequently mentioned in fawning investor reports by Raymond James and on blogs and message boards promoting InterOil.
But the report never came.
About 17 months later, Mulacek indicated in a conference call to investors that an international firm hired by InterOil would finish its reserve analysis report by the end of October 2008.
Again, the report never came.

So what happened to the Netherland Sewell report? Netherland Sewell nor InterOil will comment. And since InterOil is never shy about releasing good news, this should be worrisome to investors.
In the balance of his report, William Lobdell takes issue with InterOil's hype on the company's long term viability. He analyzes how InterOil is running out of cash and questions and other roadblocks facing the company in the future.

Closing comments

I cannot understand how auditing firms like PwC with their access to a company's books and records can miss red flags and financial reporting violations correctly pointed out by outsiders such as short sellers like Barry Minkow and William Lobdell and independent whistleblowers like me. Unlike us, PwC seems to be incapable of finding fraud, even fraud in plain sight .It seems that the reliability of PwC's audit reports is nothing more than pot luck in most cases.

Written by:

Sam E. Antar

Disclosure:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway.

I do research on InterOil for Fraud Discovery Institute. However, I do not own any InterOil securities, short or long.

I plan on meeting corporate miscreants, such as fifth rate crooks like Patrick Byrne, in hell. In addition, it is likely that InterOil CEO Phil Mulacek may join Patrick Byrne and me in hell, too. We will all fry together.

Wednesday, April 28, 2010

The Real Reason Behind Danny DeVito’s Crazy Eddie Movie Project Meltdown from Eddie Antar’s Cousin and Criminal CFO Sam E. Antar

Deadline New York Photo: Danny DeVito
Updated: 05/03/10 at 12:08 AM on Bottom of Post: Added Blog Reactions

In an exclusive interview with Mike Fleming from Deadline New York, Producer and Director Danny DeVito whines about how problems in obtaining Eddie Antar's life rights essentially sunk his Crazy Eddie movie project. However, Danny DeVito does not tell the whole story to Mike Fleming.

Apparently, Danny DeVito wanted to do a story that glamorized Eddie Antar and portray him as some sort of misguided hero. As the other "main character" in our frauds, I will have no part of any production that is sympathetic to any character, including myself, for our heinous cold-blooded crimes.

In addition, DeVito has made a series of troubling comments to the press about how he apparently tried to side step defrauded thousands of investors who are owed hundreds of millions of dollars in civil judgments, while clearly showing his sympathy to Eddie Antar.

We deserve to rot in hell for our unforgivable crimes

Over the last twenty years, I have said publicly that as the criminal CFO of Crazy Eddie my crimes were pure evil and I deserve to fry in hell for my unforgivable sins. I've made no excuses for my criminal conduct. At Crazy Eddie, we committed our crimes for both fun and profit. We arrogantly committed our crimes simply because we could and we had no empathy whatsoever for any of our victims.
Crazy Eddie Antar

Danny Devito's slobbering love affair with Eddie Antar

Meanwhile, Danny DeVito seems to have a slobbering love affair with Eddie Antar, as he has tried to paint of sympathetic picture of my former boss and mentor.

In an April 2009 Variety article published when DeVito was still bullish about his Crazy Eddie movie project, he was quoted by Michael Fleming as saying:
He started as a guy who loved making deals more than money.

[Snip]

He lived an outrageously spectacular life and suffered an outrageously spectacular fall.
However, during the July 1993 Crazy Eddie criminal trial, former US Attorney Michael Chertoff accurately told jurors:
They say that blood is thicker than water. In this family money is thicker than blood.
Eddie Antar Wanted Poster
For Eddie Antar, money was in fact "thicker than blood." As the cover-up of our crimes unraveled, Eddie Antar skipped town with over a dozen phony passports and shipped his stolen loot overseas in multiple secret foreign bank accounts and safe deposit boxes. He cowardly left his family, including five young daughters behind.

When Eddie Antar was captured in Israel, he took the low road by still trying to escape responsibility for his crimes. Eddie tried to avoid extradition by citing Israel's "law of return" which is meant help Jews immigrate to Israel as a result of oppression and anti-Semitism in their native home countries and not to protect criminals like him. Ultimately, Eddie Antar was brought back to justice to face trial in the United States, kicking and scheming, as he was handcuffed and accompanied by US Marshals.

During the ensuing criminal and SEC civil trials, Eddie Antar and other members of his immediate family tried to lay the entire blame for the fraud on me and others who worked for them, despite the fact that they skimmed tens of millions of dollars from Crazy Eddie as private company and later made over $90 million selling stock at inflated prices to unsuspecting investors.

Eddie Antar simply loved money before his children, before his immediate family, before his other family members, and before everyone else. Howard Sirota, the former lead counsel for the victims of our crimes in the class action litigation against the Antar family, correctly told CNBC in July 2007, that Eddie Antar "is a sociopath."

Securities litigator Howard Sirota
It is simply an insult to our victims for Danny DeVito to even use the word "suffered" when it comes to Eddie Antar's self inflicted wounds, since our victims suffered far greater and irreversible losses as a result of our crimes.

In the recent Deadline New York article, Danny Devito continued to paint a sympathetic portrait of Eddie Antar:
DeVito said Antar was “hurt” by that news; he's got little else going on. “He’s gone through tough times, and he’s not the aggressive tough guy they paint him to be,” De Vito said.

[Snip]

...there is a family dynamic that isn't common knowledge and somewhat explains Antar's fall.
Danny Devito is clearly enamored by my con man cousin Eddie Antar. During a joint appearance with me on CNBC that was moderated by Herb Greenberg in July 2007, I confronted Eddie Antar about his flight from justice to escape responsibility to both his family and investors, who were defrauded by our crimes. See the exchange below:
Sam Antar: I fought for you like Crazy. Doing it for myself I fought. I stayed here and took the heat. You ran. You ran like a coward.

Eddie Antar: I am not a coward Sam.

Sam Antar: Yes, you left me out there hanging.

Eddie Antar: I didn't, I didn't leave.
Renee and Allen Antar still in denial
Sam Antar: You know something, you're not even a friend. You're just a thug. Just like me. A two bit thug.
As I detailed above, Eddie Antar is plainly still in denial about his cowardice towards his own family and investors.

There actually is a "family dynamic" that "explains Antar's fall" as DeVito claims. However, Eddie Antar and other members of his immediate family are simply unwilling to give a truthful account of what really happened at Crazy Eddie, while Danny Devito is willing to accept Eddie Antar's bullshit excuses for his vile behavior.

As recently as a couple of days ago, I received certain unsolicited and disparaging Facebook messages from Renee Antar, wife and cousin of Eddie Antar's brother Allen, and a long time friend of Eddie's still blaming me for all the Antar family crimes.

Danny Devito seems more sympathetic to Eddie Antar, rather than defrauded investors

As quoted above, Danny Devito claims that Eddie Antar's "....got little else going on." Perhaps, Eddie Antar should start by giving a full account of all of his stolen loot?

While federal investigators were able to recover over $90 million from Eddie Antar and other family members, several million dollars remain unaccounted for. For example, in November 2006, Eddie Antar claimed that he "donated" $6 million to an Israeli hospital. However, he received a kickback of $5.4 million in cash.

By spending a net sum of $600,000, Eddie Antar was able to save about $2 million in taxes and also place $5.4 million out of the reach of potential creditors, including defrauded investors.

While government investigators recovered a few million dollars cash from Eddie Antar's safe deposit boxes, the hospital kickback money was never fully accounted for. The government does not know whether the money found in those safe deposit boxes originated from skimming before Crazy Eddie's initial public offering in 1984 or money from that hospital kickback scheme.

