crazy Eddie fraud case

1875 Words Mar 6th, 2015 8 Pages
Crazy Eddie, Inc. financial fraud case
Crazy Eddie was an American retail store chain run by the Antar family, which was established as a private company in 1969 in Brooklyn, New York by businessmen Eddie and Sam M. Antar. The fraud at Crazy Eddie was one of the longest running in modern times, lasting from 1969 to 1987. Crazy Eddie became a known symbol for corporate fraud in its time, but has since been eclipsed by the Enron, Worldcom and Bernie Madoff accounting scandals.
Commencement of fraud
The fraud began almost immediately, with the management of Crazy Eddie underreporting taxable income through skimming cash sales, paying employees in cash to avoid payroll taxes and reporting fake insurance claims to the company's carriers.
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Crazy Eddie limped along for another year before being liquidated to pay creditors. Eddie Antar, the CEO of Crazy Eddie, was charged with securities fraud and other crimes, but fled to Israel before his trial. He spent three years in hiding until he was eventually tracked down by authorities in 1992 and extradited back to the U.S. to face criminal charges. Antar and two other family members were also convicted for their role in the fraud. In 1997, Antar was sentenced to eight years in prison and paid large fines. He was later released in 1999.
Crazy Eddie Red Flags
The red flags in the Crazy Eddie, Inc. financial fraud case which could notify the potential fraud were as follows:-
The tight knit Antar family ruling Crazy Eddie had virtual absolute control over all aspects of the business.
Very poor audit trails and documentation.
Major self-dealing transactions and related party transactions by family members.
Substantial increases in wages from below market wages before the company went public.
In 1985, an attempt was made to falsify certain store inventories which was uncovered by the auditors. The auditors accepted an excuse that it was not sanctioned by management.
Substantial increases in gross margins, profits, inventories, debit memos etc. from prior periods for no logical reason.
Significant volume of outstanding deposits in transit at fiscal

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