Case Study – Crazy Eddy

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Based on your readings, literature, and/or the Fraud Examiners Manual analyze the cases and include the following in your discussion: What type of financial transaction and fraud schemes took place in the Crazy Eddy’s case? Using the *KU library (Westlaw) find a court case with similar facts and compare and contrast these cases in terms of the type of fraud committed. Do you think a regular financial statement audit would have uncovered the fraud in these cases? What do you think should have been done to prevent or deter this type of fraud in these

cases?

3-5 pages (not including title page, abstract, or reference page), Proper APA format, Minimum of 3 scholarly sources (not including your textbook)

David Jacob Levi Chen (a.k.a. Crazy Eddie) – A Financial and Legal Odyssey

 

Eddie Antar, who disappeared in 1989 after the demise of his Crazy Eddie consumer electronics chain, was arrested in June 1992 near Tel Aviv. Antar, 44 years old at the time of his arrest, was discovered by the Israeli police to be living in a luxurious town house in Yavne, a town in central Israel, under the name “David Jacob Levi Cohen.”

 

In 1996, Crazy Eddie pleaded guilty to a Federal charge that he had defrauded shareholders of more than $74 million by manipulating the company’s stock. His plea agreement ended a seven-year financial and legal odyssey, including Mr. Antar’s disappearance and flight under an assumed name to Israel to avoid arrest.

 

In the 1980’s, Mr. Antar and several family members built Crazy Eddie into the largest consumer electronics chain in the New York area. Commercials, in which a fast-talking announcer boasted that the stores’ prices were “insane,” became standard television fare. The company went public in 1984 and, by falsifying its books, Mr. Antar convinced financial analysts that Crazy Eddie was growing when, in fact, it was falling apart. When auditors were on the verge of discovering the scheme, company executives took the falsified documents and threw them in the garbage, according to testimony by the company’s chief financial officer.

 

In 1992, Mr. Antar was convicted by a Federal jury in Newark on 17 separate charges including conspiracy, racketeering and securities fraud. Those convictions, however, were overturned by the United States Court of Appeals. Similarly, his brother, Mitchell Antar, had his convictions in the Crazy Eddie case thrown out. Both Antars ended up with jail sentences: Eddie with 6 years, 10 months and Mitchell with 1.5 years.

 

In 1998, with the financial backing of Eddie’s mother, Rose, his nephews planned to open a Crazy Eddie in Wayne, NJ with hopes of rebuilding the chain. At the time, Eddie and Mitchell were serving time in Federal prison. As a side note: neither Eddie nor Mitchell was expected to be involved in the new venture! Later in 1998, family members Sam (Eddie’s father), brother Allen and brother-in-law were ordered to turn over more than $27 million that they made from the artificially inflated stock between 1984-87.

Bryant, Adam, “Crazy Eddie’s Chief is Arrested in Israel,” The New York Times, June 25, 1992.

Meier, Barry, “Founder of Crazy Eddie chain Pleads Guilty in Stock Fraud,” The New York Times, May 9, 1996.

Foderaro, Lisa W., “Crazy Eddie’s Returning, Minus 2 Jailed Founders,” The New York times, January 20, 1998.

Associated Press, “Crazy Eddie Profits Sought,” The New York Times, July 16, 1998.

The Crazy Eddie Case

Adapted from The White Collar Fraud website by Sam E. Antar at http:www.whitecollarfraud.com

 

Eddie Antar was a retailing revolutionary in his day; he broke the price fixing environment that gripped the consumer electronics industry. To survive in this industry, Eddie circumvented the fair trade laws and discounted the consumer electronics merchandise he was selling. He faced retribution from the manufacturers who stopped shipping merchandise to him. Consequently, he had to purchase his inventory from trans-shippers and grey markets. He built up great customer loyalty in the process and his business volume expanded.