To make matters far worse, Eddie Antar and other investors of questionable character tried to privately peddle his life rights to a gullible Danny Devito when he has not fully accounted for his stolen loot and owes investors millions of dollar in judgments.

According to Deadline New York:
Pulling together life rights deals to make fact-based feature films can be insaaaaaaaaaaane. In fact, rights problems have essentially killed a feature film about the  ex-consumer electronics king who coined that phrase in manic commercials that fueled the 70s rise of Eddie Antar's Crazy Eddie store chain across the East Coast. Danny DeVito planned to direct and produce Crazy Eddie, but he said the project could not be made because of a life rights deal he made with Antar.

[Snip]

DeVito hopes to pick up the pieces of Crazy Eddie, a drama that was to be written by 21 scribe Peter Steinfeld, with both producing. Right now the project is in shambles, all because they included the subject in a rights deal so he'd tell his story.

[Snip]

“It was all going well until we got a call from some big-time lawyer who represented a lot of people who were hurt by Eddie,” DeVito said. “He painted him as the Bernie Madoff of his generation and said that if Eddie is involved in any way, we’re going to put liens on the movie. I didn’t like the sound of that at all. This put a big, wet blanket over the picture. What it boiled down to is, if Eddie is involved at all, then we’re in trouble.”
That "big-time lawyer" is Howard Sirota, lead counsel in the class action litigation who represented the defrauded victims of our crimes. While Bernie Madoff stole far more money and was more evil than Eddie Antar, at least Madoff thought about his family and did run away to escape justice. And if Devito did indeed paint Eddie in a remotely sympathetic light, it would be like sitting through a movie that glamorizes Bernie Madoff. You’d throw your popcorn at the screen!

DeVito seemed far more concerned with paying Eddie Antar for his life rights, rather than being concerned about recovering money for defrauded investors. In May 2009, Danny Devito told Fox Business Channel in referring to Eddie Antar's life rights:
There was a deal and that deal was terminated. Any script that is written, or movie produced, will be based on public domain events and information.
However, in April 2010, Devito backed away from his comments to Fox Business Channel in is exclusive interview with Deadline New York, saying:
I’m not sure there were papers signed, it was more, we’ll do this together and we won’t burn you.
As quoted above, first Danny Devito tells Fox Business Channel, "There was a deal and that deal was terminated" and now he claims that "I'm not sure there were papers signed...." Are DeVito and his investors still trying to bypass defrauded investors? Shouldn't they have known about Eddie Antar's unpaid judgments to investors? Danny DeVito showed that he is clearly more sympathetic to Eddie Antar, rather than thousands of defrauded investors by telling Eddie that "...we'll do this together and we won't burn you." Nice guy?

Danny DeVito clearly loves my con man cousin and I am a con man, too. However, I know plenty about white-collar crime. At least I have done something to educate others about white-collar crime, and most of my work is pro bono, while Eddie Antar has sat around doing nothing since leaving prison.

From 1998 to the middle of June 2009, I traveled across the entire country taking no fees and I spent several hundred thousand dollars paying all travel expenses out of pocket. I've done several hundred lectures on white-collar crime for the government, law enforcement, educational institutions, businesses, and professional organizations.

For example, I've lectured at the Department of Justice, FBI, IRS, Secret Service, Department of Defense, and other federal and state law enforcement agencies. I've taught at universities such as Stanford Business and Law Schools, major corporations, major accounting firms, and major professional organizations. I still do plenty of pro bono work for the federal government and others (Details here).
Corporate miscreant Patrick Byrne

As an independent whistleblower, I correctly identified GAAP violations and SEC disclosure violations by a scam company called Overstock.com (NASDAQ: OSTK) and lies to investors by its CEO Patrick Byrne (See: October 5, 2009: Crain's New York Business - Crazy Like a Fox by Aaron Elstein (Download). After I alerted the Securities and Exchange Commission, Overstock.com was forced to restate its financial reports to correct those GAAP violations and SEC disclosure violations that I correctly identified and reported on my blog (Details here).

Note: For additional information about my three year battle to make Overstock.com comply with GAAP and SEC disclosure rules, please read "Selling America Short: The SEC and Market Contrarians in the Age of Absurdity" by Richard Sauer (Wiley 2010).

I am working very closely with the FBI, IRS, SEC, Justice Department, and other law enforcement agencies in both training them to identify and catch white-collar criminals and assisting them in various investigations pro bono.

I doubt that I will ever make it out of hell and get into heaven under any circumstances and I do not seek or want forgiveness for my vicious crimes from my victims. Anything that I may do in helping law enforcement and others does not undo any of my heinous crimes.

The consequences of lies versus the consequences of truth

Crain's New York Business article about Sam E. Antar
If I learned any lesson from my criminal days at Crazy Eddie, it is that the consequences of lies are far worse than the consequences of telling the truth, no matter how evil the truth is.

From 1987 to 1989, I lied under oath to protect myself and other Antar family members involved in our crimes. Afterwards, I learned that a bitter Sam M. Antar, Eddie's own father, who was purged from the company due to a family dispute, paid off two witnesses to place the entire blame for the fraud on his son, me, and others allied with him. When I told Eddie Antar, my lifelong mentor and boss, that his own father set us up to take the fall, he distanced himself from me and started making plans to flee the country.

At that point, based on the advice of my criminal attorney Anthony R. Mautone and civil attorney Jonathan D. Warner, I decided to "cooperate" with the US Attorney's office, the FBI, the Securities and Exchange Commission, and lawyers representing each and every victim of our crimes in their respective investigations for two years without the benefit of any plea bargain agreement limiting criminal and civil exposure for my crimes. My civil attorney Jonathan Warner's work helped the US Attorney's office obtain a guilty plea from Abe Grinberg, one of Sam M. Antar cronies who lied to the government.

Despite my previous false testimony, I was the key witness in both the Crazy Eddie criminal trial in 1993 and the Securities and Exchange Commission's civil trial that was prosecuted in 1998. In the criminal trial, Eddie Antar and his brother Mitchell Antar were convicted of numerous crimes, while his brother Allen Antar was acquitted. However, in the 1998 civil trial, Allen Antar, Sam M. Antar, and brother-in-law Ben Kuszer were convicted of civil fraud charges. Other Antar family members settled civil claims against them, rather than risk trials, and gave up most of their ill gotten gains.

Over a fifteen year period, the government and victim's lawyers recovered from the Antars more money than they made by selling Crazy Eddie stock to duped investors at inflated prices. The Antar family engaged in massive skimming before Crazy Eddie's became a public company and a substantial amount of those funds were recovered from secret foreign bank accounts, safe deposit boxes, and even money hidden in Sam M. Antar's ceiling.

As a result of my extensive cooperation with the government and victims of my crimes and taking into account that I "cooperated" with them for almost two years before obtaining a plea bargain agreement, the sentencing Judge rejected US Attorney Michael Chertoff's recommendation for jail time and instead sentenced me to only six-months of house arrest, 1,200 hours of community service, and nominal fines. All attorneys representing the victims of my crimes agreed to give me a complete walk from any civil liabilities.

Unlike Eddie Antar and other members of his immediate family, I make no excuses for my criminal conduct. Nor should I receive any praise for my cooperation with the government and defrauded investors. I cooperated with the government and victims simply to save my own rear end, avoid prison, and avoid civil penalties for my crimes.

