Asset theft investigation report

for AFM 540

Trimester 1 2021

Fraud Prevention and

Investigation

[10/ May/2021]
[ Harmanpreet Kaur/ 220222987 ]
 1) Case synopsis of Crazy Eddie, Inc Fraud Case

2) US v. Antar, 53 F. 3d 568 - Court of Appeals, 3rd Circuit 1995

Monday 17 May 2021

Robyn Archer
Unit Coordinator
Fraud Prevention and Investigation
AFM 540
Armidale, NSW, Australia.

Through:
Dear:

Re: Factual findings of the forensic investigation into Crazy Eddie, Inc
stock market fraud case in 1969-87

Findings:

Based on the documents reviewed, information collected and interviews

conducted during the course of our investigation, the team finds as follows,
as per the objective of the assignment:

Factual background1:

Crazy Eddie was an electronics and appliances retail store chain run by the
Antar family, which emerge as a private company in the 1960s. The
company put their best foot forward in the market through their insane
prices. But the company’s owner Eddie wasn't crazy so much as
calculating, perpetuating a fraud that was one of the longest-running white-
collar fraud of the century, that last from 1969 to 1987.2

Factual findings:

The Crazy Eddie’s fraud began with the management, under-reporting the
firm's taxable income via skimming cash sales, paying employees in cash
instead of cheques or any other paying method to avoid payroll taxes and
reporting fake insurance claims to the company's carriers.3

1
https://whitecollarfraud.com/crazy-eddie/crazy-eddie-fraud/
2
https://www.investopedia.com/articles/economics/12/four-unknown-massive-frauds.asp
3
https://whitecollarfraud.com/crazy-eddie/crazy-eddie-fraud

2
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
 The Crazy Eddie crime spree evolved in three phases:4

(1) From 1969-1979: Cash skimming and under-reporting income prior to

the plan to go public. Crazy Eddie’s primary frauds were, i) Tax evasion. ii)
Paying their employees in cash “off the books” rather than reporting
income to the IRS, and. iii) Reporting false or exaggerated insurance claims
to increase their profits.

(2) From 1980-1984: The Eddie' cash skimming to increase profit growth in
preparation for the IPO, i.e., committing securities fraud.
In September, 1984, Crazy Eddie conducted an IPO of its joint stock.
Stocks were originally sold at $8 per share, by 1986 the stock price reached
over $75 per share. The scheme allegedly began between 1980 and 1983,
when Eddie and other defendants did cash skimming which involves
keeping certain cash receipts off the books. The Eddie’s soon decided to
reduce the cash-skimming in preparation for the IPO, because suddenly
putting more profits on the books would cause potential investors to believe
that the company experienced an exponential economic growth. In reality,
the defendants artificially fostered a false growth. These activities resulted
in the filing false financial statement with the SEC.5

(3) From 1984-1987: Crazy Eddie overstated their income to inflate the
prices of stock.

The fraud was uncovered when Antar family was dismissed from Crazy
Eddie after a successful hostile takeover by some of its investors. Eddie
Antar and other defendants was charged with securities fraud and other
crimes but Eddie Antar fled before his trial. He spent three years in hiding.
Later he was caught in Israel. Two of his family members were also
convicted for their role in the fraud.6

The SEC began to investigate the Crazy Eddie investigation. Stephen

Howard, major shareholder, took over Crazy Eddie in a hostile takeover.
Barbara Katron began the Crazy Eddie investigation for the SEC and was
later replaced by Richard Simpson.7

Very truly yours,

4
ibid
5
https://scholar.google.com/scholar_case?case=2437849181233726280&q=related:SMNp_-
n61CEJ:scholar.google.com/&hl=en&as_sdt=2006#[2]
6
https://whitecollarfraud.com/crazy-eddie/crazy-eddie-fraud
7
Ibid

3
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
 _______________________________________
Your Name
Fraud Investigators