Like numerous other independent small businesses in America, Crazy Eddie paid many of its employees off the books. There was a company culture that believed that nothing should go to the government. Eddie Antar inspired intense loyalty from his employees, most of whom were family. It was us against them – customers, the government, insurance companies, auditors, and anyone else who did not serve the company’s interests. The Antar family regularly skimmed profits from the business. If profits couldn’t be increased through bait-and-switch tactics, the Antar clan would pocket the sales tax by not reporting cash sales.

 

 

The Four Phases of the Crazy Eddie Frauds

1969-1979: Skimming to reduce reported taxable income

1979-1983: Gradual reduction of skimming to increase reported income and profit growth in preparation to take the company public

September 13, 1984: Date of Crazy Eddie initial public offering

1985-1986: Increasing Crazy Eddie’s reported income to raise stock prices so insiders could sell their stock at inflated values

1987: Crazy Eddie starts losing money. The main purpose of fraud at this stage is to “cover up’ prior frauds due to the “double down” effect.

 

 

From the Fraudster’s Perspective

 

Sam E. Antar was a CPA and the CFO of the Crazy Eddie electronics chain in the 1980s when that securities fraud scandal hit. The fraud cost investors and creditors hundreds of millions of dollars, and others, their careers. In addition to securities fraud, investigators later learned that the Crazy Eddie business was also involved in various other types of fraud, including skimming, money laundering, fictitious revenue, fraudulent asset valuations, and concealed liabilities and expenses, to name a few. Since then, Sam has shared his views on white collar crime, the accounting profession, internal controls, the Sarbanes-Oxley Act, and other related topics with audiences around the country.

According to Sam, there are two types of white collar criminal groups: 1) those with common economic interests (e.g. the Enrons and WorldComs) and 2) other cohesive groups (e.g. with family, religious, social, or cultural ties). Fraud is harder to detect in the second category because of behavioral and loyalty issues. Tone at the top is crucial here.

Contrary to the fraud triangle theory — incentive, opportunity, and rationalization — Sam insists that the Crazy Eddie fraud involved no rationalization “It was pure and simple greed,” he says. “The crimes were committed simply because we could. The incentive and opportunity was there, but the morality and excuses were lacking. We never had one conversation about morality during the 18 years that the fraud was going on.” He contends that “White collar criminals consider your humanity as a weakness to be exploited in the execution of their crimes and they measure their effectiveness by the comfort level of their victims.” Sam’s description of how the Crazy Eddie frauds were successfully concealed from the auditors for so long is a tale of, what he refers to as, “distraction rather than obstruction.” For example, employees of the company wined and dined the auditors to distract them from conducting their planned audit procedures and eat up the time allotted for the audit. As the end of the timeframe approached, the auditors were rushed, and didn’t have time to complete many of their procedures. Fraudsters use “controlled chaos” to successfully perpetrate their crimes.

The accounting profession doesn’t analyze auditor error, and therefore, learn from it. Sam’s advice to the accounting profession, antifraud professionals, and Wall Street: “Don’t trust, just verify, verify, verify.” Audit programs are generic and auditors have been too process-oriented. Sam recommends that auditors utilize the internet for searchable items, such as statements to the media and quarterly earnings calls transcriptions. A pattern of inconsistencies or contradictions found in these sources of information when compared to the financial statements and footnote disclosures should raise red flags. As an example, Crazy Eddie’s auditors never thought to check sales transactions to ensure that the deposits came from actual sales. They never considered that these funds came from previously skimmed money.

Sam believes that white collar crime can be more brutal than violent crime because white collar crime imposes a collective harm on society. On using incarceration as a general deterrent, Sam says “No criminal finds morality and stops committing crime simply because another criminal went to jail.”

Incorporating Kohlberg’s Stages Of Moral Development Into The Justice System

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Incorporating Kohlberg’s Stages of Moral Development into the Justice System

Imagine you are the chief of police. As the chief of police, you will need to ensure that your law enforcement officers lead ethical careers. In order to prepare for this assignment, review Chapters 7 through 9 in the textbook. Then, research Kohlberg’s stages of moral development and find at least two (2) relevant articles that discuss Kohlberg’s theory, Means vs. Ends, and Kantian ethics.