Neither morality nor any sense of sympathy for my victims played any role in my decision to cooperate and take responsibility for my crimes. If the government did not investigate and prosecute me, I would still be the criminal CFO of Crazy Eddie today. If Sam M. Antar did not set up me and Eddie to take the fall for everyone's crimes and Eddie did not later abandon me, I would have never cooperated with the government or victims in investigating and prosecuting our crimes.

Will there be a Crazy Eddie movie?

The short answer is yes. Recently, I signed a contract with producer Robert Green and his east coast partner from New York for a planned Crazy Eddie motion picture production. I'm in talks with what is known in the film industry as an A-List screenwriter and will be taking the story out to studios.

They are dealing with me because they know that I have told the truth about my crimes even though it portrays me as a cruel, heartless, and cold-blooded crook, just like Eddie Antar and other family members. They don't want to talk to a scumbag in denial like my cousin and former lifelong mentor Eddie Antar.

In addition, we have documentation about the Crazy Eddie frauds that is not available in the public domain. Simply put, I know where all the bodies are buried. I constructed and ran the scam 24/7 for 18 years. It was in my blood and a major part of my life.

My life rights are essential to any motion picture project because I was deeply involved in the Crazy Eddie fraud, I worked side-by-side with Eddie Antar in committing those frauds, I don't seek to glamorize any of our crimes, and I have already told the entire truth about what really happened at Crazy Eddie in every sordid detail.

Crain's New York Business Photo by Buck Ennis: Sam Antar
I will not sign over my life rights to any movie project that glamorizes any character involved in our crimes, including myself. In addition, Danny DeVito risks litigation from defrauded investors, from me, and other main characters, if he decides move forward with or without Eddie Antar. In other words, Eddie Antar's life rights are worthless and no movie can be made without my life rights, too.

A message for Danny DeVito

I have a message for Danny DeVito about his love affair with my sociopath cousin Eddie Antar. To borrow a line from Groucho Marx, "I love my cigars, too, but I take them out of my mouth once in a while." Don't get conned by Eddie's charm like others including his own family who have learned the hard way.

If I can give any compliment to my cousin Eddie Antar, his embittered father Sam M. Antar was much worse than he is, for setting both of us up to take the fall for everyone's crimes. At least, I do not pretend to be anything other than a cold-blooded criminal who enjoyed committing his crimes and had no empathy whatsoever for his victims. As I said, "The consequences of lies are far worse than the consequences of telling the truth, no matter how evil that truth is."

I will have much more to say about the new Crazy Eddie movie, soon.

Written by:

Sam E. Antar

For additional information on Crazy Eddie, please visit my White Collar Fraud website and watch video clip of Howard Sirota and me on Fox Business Channel.

Other blog reaction:

Jewish Week: A KO for Kelso by Adam Dickter

Pragmatism Refreshed: The Crazy Eddie's Movie by Chistopher Faille

Going Concern: The Crazy Eddie Movie Hits a Snag by Caleb Newquist

Please read my important disclosure below:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I plan on meeting corporate miscreants, such as fifth rate crooks like Patrick Byrne, in hell. In addition, I plan on meeting Eddie Antar, his father, and his brothers in hell, too.

I plan on frying in hell with all of them for a very long time.

Wednesday, April 21, 2010

New Movie: Shia Labeouf Helps Thomas Belesis from John Thomas Financial Pump InterOil

IFC Media Project put out a movie clip about actor Shia Labeouf's role in helping John Thomas Financial CEO Thomas Belesis pump InterOil (NYSE: IOC) stock. This blog and others are featured in the video. Link to video here or view video below:




According to IFC Media Project:
How not to get played when playing the market -- the Shia LaBeouf Story!
When Oliver Stone went looking for a new co-star for his sequel to Wall Street, he found fresh-faced Transformers' star Shia LaBeouf. Shia trained for his role by shadowing Wall Street power brokers at John Thomas Financial.

But now, Shia's gone nutty for the stock market game and some critics -- with their own agendas -- have alleged that John Thomas may be using Shia to meet their own ends...
The following are links to all websites shown in this clip -- please read and digest this information with a critical eye:

Business Insider: Shia LeBeouf's Stock Picks: Buy IOC, Oil And Apple, And Short Gold

Dealbreaker: Shia LaBeouf Turned $20,000 Into $489,000 In Mere Months

New York Post: Shia's 'Slick' Tip

Business Insider: What's the Story of  Shia Labeouf Pumping InterOil?
Going Concern: Let's Take a Closer Look at This Shia Labeouf and InterOil Situation
Dealbreaker: Shia LaBeouf Pawn In John Thomas Financial’s Attempt To Pump InterOil Stock?

Business Insider: InterOil's Own Geologists Say It Is Lying To Wall Street, Says Skeptic

White Collar Fraud: Is InterOil Built on a Foundation of Fraud?
Anatomy of a Stock Market Manipulation Scheme

In my blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme," I provided detailed evidence of a stock market manipulation scheme involving InterOil, John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta. I believe that they conspired to raise the stock price of InterOil's shares to force the conversion of certain outstanding debentures to common stock.

White Collar Fraud blog featured in IFC Media Project movie
InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a private placement $95 million convertible debt offering. However, documents submitted in another court case reveal that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees.

Those same court documents show how InterOil used Clarion as a buffer to conceal John Thomas Financial's and banned stock promoter Carl Caserta's role in the debt offering. About a year earlier, InterOil told the New York Times that it was not doing business with Caserta.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from his company's prior investment banking relationship with InterOil. Afterwards, John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil. Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.

Written by:

Sam E. Antar

Read some of my other blog posts on InterOil here:

04/08/10: Open Letter to Morgan Stanley "Research" Analyst Evan Calio: About Your Seriously Flawed Report on InterOil

03/31/10: Did InterOil Commit Securities Fraud? 

03/29/10: The InterOil Saga: Convicted Felons Battle Current Breed of Stock Market Miscreants

03/26/10: Is InterOil Based on a Foundation of Fraud?

03/25/10:  Can Shia LaBeouf Help Shed Light on a Stock Market Manipulation Scheme Involving InterOil and John Thomas Financial?

07/13/09:  InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme

07/01/09: Banned Stock Promoter Carl Caserta Still Working for InterOil and Promoting Its Stock Despite Previous Denials

06/18/09: InterOil Files False Disclosures With SEC (Redacted Version)

Disclosure:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own any InterOil securities, long or short. However, I assisted Fraud Discovery Institute in researching InterOil. Fraud Discovery co-founder Barry Minkow has publicly that he has held short positions in InterOil securities.

Goldman Sachs Tells More Bull to Investors

The consequences of lies and deceit are far worse than the consequences of truth and disclosure. I learned that lesson the hard way, as I fought a losing battle against Richard E. Simpson, who was the lead counsel for the Securities and Exchange Commission in its successful battle against certain criminal members of the Antar family than ran Crazy Eddie. Veteran top gun SEC attorney Richard Simpson, known as a relentless "pit bull" back in the Crazy Eddie days is now lead counsel for the SEC in its lawsuit alleging fraud by Goldman Sachs (NYSE: GS) and Fabrice Tourre. Like me, Goldman Sachs and Fabrice Tourre will have to learn that lesson the hard way through litigation.

During the company's recent conference call, Goldman Sachs tried to counter allegations made by the SEC in its complaint filed last Friday. However, the company did not deny certain key allegations made in the SEC complaint, specifically that marketing materials distributed to investors omitted any reference to Paulson and that investors did not know about Paulson's role in selecting the underlying securities. Instead, Goldman Sachs tried to rationalize its behavior and double talk investors in countering allegations made by the SEC in the complaint.

