Convicted Felon, Former Crazy Eddie CFO, Sam Antar, Talks to Lauren Lyster About Accounting Fraud
Submitted by EconomicPolicyJournal.com
We first became apprised of the appliance star of Crazy Eddie in 1984, having watched Daryl Hannah breathlessly regurgitate one of the store's transfixing commercials in the movie "Splash." While Crazy Eddie filled a major plot hole (namely, teaching a mermaid to speak English in an afternoon), the company also created a gaping hole in its financial statements, which helped to defraud investors of tens of millions of dollars in the 1980's.
In the fledgling days of the electronic retailer, one of the founders, Sam Antar, would learn the magic of double-book entry-keeping and eventually become the firm's CFO. Cheating on taxes and embezzling funds could only go so far, however, because, according to the Net's truthiest source, "By 1983, it was becoming more and more difficult to hide the millions of illicit dollars." What would the founders do? In a testament to the historical prowess of the SEC, they "decided that the way to cover up their growing fraud was to take the company public."
The above is a must-see interview with Sam Antar by Lauren Lyster on RT's Capital Account, wherein the eminently quotable Sam began:
I'm happy to report, as a retired member of the criminal underworld, that fraud is good. The fraud business is easy and fraud is getting easier. The fraudsters have reached the top 1% of the American society....Democrats and Republicans alike are doing their best to make fraud even easier.
Sam then delved into the recently passed JOBS Act (affectionately dubbed, the "Fraud Made Easy Act"):
In the guise improving the economy, [it] peels away internal controls requirements for public companies, peels away various levels of oversight by the government, peels away at the requirements for audits, and it's going to make fraud easier.
Waxing nostalgically (and, a bit tongue in cheek [hopefully]), he said, "I might even go back to my life of crime because of the JOBS Act--because it makes fraud too easy."
Also covered was why jail time not a deterrent:
People commit crimes simply because they could and the opportunity exists. Most criminals do not consider the consequences of their acts as far as jail time is concerned. There's an old saying that prisons are filled with criminals who never planned on being there....Opportunity is what makes us commit the crime...if no internal controls, if no oversight, if there's nobody watching over us...
When Lauren asked, "What is the deal with these auditors--are they complicit? Are they dumb? Do we have too-high expectations?" Sam said:
The word "audit" itself is a fraudulent term. They're limited compliance reviews of GAAP which may or may not catch book keeping errors. They're not designed to catch fraud.
Segueing to Capitol Hill, James Koutoulas, co-founder of the Commodity Customer Coalition, also weighed in:
In a sense, the regulators are almost a smoke and mirror facade of these Ponzi schemes that they fail to catch. People feel safe when they invest in a "regulated entity," but a lot of times, I think that's a false sense of security. These regulators clearly have proven that they can't catch these frauds, and I think that people do less due diligence on these regulated entities.
Sam had to agree, and also highlighted the perennially understaffed SEC as not only incapable of making a dent in securities fraud, but also having very little desire to use its existing resources to do so. Witness the vacuum of prosecution pursuant to the now decade-old Sarbanes Oxley Act.
Not to focus solely on criticism, solutions were discussed, such as management clawbacks: as in, "personal liability: you lose your house, you lose your car." Think Corzine on a bike in Brooklyn.
When Lauren asked, "how close are we to a situation where we could have a Crazy Eddie situation again?" Sam was not shy to answer:
It's occurring right now. It's occurring all over the place. Firms, with impunity, manipulate numbers. And, the SEC does nothing except--we caught you, fix your numbers, and go away.
Sam detailed the [alleged] fraud perpetrated by one company in particular, which you will have to tune in to learn about (hint: its portmanteau neologism of a name rhymes with "poop on").
And, a few more choice quotes to close the interview...
On auditor incestuousness:
In my day, I had to fool auditors--I had to lie to auditors in order to defraud my investors. Today you don't have to lie to auditors--you don't have to fool them. In many ways, they're complicit with management. They're in bed with management. They have this incestuous relationship with management, which makes crime easy.
Responding to whether it's easier to commit fraud now or in the eightees:
In my day, I knew auditors were stupid. I knew auditors were incompetent. But I always thought that if they saw something wrong, they would do the right thing. Today, you don't have to worry about them doing something wrong, because they're going to do the wrong thing. They've gone from being enablers--they've gone from being duped--to being actual co-conspirators, in many cases...co-conspirators to financial statement manipulation.
PwC could not be reached for comment.
Again, the whole thing is here:
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