Write a two to three (2-3) page paper in which you:

1.  Identify and discuss the three (3) levels of Kohlberg’s stages of Moral Development, and explain how you would address each level within your department.

2.  Explain how your officers can use Kohlberg’s Stages of Moral Development to evaluate three (3) types of criminals who are at different stages of moral development.

3.  Illustrate two to three (2-3) ways in which you would address self-interest and pursuit of pleasure to prevent police corruption.

4.  Identify and discuss at least three (3) Prima Facie Duties that you believe all of your law enforcement officers should fulfill.

5.  Support your position statement with two (2) relevant and credible references, documented according to latest edition of APA. (Note: Do not use open source sites such as Ask.com, eHow.com, Answers.com, and Wikipedia.)

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA format (latest edition). Check with your professor for any additional instructions.
  • Include a cover page developed in accordance with the latest edition of APA, including a running head, page number, the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page, revision of the previous assignment, and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

  • Recommend ways to use ethics to improve decision making in the criminal justice system.
  • Analyze various philosophical approaches for ethical decision making, and the effectiveness and limits of each approach for making ethical choices.
  • Analyze basic questions about morality, norms, and values.
  • Examine the concepts and effectiveness of reward and punishment.
  • Explain why and how the concept of justice is important to the field of criminal justice.
  • Explain Kohlberg’s moral development stages and how they can be applied to issues in criminal justice.
  • Use technology and information resources to research issues in ethics and leadership in criminal justice.
  • Write clearly and concisely about ethics and leadership in criminal justice using proper writing mechanics.

Detasking The Police

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The recent “defund the police” movement has run into obstacles as issues have arisen from the lack of police services in some cities that have cut back on police funding. There is a movement now towards “detasking the police”, intentionally and purposefully assigning tasks formally carried out by commissioned police officers to “others” who are more specifically trained for a particular function, a function that would not necessarily need police powers.

Begin by watching the “Should we ‘Detask’ the Police?” video on YouTube.

Then, read the online article “Minneapolis Residents Sue City Over Alleged Police Department Rollbacks”.

For this week’s written assignment, answer the following questions. Your assignment should be 2-3 pages in length and follow APA format and style.

1.  Describe what “detasking” is and how it should not be considered an indictment of the core function of law enforcement.

2.  Explain how policing tasks could be reallocated. What kind of services previously handled by the police should be considered for “detasking”? How would those services be carried out and managed by government?

3.  If “detasking” is successfully carried out, it will mean that some police forces may be smaller with more limited focus. How might this affect recruitment and training? Be specific, give examples.

4.  In “detasking,” sworn police officers will be replaced by non-sworn, unarmed individuals who are meant to carry out a specific task. At some point this person will encounter armed, violent citizens. How can this eventuality be anticipated and planned for?

In addition to the textbook reading, video, and article provided, use at least two other quality sources of information to support your answers.

The Mind Of A Murderer

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Frank Timmons

Background:

Frank was born in 1964 in a large metropolitan city, as the second-youngest of 13 children. His parents were Billy, a car dealer lot attendant, and Loretta, a maid, both of whom later divorced. Though Billy was strict, the household was, according to one of Frank’s siblings, peaceful. Other siblings say that Billy was verbally abusive and that alcoholism ran in the family. Loretta died when Frank was 12. She was described as not being an active parent to her youngest children, leaving their upbringing largely to the older siblings, one sister in particular, Margaret. Questions were raised by other siblings regarding Margaret’s overall stability, as well as the possibility of sexual abuse perpetrated by her. Margaret had difficulty maintaining stable relationships and employment, was reported to have made a number of suicide attempts, and may have followed in her father’s footsteps with regard to verbal abuse and alcoholism. In high school, Frank was good at sports and played football for the school team, but did not graduate because of insufficient credits. Some sibling reports indicate that Frank did not earn enough school credits to graduate because of efforts to make money for the family. The family income came primary from DES subsidies and food stamps. Though well-liked by his teammates, Frank had a reputation for excessive roughness with opposing teams. During his senior year, Frank and a brother were arrested for raping a young woman, but no charges were pursued. He was charged with trespassing a few years later and with driving under the influence the following year.