As I described in my last blog post, Goldman Sachs should not be commenting at all about the SEC lawsuit and should simply say, "Goldman Sachs does not comment on any current litigation and will address any issues in court proceedings." False and misleading statements made by Goldman Sachs about the SEC litigation can give rise to Rule 10b-5 claims by investors alleging fraud.

Before I begin to analyze certain comments made by Goldman Sachs, let's review the case and the relevant law.

SEC Complaint

The SEC complaint filed against Goldman Sachs and Fabrice Tourre alleged that they committed securities fraud by marketing a portfolio of mortgage backed securities to investors known as ABACUS 2007-AC1. According to the SEC press release, the marketing materials and other documents represented that all of the underlying mortgages in the portfolio were, "...selected by ACA Management LLC ("ACA"), a third party with expertise in analyzing credit risk...."

Goldman Sachs and Fabrice Tourre failed to disclose that Paulson & Co. Inc., "...played a significant role in the portfolio selection process." Paulson was betting against the viability of those same securities by taking a short position against it and its role in selecting the underlying mortgage was "...unbeknownst to investors."

In addition, the SEC alleges that:
Tourre devised the transaction, prepared the marketing materials and communicated directly with investors. Tourre is alleged to have known of Paulson's undisclosed short interest and its role in the collateral selection process. He is also alleged to have misled ACA into believing that Paulson invested approximately $200 million in the equity of ABACUS 2007-AC1 (a long position) and, accordingly, that Paulson's interests in the collateral section process were aligned with ACA's when in reality Paulson's interests were sharply conflicting.
The SEC claims that Goldman Sachs and Fabrice Tourre violated Rule 10b-5 by failing to disclose material information about Paulson's role in selecting certain underlying mortgage securities and that Paulson was betting against the viability of those securities by taking a short position against them. In addition, the SEC alleges that Goldman Sachs and Fabrice Tourre knew that ACA was operating under the false belief that  the Paulson was "investing in the equity of ABACUS 2007-ACI" or the underlying mortgage securities, but Goldman Sachs did nothing to alert ACA to the contrary that Paulson was shorting the securities. Misleading ACA is a Rule 10b-5 violation, too.

Relevant Law

The bedrock of America's securities laws can be found in Rule 10b-5 from the Securities Act of 1934 which makes it:
...unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, to employ any device, scheme, or artifice to defraud, to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
Note: Bold print and italics added by me.
The SEC's case against Goldman Sachs involves a case of alleged securities fraud under SEC rule 10b-5 of the Securities Exchange Act of 1934. As the so-called "gold standard" of investment banking, Goldman Sachs, with its legions of compliance officers and high paid attorneys don't seem to understand this 76 year old rule prohibits them from making false and misleading disclosures to investors, failing to disclose material information to investors, and otherwise deceiving investors.

If Goldman Sachs and Fabrice Tourre had made such disclosures to investors, the SEC would not have a 10b-5 claim against the company and Tourre. In other words, our securities laws are based on full and truthful disclosure and public companies cannot omit any material facts from investors.

Goldman Sachs Get Baited by SEC "Kiss of Death Message"

In my last blog post, I detailed how the SEC sent a "kiss of death" message by its filing of a surprise Friday lawsuit against Goldman Sachs and Fabrice Tourre alleging securities fraud. The purpose of the Friday "kiss of death" message is to:
1. Create anxiety for targets as they wait to respond to the SEC after the weekend, or

2. Bait targets into making a rash responses that can land them into deeper legal peril.
Goldman Sachs took the SEC's bait by hastily responding to the lawsuit that afternoon, rather than taking an appropriate amount of time to review it and respond to it after the weekend. For example, Goldman Sachs made the erroneous claim that:
...We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.

Note: Bold print and italics added by me.
The allegation of an omission of key material information about Paulson does give rise to a Rule 10b-5 claim as a matter of law and will survive possible future attempts by Goldman Sachs attorneys to dismiss those charges. On that issue alone, the company's press release is materially false and misleading when it claimed that "the accusations are unfounded in law."

In addition, Goldman Sachs defended itself by claiming that the allegedly defrauded investors are "sophisticated" and was provided with "extensive information" about the underlying mortgage securities.

However, Goldman Sachs ignored that the "sophisticated investors" were allegedly induced to make the transaction in question by its failure to disclose Paulson's role in selecting the underlying securities and that Paulson was betting against the viability of those same securities by shorting them. In addition, AXA was allegedly misled into making the transaction by Tourre allowing them to believe that Paulson was a long investor.

Public companies do not have a level playing field to engage a public debate on litigation matters. All press releases by public companies are subject to Rule 10b-5 and now investors can claim that they were misled by that press release and other comments made during the conference call as described below.

Rebutting Goldman Sachs

During the Goldman Sachs Q1 2010 conference call, Gregory Palm – Executive Vice President, General Counsel made the following comment to investors:
We would never intentionally mislead anyone; certainly not our clients or a counter party.

[Snip]

The SEC complaint also alleges that ACA was led to believe that Paulson would be buying an equity position rather than taking a contrary position against the portfolio which skewed ACA’s approach to dealing with Paulson. We simply do not believe that the evidence cited by the SEC demonstrates that ACA was misled into believing Paulson was going to be buying an equity position and the term sheets and offering circular did not reflect an equity trench.
[Snip]

...we actually have no idea where ACA got, assuming they did because that is alleged here the impression that Paulson was a “equity investor.”
Note: Bold print and italics added by me.
However, Goldman Sachs documents cited in the SEC complaint tell a different story than the double talk offered by Gregory Palm.

First: Goldman wanted ACA's name on the transaction, not Paulson's name. Documents distributed to investors omitted any reference to Paulson.

The SEC complaint cites and "internal email from Tourre dated February 7, 2007" which states:
“One thing that we need to make sure ACA understands is that we want their name on this transaction. This is a transaction for which they are acting as portfolio selection agent, this will be important that we can use ACA’s branding to help distribute the bonds.”
Second: The SEC cites Goldman Sachs documents showing how ACA was misled into believing that Paulson was a "Transaction Sponsor" and that ACA believed that Paulson was an "equity" investor.

However, Goldman Sachs and Tourre took no steps to tell ACA that Paulson was betting against the viability of the underlying mortgage securities by taking a short position in them. See below:
46. On January 8, 2007, Tourre attended a meeting with representatives from Paulson and ACA at Paulson’s offices in New York City to discuss the proposed transaction. Paulson’s economic interest was unclear to ACA, which sought further clarification from GS&Co. Later that day, ACA sent a GS&Co sales representative an email with the subject line “Paulson meeting” that read:
“I have no idea how it went – I wouldn’t say it went poorly, not at all, but I think it didn’t help that we didn’t know exactly how they [Paulson] want to participate in the space. Can you get us some feedback?”
 47. On January 10, 2007, Tourre emailed ACA a “Transaction Summary” that included a description of Paulson as the “Transaction Sponsor” and referenced a “Contemplated Capital Structure” with a “[0]% - [9]%: pre-committed first loss” as part of the Paulson deal structure. The description of this [0]% - [9]% tranche at the bottom of the capital structure was consistent with the description of an equity tranche and ACA reasonably believed it to be a reference to the equity tranche. In fact, GS&Co never intended to market to anyone a “[0]% - [9]%” first loss equity tranche in this transaction.
 48. On January 12, 2007, Tourre spoke by telephone with ACA about the proposed transaction. Following that conversation, on January 14, 2007, ACA sent an email to the GS&Co sales representative raising questions about the proposed transaction and referring to Paulson’s equity interest. The email, which had the subject line “Call with Fabrice [Tourre] on Friday,” read in pertinent part:
 “I certainly hope I didn’t come across too antagonistic on the call with Fabrice [Tourre] last week but the structure looks difficult from a debt investor perspective. I can understand Paulson’s equity perspective but for us to put our name on something, we have to be sure it enhances our reputation.”
49. On January 16, 2007, the GS&Co sales representative forwarded that email to Tourre. As of that date, Tourre knew, or was reckless in not knowing, that ACA had been misled into believing Paulson intended to invest in the equity of ABACUS 2007-AC1.
50. Based upon the January 10, 2007, “Transaction Summary” sent by Tourre, the January 12, 2007 telephone call with Tourre and continuing communications with Tourre and others at GS&Co, ACA continued to believe through the course of the transaction that Paulson would be an equity investor in ABACUS 2007-AC1.
51. On February 12, 2007, ACA’s Commitments Committee approved the firm’s participation in ABACUS as portfolio selection agent. The written approval memorandum described Paulson’s role as follows: “the hedge fund equity investor wanted to invest in the 09% tranche of a static mezzanine ABS CDO backed 100% by subprime residential mortgage securities.” Handwritten notes from the meeting reflect discussion of “portfolio selection work with the equity investor.”
Note: Bold print and italics added by me.
The record is clear from internal company documents that Fabrice Tourre knew that AXA believed that Paulson was a transaction sponsor and an equity investor based on his communications with AXA. Tourre did nothing to change their belief.

Apparently, Fabrice Tourre violated Goldman Sachs's Code of Business and Professional Conduct which clearly states that "It is the firm’s policy that the information in its public communications, including SEC filings, be full, fair, accurate, timely and understandable."

Yet, Gregory Palm told investors:
We have never condoned and would never condone inappropriate behavior by any of our people. On the contrary we would be the first to condemn it and to take all appropriate action.
According to the Wall Street Journal in the Wall Street Journal:
Fabrice Tourre, the Goldman Sachs Group Inc. employee at the center of the U.S. government lawsuit alleging securities fraud, has decided to take some personal time off and hasn't said when he will return to work, according to a person familiar with the matter.
Goldman spokesman Lucas van Praag confirmed in an email that Mr. Tourre is on "paid leave with no end date."

The 31-year-old Frenchman didn't come into his London office Monday, this person said. He remains an employee at Goldman, where he is an executive director.
Goldman Sachs should have been proactive and placed Tourre on a long term leave of absence, pending the outcome of the litigation. Goldman Sachs missed a golden opportunity to cut its losses and show the public that the company, which is considered the "gold standard" in investment banking, is serious about complying with securities laws.

It certainly would have not increased the company's litigation exposure to place FabriceTourre on a long term leave of absence, given that it appears that Tourre took such a leave of absense on his own.

According to the Financial Times, Goldman Sachs claimed:
In the bank’s view, it would have been a breach of client confidentiality to reveal that Paulson & Co intended to short the CDO.
Due to Paulson's unique role in selecting the underlying securities and betting against them by shorting them, Goldman Sachs could have simply obtained a waiver of confidentiality agreement from Paulson. It's done all the time. If Paulson did not want to waive confidentiality, Goldman Sachs should have declined to do the transaction.

Failure to Inform Investors of SEC Investigation and Pending Enforcement Action

During the conference call, Gregory Palm tried to explain why Goldman Sachs failed to disclose the SEC investigation and pending enforcement action and other possible investigations in its financial disclosures:
What I would say about that is our policy has always been to disclose to our investors everything we consider to be material. That would include investigations, obviously lawsuits, regulatory matters, anything. Whether there is a Wells or not a Wells if we consider it to be material we go ahead and disclose it and that is our policy. To get to your question we do not disclose every Wells we get simply because that wouldn’t make sense. Therefore we just disclose it if we consider it to be material.
Before the SEC files a lawsuit, it notifies the company or individual that it is conducting an investigation and later sends them a "Wells Notice" that its plans to recommend enforcement action against the recipient. Since an SEC investigation or the receipt of a Wells Notice is considered a material event, companies must promptly disclose them to investors in 8-K filings with the SEC.

According to the SEC:
....the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.

Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.
According to the Wall Street Journal:
The Wall Street giant said it was alerted to the probe in the summer of 2008 and was warned that it might face a suit in July 2009.
Therefore, by the time the SEC starting investigating Goldman Sachs "in the summer of 2008 and was warned that it might face a suit in July 2009" Goldman already knew that investors lost more than $1 billion on the transaction and the SEC was considering an enforcement action against the company due to alleged securities fraud.

An investigation and pending litigation from the SEC concerning an allegation of fraud involving a transaction that resulted in $1 billion in investor losses should certainly have been disclosed in detail by Goldman Sachs in its filings with the SEC.

In other words, investors can claim that they were deceived by Goldman Sachs's lack of specific detailed disclosure about the SEC investigation and pending litigation. Such a claim can be supported by the fact that after the SEC filed its lawsuit last Friday, Goldman Sachs shares dropped 13% that day, wiping out over $10 billion of market value.

Closing comments

As I said in the opening sentence of this blog post, "The consequences of lies and deceit are far worse than the consequences of truth and disclosure. That's because the cover up is always more dangerous than the underlying crime.

Goldman Sachs keeps on trying to justify its failure to disclose to investors Paulson's role in selecting the underlying securities and that Paulson was betting against those same securities by shorting them. In addition, the company seems blind to Tourre's role in allegedly misleading ACA into believing that Paulson was a long equity investor.

Goldman Sachs is opening up itself to potential new allegations of securities law violations by investors who rely on its comments about the SEC complaint. Those deceptive comments can be used by the SEC to show an intent to defraud investors in the underlying alleged securities law violation, as part of a cover up by the company.

Written by:

Sam E. Antar

Important Disclosure:


I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own Goldman Sachs securities short or long. However, it did scam Goldman Sachs analyst Richard Balter about Crazy Eddie's financial reports during my criminal days as the CFO of the company.

My research on Goldman Sachs is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I personally believe that some people at Goldman Sachs may end up joining me in hell.

Tuesday, April 20, 2010

Should the SEC Investigate Medifast Like It's Investigating Pre-Paid Legal?

Fraud Discovery Institute and its sister website iBusiness Reporting delivered duo salvos against Medifast (NYSE: MED) today releasing reports questioning the company's financial disclosures about its Take Shape for Life division which is responsible for Medifast's recent growth in revenues and profits. In addition, Medifast announced that it was replacing its auditors who came under fire by Minkow and this blog in June 2009, when we suggested that Medifast replace them because of their poor track record as detailed in reports issued by the Public Company Accounting Oversight Board.

Both Fraud Discovery Institute co-founder Barry Minkow, a convicted felon with a long track record of fraud busting and iBusiness Reporting reporter William Lobdell who is a former LA Times investigative reporter have publicly disclosed holding short positions in Medifast securities. I do research for Fraud Discovery on InterOil and I do not own any securities in InterOil, Medifast, or Pre-Paid Legal, long or short. In addition, I researched Medifast's former auditors for Fraud Discovery.

Should Medifast be investigated by the Securities and Exchange Commission?