In his late 20s, he was charged with abducting a woman, brutally raping and bludgeoning her. He claimed that she willingly had oral sex with him and that the rape and assault was the work of two other men. Frank was sentenced to 15 years for the abduction and 21 years for a robbery. After serving 13 years in prison as a model inmate, he was paroled and moved into a house not far from the four-mile crime area with his wife, Jenny Nelson. Though his neighbors all knew that he had served time in jail, he was so well-liked that they could look past it. He got a job as a construction worker. The year after his parole, the Serial Murderer crimes began.

In the first crime attributed to the Serial Murderer, the perpetrator forced three teenage girls behind a church and molested two of them. He is believed to have committed his first murder a month later. Over the course of the following 11 months, he committed several robberies, sexual assaults, and a total of eight additional murders. His friends and family have strongly defended him, insisting that the police have arrested the wrong man; some have even gone so far as to accuse them of framing Frank for the crimes. His wife has since been running a website maintaining his innocence.

 

Evidence:

● Surviving witnesses described a “light-skinned black man,” often wearing various disguises, such as a Halloween mask, as well as attempting to impersonate a homeless man or drug addict.

● The murders were particularly brutal, with the killer often shooting the victims in the head. In addition, there were reports of the suspect sexually assaulting females as young as 12 years old at gunpoint within a four-mile radius.

● Police say that the shell casings found at each of the crime scenes all came from the same gun.

● At the time of the murders, Frank Timmons was on community supervision (parole) with the Department of Corrections. Parole officers provided information to the Police Department task force suggesting that Frank Timmons matched the sketch of the serial murderer. Parole officers searched Frank Timmons residence and found a ski mask and a realistic “toy” handgun. Police used this information to obtain a search warrant for Frank’s residence and found additional items that linked Frank to crimes committed by the Serial Murderer.

● The crimes were distinguished by having no apparent motive. Timmons targets were women. When he killed, the victims were typically snatched from a public corner, taken to some secluded nearby place and shot in the head with a medium or large caliber weapon. Timmons used some kind of disguise and/or ruse while committing some crimes, such as wearing a Halloween mask to conceal his identity, approaching his victims asking for a ride or even pretending to be a homeless man or a drug addict.

● Frank Timmons was arrested in connection to the sexual assault of two sisters, an attack which was tied to the Serial Murderer investigation. The sisters, one of whom was visibly pregnant, were assaulted in a city park. Frank was linked to the attack by DNA evidence collected shortly following the crime.

What People Are Saying:

Current friend:

He is the nicest guy I have ever met and I have no clue why you think he did these things. As far as I know, he’s never been in any trouble, goes to Mass each week, and loves his life. Are you sure we are talking about the same guy? He’s too smart to get himself into trouble and I can’t see him doing anything like this. Maybe you should spend your time looking for the real killer because he wouldn’t dream of this.

Current coworker:

He kind of keeps to himself at work. He is always early and stays late, probably to impress the boss. I’ve heard he has some problems with his girlfriend—they fight a lot. They take separate vacations to get away from each other and are in couples counseling. But, he is a private guy, does his work, and goes home. I wish I could tell you more.

Next door neighbor:

I see him in the mornings when he goes to work. He waves but never wants to talk. When they moved here, I tried inviting them over, but he would always decline so I stopped asking. He sometimes works odd hours, I think, mainly when there is no one else home. Seems to keep busy. Respectful but quiet.

I. Summary

a. Summarize the case provided. In your summary, include key facts and demographic information.

b. Develop an initial hypothesis about the potential motivation to commit the crime. As you consider the motivation, identify the type of crime that was committed.

II. Crime Assessment

a. Compare data and evidence of similar crimes.

b. Identify patterns found in similar crimes.

c. Make inferences about motivation of the identified individual based on case evidence and comparison to similar crimes.