According to former LA Times investigative reporter and bestselling book author William Lobdell's report in iBusiness Reporting:
Despite being an obvious multi-level marketing operation, as defined by the Federal Trade Commission and others, Medifast and Take Shape for Life officials work hard to avoid the label, perhaps in part because it might tip off investors that the company's recent sales increases would be difficult to maintain over time (and when jobs return to the economy) and also because some multi-level marketing efforts are often labeled pyramid schemes destine to collapse once the pool of new recruits dries up.
Lobdell goes on to suggest that Medifast may be in violation of SEC Rule 10b-5 governing securities fraud:
Whether Medifast needs to disclose it's a multi-level marketing company to prospective independent sales people and investors is a matter of the Securities and Exchange Commission. According to SEC regulations, it's illegal ... "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading ..."
More details from Lobdell's report can be read here and Fraud Discovery's press release can be read here.

Comparing Medifast to Prepaid Legal, another company under investigation by the SEC

Both Barry Minkow and William Lobdell compare Medifast's compensation plans for its Take Shape for Life division with similar plans at multi-level marketing company Pre-Paid Legal (NYSE: PPD) another company under scrutiny by Minkow. Fraud Discovery Institute has set up two websites detailing its investigative reports on Medifast and Prepaid Legal called "Medifraud.net" and "Ponzi Plus Pyramid Equals Prepaid", respectively.

After Fraud Discovery's released its reports questioning Pre-Paid Legal's financial disclosures, the Securities and Exchange Commission and the Federal Trade Commission started an investigation of the company and the SEC recently expanded its probe. According to Pre-Paid Legal's announcement:
The subpoena requests us to provide documents relating to certain membership information, member complaints about provider law firms, our efforts to achieve compliance with all payment card industry requirements, the resignation of Harland C. Stonecipher as Chief Executive Officer and President and the resignation of Tom Smith as a director.
In its recent press release, Fraud Discovery points out five "similarities" between Medifast and Pre-Paid Legal:
1. Both Medifast and Pre-Paid Legal Services report dismally low earnings for the vast majority of "coaches" and "associates." From July to December 2009, 53 percent of Medifast's "active" health coaches made an average of $97 per month, and this "average" is inflated as it conveniently excludes all coaches who made less than $25 per month. In 2009, Pre-Paid Legal Services reported that only 1.6 percent of vested sales associates personally sold more than 10 memberships. With annual commissions of $16 or $25 per sale of a family plan for associates selling less than 25 memberships, this means that 98.4 percent of vested associates make less than $250 per year.

2. Representatives of Medifast and Pre-Paid Legal Services are incentivized to recruit, rather than to sell the products. The representatives above the salesperson in both companies are collectively paid much more in commission on each sale than the associate who actually made the sale. It is nearly impossible to make a reasonable income simply selling the products or services of Medifast or Pre-Paid Legal Services, pushing the representatives to recruit new members in the hope of earning more.

3. Both Medifast and Pre-Paid Legal Services have 10 levels of commission payouts. For an individual sale, the person making the sale will receive a small commission, while 9 other levels will receive commissions that, collectively, usually exceed the commission the actual salesperson received.

4. What's to hide? Neither Medifast nor Pre-Paid Legal Services disclose their "churn rates." While both companies report the number of "active" coaches or associates at the end of the year - and Pre-Paid Legal Services also reports the number of associates recruited during the year, they deliberately fail to disclose the total number of representatives at the end of the year or the number of people who have quit during the year. Failing to disclose these key figures effectively conceals the failure rate of the recruits.

5. What's to hide, Part II? Neither Medifast nor Pre-Paid Legal Services discloses the real average income for their coaches or associates. Medifast appears to disclose average income but excludes all coaches earning $25 or less in monthly commission from its calculations, effectively making the reported "average" a completely fictional number.

"Multi-level marketing is not direct selling and is nothing more than a money transfer game where the product or service is merely the excuse used to move the money from those at the bottom of the pyramid to the exclusive minority at the top of the pyramid," Minkow said.
Both Minkow and Lobdell suggest that the SEC, like it's investigating Pre-Paid Legal, should also investigate Medifast's financial disclosures.

Medifast replaces its auditors

According to Going Concern blogger Caleb Newquist:
McGladrey & Pullen/RSM McGladrey has been named the new audit/tax firm of Medifast, the company announced in a filing last Friday. The Company dropped Bagell, Josephs, Levine and Company LLP of New Jersey who was purchased by Friedman LLP, citing/blaming Sarbanes-Oxley for reducing the number of accounting firms that have the “extensive resources and experience with public companies on a national and regional basis to better serve Medifast.”
In June 2009, I helped Fraud Discovery research Medifast's auditors and noted that 50% of their audits inspected by the Public Company Accounting Oversight Board were materially deficient.

Not backing down from Medifast lawsuit

Minkow, Lobdell, along with acclaimed forensic accountant Tracy Coenen and pyramid scheme expert Robert L. FitzPatrick were recently sued by Medifast claiming defamation. I criticized that lawsuit saying:
Like your complaints to investors and securities regulators, your lawsuit fails to provide a detailed and credible substantive line-by-line rebuttal of serious allegations of improprieties concerning Medifast's business model, marketing practices, and financial disclosures made in reports issued by Fraud Discovery Institute....

Instead, the lawsuit reads like a cheaply produced late-night infomercial for insomniacs, rambles about the purported "health" benefits of Medifast products, and rants that Fraud Discovery Institute's reports are false. To support your claims of defamation, the lawsuit refers to self-serving claims on Medifast's website and disclosures in SEC filings which certain Defendants allege are false and misleading.
Tracy Coenen's rebuttal of Medifast's allegations can be read here. Barry Minkow's and William Lobdell's response can be found here.

None of them are backing down from continuing to investigate financial reporting irregularities at Medifast despite its frivilous lawsuit and I stand behind my friends, too. Medifast can shove its retaliatory lawsuit up their rear ends.

Written by:

Sam E. Antar

Recommending Reading:

Fraud Files Blog - Medifast changes auditors: Was Barry Minkow right when he criticized former auditors? by Tracy Coenen

Disclosure:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do research for Fraud Discovery on InterOil and I do not own any securities in InterOil, Medifast, or Pre-Paid Legal, long or short. In addition, I researched Medifast's former auditors for Fraud Discovery.

Sunday, April 18, 2010

Did a Clever SEC Bait Goldman Sachs into Compounding Its Legal Problems With the "Kiss of Death" Message?

Updated: At 3:48 AM ET 04/20/2010 on bottom

The Kiss of Death

In filing its lawsuit against Goldman Sachs (NYSE: GS) on a Friday, the Securities and Exchange Commission sent what I call the "kiss of death" message to the embattled company. In other words, the SEC wanted to stick it to Goldman Sachs and Fabrice Tourre, the Executive Director of Goldman Sachs International, who is also a defendant in the complaint. While the SEC as a practice does inform target companies and individuals of an impending enforcement action, it does not always tell them exactly when such an action will be filed.

Apparently, the SEC filed its lawsuit without giving Goldman Sachs the heads up that it was planning to file it that day. Business Insider observed that Goldman Sachs was clearly unprepared to respond to the complaint as news of the lawsuit dominated the headlines all day. Goldman issued a short denial around noon and issued an extensive denial late in the afternoon, after most people had gone packing for the weekend.

When a company or individual receives a surprise subpoena on a Friday from the SEC, it is usually designed to ruin their weekend plans. Yes, the SEC can get personal in its own way.

Usually, corporate lawyers are unavailable on short notice to work weekends. When a company or individual receives a subpoena or lawsuit on a Friday, they are left to stew in anxiety over the weekend until Monday, before their lawyers can appropriately advice them on how to respond to the SEC.

Back in the day as the criminal CFO of Crazy Eddie, I received a surprise subpoena from the SEC late Friday afternoon. I had to wait until Monday before my attorneys had time to advise me on a course of action.

The "kiss of death" message is deliberately sent on Fridays to chill the bones of criminals. Some criminals wait in anxiety during the weekend until Monday to consult with their attorneys about what to do next. Other criminals or SEC targets like Goldman Sachs don't want to wait until Monday. So they make rash decisions and major errors in prematurely reacting to the "kiss of death" message to their own peril and find themselves in legal quicksand.

Goldman Sachs chose not to wait until Monday and fully digest the implications of the SEC complaint. After a relatively short consultation with its attorneys, the company hastily issued a detailed press release later Friday afternoon that I believe will land it into deeper potential trouble. Before I discuss that issue, it's worth noting who the SEC selected to be its lead counsel in the lawsuit against Goldman Sachs.

SEC Lead Litigation Counsel: Richard E. Simpson the "Pit bull"

The SEC chose top gun Richard E. Simpson as its lead counsel in its lawsuit against Goldman Sachs and Fabrice Tourre. Coincidently, Richard E. Simpson was the same lead counsel for the SEC in its successful case against Crazy Eddie and the Antar family.

Simpson is a twenty year veteran at the SEC Enforcement Division. He could have easily made much more money in the private sector, but instead stayed at the SEC. As a former adversary who did battle against Simpson and later buckled under his pressure to cooperate with him, I found him to be very focused, knowledgeable about how criminals operate, and he knows how to bring them down.

In the Crazy Eddie days, Richard Simpson developed a reputation for turning pin stripe suits into orange prison jump suits. Simpson's investigation of the Antar family led to the capture of fugitive Eddie Antar in Israel, later imprisonment of Eddie and his brother Mitchell, and the impoverishment of other family members. Simpson won civil cases against against Sam M. Antar, Eddie's father, and other family members who were not indicted in the criminal case.

Simpson's relentless pursuit of the Antars earned him the nickname "Pit bull" from US Attorney Michael Chertoff's office, which prosecuted the Crazy criminal case. Over a fifteen year period Simpson was able to recover from the Antars more money than they made by selling Crazy Eddie stock to duped investors at inflated prices. The Antar family engaged in massive skimming before Crazy Eddie's became a public company and Simpson recovered a substantial amount of those funds from secret foreign bank accounts, safe deposit boxes, and even money hidden in Sam M. Antar's ceiling.

On June 22, 2004 Justin Feldman, former attorney for Eddie Antar, in an interview at the SEC Historical Society commented on SEC attorney Richard Simpson:
Rick Simpson. Tenacity, I'm telling you! When he wanted every dollar back we had to fight with him to get ten cents on the dollar on our fees.
After the SEC filed its complaint against Goldman Sachs and Fabrice Tourre, I was interviewed by Diane Tucker from the Huffington Post and was asked about Simpson. I told her:
Richard Simpson is a relentless litigator who brought the Antar clan to its knees.

Rick is a tough adversary. I swear he works over 90 hours a week. He's focused, aggressive, and understands the way criminals operate. He knows accounting backward and forward, which is rare for an attorney. Richard Simpson is what the SEC should be today, but unfortunately is not.
In addition, former FBI Special Agent Paul Hayes who led the criminal investigation of Crazy Eddie was interviewed by Diane Tucker. See below:
Former banker and retired FBI agent Paul D. Hayes told me on the phone he is impressed with Simpson.
"He has the utmost respect for the procedures of civil and criminal law. He lets the facts tell the story, and yet he's innovative as well. He'll investigate areas where there's no precedent in law, but are fair areas to address. That's what he did in the Crazy Eddie case."
Goldman Sachs and Fabrice Tourre could not have drawn a tougher adversary from the SEC than Richard Simpson who is a pro among pros. Like Simpson chased the Antars and their money to all ends of the earth, he can be expected to be even more relentless in his pursuit of the "high and mighty" Goldman Sachs in any long running legal marathon.

By sending the "kiss of death" message to Goldman Sachs in filing its lawsuit on Friday, the SEC led by Simpson was able to get Goldman Sachs to prematurely react to the SEC complaint and make grave errors.

Before I get to that point, let's review the SEC complaint.

The Lawsuit

On Friday, the SEC filed its lawsuit against Goldman Sachs and Fabrice Tourre alleging that they committed securities fraud by failing to disclose to investors that a certain portfolio of mortgage backed securities was substantially picked by another customer who was betting against the viability of those same securities by taking a short position against it. Goldman Sachs and Tourre are alleged to have concealed short seller Paulson & Co.'s role in selecting the underlying mortgages. Instead, they told investors that all securities in the portfolio were selected by ACA Management, a third party with expertise in analyzing credit risk. See more details from the press release below:
The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

...Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

[Snip]

...Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.

...the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

...after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

...Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.

...the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.

Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.

The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.
Note: Bold print and italics added by me.
The SEC complaint involves a simple issue of nondisclosure to investors of material financial information governed mainly by Rule 10b-5, which I will describe in more detail later. The SEC alleges that Goldman Sachs and Fabrice Tourre should have informed investors of Paulson's role in the transaction. Download the lawsuit here.

The Cover up is more Dangerous than the Underlying Crime

Back in the day, I learned that the most dangerous time for a criminal is the cover up of a crime and not the execution of a crime. Public statements made by Eddie Antar's father and brothers in defending their actions were later successfully used against them in civil and criminal proceedings. In pursuing the Antar's, Simpson learned that criminals make hasty decisions to defend their actions which later land them into deeper legal trouble.

Many people are upset that the SEC brought civil charges against Goldman Sachs, while the Justice Department has not filed any criminal charges against the company. Back in the Crazy Eddie days, we faced two parallel probes, a civil probe from the SEC and a criminal probe from US Attorney Michael Chertoff in Newark, New Jersey.

Simpson effectively baited certain members of the Antar family into testifying and lying under oath in the civil case, rather than exercising their right against self-incrimination under the 5th Amendment to the US Constitution. Those lies told by the Antars were later used as the foundation for the successful criminal case brought to trial by US Attorney Michael Chertoff.

The Antars had effectively used the art of "bait and switch" against their customers and in a form of poetic justice they fell victim to Simpson's "bait and switch" tactics. I am certain that the Justice Department is watching the SEC investigation and litigation against Goldman Sachs, too.

After the stock market closed on Friday, a startled Goldman Sachs issued a detailed press release responding to the SEC lawsuit and possibly created a new set of legal problems by apparently misleading investors about certain issues being litigated and obscuring other issues. They took the carefully laid out bait provided by the SEC's "kiss of death" message and screwed up royally, as I will describe below.

Goldman Sachs Makes Huge Error in After Market Response to SEC Lawsuit

Rule 10b-5 prohibits public companies, their officers, and employees from making:
...any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person....
The SEC claims that Goldman Sachs and Fabrice Tourre violated Rule 10b-5 by failing to disclose material information about Paulson's role in selecting certain underlying mortgage securities and that Paulson was betting against the viability of those securities by taking a short position against them.

The Goldman Sachs press release starts out by saying:
...We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.

Note: Bold print and italics added by me.
As I will describe below, at the very least, the SEC's allegations are founded in law under Rule 10b-5, contrary to the company's representation to investors in its press release. In addition, the press release misleads investors about the SEC complaint, too. Therefore, the Goldman Sachs press release may subject the company to additional Rule 10b-5 violations.

Goldman Sachs does not seem to realize that as a public company it cannot have a level playing field for itself in responding to allegations of fraud by the SEC. If Goldman Sachs loses the lawsuit, investors can claim that they were misled by the company's statement that "the accusations are unfounded in law and fact" under Rule 10b-5.

The press release goes on to say that Goldman lost money from the alleged fraud:
• Goldman Sachs Lost Money On The Transaction.  Goldman Sachs, itself, lost more than $90 million.  Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.
A common diversion technique used by criminals is to claim that they lost money from a questionable transaction to show they have no motive to defraud their victims. I lost almost $10,000 from selling my Crazy Eddie stock and initially claimed that I had no motive to defraud investors.

It is simply irrelevant that Goldman Sachs lost money on the transaction in question. The SEC alleges that Goldman Sachs and Fabrice Tourre omitted key material information from investors (rule 10b-5 violation) when they failed to disclose to them Paulson's role in selecting the underlying mortgage securities.

In addition, Goldman Sachs defended itself by claiming that the allegedly defrauded investors are "sophisticated" and was provided with "extensive information" about the underlying mortgage securities:
• Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.
• ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions.  ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities. 
Sophisticated investors are defrauded all the time. Even if "sophisticated investors" are buried with "extensive information", the omission of one key piece of material information by itself, such as concealing Paulson's role in selecting the underlying mortgage securities and that Paulson was also shorting those same securities, can give rise to a securities law violation.

As I detailed above, under Rule 10b-5, a public company cannot "...omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading...." Therefore, Goldman misled investors in its press release when it stated that, "...the accusations are unfounded in law...." The SEC's allegations are clearly founded on Rule 10b-5.

In its press release, Goldman Sachs tried to obscure a key issue in the SEC complaint claiming that:
• Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SEC’s complaint accuses the firm of fraud because it didn’t disclose to one party of the transaction who was on the other side of that transaction.  As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.

Note: Bold print and italics added by me.
Here, Goldman Sachs obscures the legal issues involved in the complaint by claiming that the company, "never represented to ACA that Paulson was going to be a long investor." However, SEC complaint alleges that Goldman Sachs:
...misled ACA into believing that Paulson was investing in the equity of ABACUS 2007-AC1 and therefore shared a long interest with CDO investors going to be a long investor.
Note: Bold print and italics added by me.
Starting from paragraph 44, page 13 of the lawsuit the SEC describes in detail how Fabrice Tourre allegedly misled ACA into believing that it was a long investor and not betting against the portfolio of mortgage backed securities by shorting it.

In others words, the SEC alleges that Goldman Sachs knew that ACA was operating under the false belief that  the Paulson was "investing in the equity of ABACUS 2007-ACI" or the underlying mortgage securities, but Goldman Sachs did nothing to alert ACA to the contrary that Paulson was shorting the securities.

The Goldman Sachs press release is materially misleading to investors and it can give rise to additional securities law violations under Rule 10b-5. The SEC complaint has a very sound basis in both fact and the law under Rule 10b-5, contrary to the Goldman Sachs press release which claims that "the accusations are unfounded in law and fact."

Other Potential Disclosure Problems Facing Goldman Sachs

Before the SEC files a lawsuit, it notifies the company or individual that it is conducting an investigation and later sends them a "Wells Notice" that its plans to recommend enforcement action against the recipient. Since an SEC investigation or the receipt of a Wells Notice is considered a material event, companies must promptly disclose them to investors in 8-K filings with the SEC. However, Goldman Sachs made no such disclosure of any such "Wells Notice" in its filings with the SEC and is now open to potential litigation from investors for its failure to disclose those material events. See Business Week article here.

Closing Comments

As a criminal I learned that the cover up is always more dangerous than the crime. Whether or not Goldman Sachs knew the SEC lawsuit would be filed on Friday, the company made key errors in hastily responding to the SEC complaint that may come back to haunt the company. Sometimes it's better to just shut up!

Goldman Sachs simply lost its patience and went forward with emotion instead of logic in responding to the SEC. They should have waited until Monday.

To make matters worse, Goldman Sachs is circling the wagons around Fabrice Tourre which I believe is a big mistake. The company should have simply issued a press release saying:
Goldman Sachs does not comment on any current litigation and will address any issues in court proceedings.
In addition, Goldman Sachs could have said that:
The company takes any allegations of impropriety seriously and is placing Fabrice Tourre on leave pending the outcome of the SEC litigation.
In any company, especially a company that is the size of Goldman Sachs, there are always some employees who bend the rules or break the law and end up getting a company in legal trouble. By circling the wagons around Fabrice Tourre, Goldman Sachs raised the ante from a single employee issue involving a certain corporate transaction to a corporate wide issue involving the entire company. A very dumb move!

The public relations people and attorneys representing Goldman Sachs will get rich as they suck the company dry with fees and lead them down the river. That's what happened to the Antar clan at Crazy Eddie as Richard Simpson rightfully "deep-sixed" them too.

Written by,

Sam E. Antar

Please read  important disclosure about me below!

Note to Richard Simpson (SEC):

You whipped my rear end back in the day. The scars I received from the legal beating you gave me are still there. Not that there is anything wrong with it.

Update:

Wall Street Journal confirms SEC's "kiss of death" message saying that "Firm Contends It Was Blindsided by Lawsuit."

Nancy Miller from True/Slant writes:
Indeed, Goldman appears to have been caught completely off guard by the Friday announcement — even though it had received a Wells notice in July 2009, indicating that it was a target of an active investigation. The WSJ reports tonight that Goldman responded to the Wells notice in September. In March, Goldman contacted the SEC to check on the status of the investigation but no one responded to the request for an update. And apparently, Goldman didn’t mind that the lawyers at the SEC weren’t returning its phone call.

In his blog post, Antar zeroes in on Goldman’s assertion that the suit has no basis in “law and fact.” Big mistake if it turns out the suit really does have a basis in law and fact. After his surprise indictment, Antar says he tried to cover up his tracks and ended up in much worse trouble; indeed, covering his tracks proved to be more troublesome than the original misdeeds. Antar warns that if Goldman’s knee-jerk statements turn out to be untrue or misleading, their troubles would only deepen.
Sample Reaction to my Blog:

Investment News - SEC's 'pit bull' lead lawyer in Goldman case toppled Crazy Eddie by Aaron Elstein

When History Attacks! - What a White-Collar Felon Can Teach You

Seeking Alpha - Goldman Sachs: How Far Will the Abacus Case Spread? by John Lounsbury

Crain's New York Business - The Goldman Sachs-Crazy Eddie connection by Aaron Elstein

The Baltimore Sun - Thoughts on Goldman from a white-collar crook by Jay Hancock

The Stupid Nation - Goldman Sacked

Seeking Alpha - Monday Market Mayhem: Is Goldman's Goose Cooked? by Phillip Davis

Daily Kos - Goldman Sachs: "The Kiss of Death by PrometheusUnbound

Fav Stocks - Did the SEC Bait Goldman Sachs? Sam Antar, Criminal CFO of Crazy Eddie Makes the Case by Mike Shedlock

Alan Colmes Presents Liberaland - SEC Takes On Goldman Sachs – A Sea Change Or A Big Fish To Calm Waters? by William K. Wolfrum

Gary Weiss Blog - Man Bites Dog, or Goldman Sachs Charged by the SEC

The Big Picture - Goldman Sachs Gets the SEC Kiss of Death by Barry Ritholtz

Recommended Book:

Selling America Short: The SEC and Market Contrarians in the Age of Absurdity by Richard Sauer (Wiley 2010)

Important Disclosure:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own Goldman Sachs securities short or long. However, it did scam Goldman Sachs analyst Richard Balter about Crazy Eddie's financial reports during my criminal days as the CFO of the company.

My research on Goldman Sachs is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I personally believe that some people at Goldman Sachs may end up joining me in hell.