4
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
Table of contents

1 Proprietary Warning...........................................................................................................5

1.1 Legal advice.................................................................................................................5

1.2 Abbreviations..............................................................................................................5

2 The issue.............................................................................................................................6

3 Objectives and scope..........................................................................................................6

4 Factual findings...................................................................................................................7

5 Investigation/ work done....................................................................................................9

6 Summary of the interviews...............................................................................................10

5
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
1 Proprietary Warning

This document is proprietary to SEC (Security and exchange commission). It is

supplied in confidence and should not be disclosed, let on, duplicated or
otherwise revealed in whole or in part to any third parties without the prior
consent of SEC. This report is intended solely for the information and use of the
management of UNE and is not intended to be and should not be used by
anyone other than these specified parties. UNE therefore assumes no
responsibility to any user of the report other than SEC or its representatives.
Any other persons who choose to rely on our report do so entirely at their own
risk.

1.1 LEGAL ADVICE

Although our report may contain references to relevant laws and legislation, we
do not provide legal opinion or the compliance with such laws and our findings
in this report are not to be construed as providing legal advice. Our discussion
of the relevant laws is intended solely to facilitate the determination of
applicable facts which may be relevant to the interpretation and/or application
of such laws. Should such interpretation require legal advice, we recommend
that independent legal advice be obtained.

1.2 ABBREVIATIONS

Abbreviation Description
SEC Security and Exchange Commission
IPO INITIAL PUBLIC OFFERING
CE Crazy Eddie, Inc
Etc Other abbreviations
UNE University of New England
IRS Internal Revenue Service

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© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
2 The issue

i. Few investors took stance against the Crazy Eddie stock scam.
Stephen Howard took a hostile takeover over the Crazy Eddie
following an alert from a whistle-blower with the following details;
a.  In 1983-85, the Eddie and defendants did cash skimming with
changing receipt books. They were doing tasks off the books rather
than reporting to the IRS.
b. As a public company, after their IPO, the Crazy Eddie overstated
their income to dump stock at inflated prices using various
fraudulent tricks. Consequently, the company is showing a growth
in its stock but actually it wasn’t.

3 Objectives and scope

The objectives of the fraud investigations;

i. From the US court order;
“Defendant (Eddie Antar) shall transfer all assets derived from the
$43,989,640.38 transferred to Bank Leumi Israel on or about
February 17, 1987, or from the funds in the aggregate amount of
$8,367,325.25 transferred to Bank on or about November 27, 1987,
December 3, 1987, December 15, 1987, and January 21, 1987,
presently held in foreign locations in the name of Eddie Antar, for
his benefit under his control or over which he exercises actual
investment, to be held and invested according to the court’s issued
instructions upon notice to the parties”.8 Some of the amounts were
recovered from the Eddie.

8
Ibid

7
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
 ii. The Crazy Eddie’s failed to comply with the court’s order. And
again, the issue went to the court (SEC vs Antar).
SEC v. Antar, No. 89-3773, January 24, 1990 Order at app. 1063
(the repatriation order). Eddie failed to comply with the order,
invoking the fifth amendment. After getting extensions, finally, the
court issued an order. In which they questioned the causes and
demand the reasons, that why he should not be held in contempt. On
February 9, 1990, the district court order after finding that Eddie
didn’t comply with court’s order and he is wilfully doing it without
any cause he is delaying the payments. Thus, the court held Eddie in
contempt. Eddie, then agreed to appear before district court. But he
didn’t do so and run away.

On April 6, 1990, the court ordered that Eddie's answer to the SEC's
complaint must be stricken and after four days he was declared
defaulter. In response, the court on June 29, 1990 determined that,
Eddie Antar made $52,519,548 by illegal means. And he is obligated
to disgorge that amount; moreover, Eddie Antar is liable for the
interest of $20,976,884. The SEC moved for their final judgment,
and on July 6, 1990, the court entered it. The court ordered him to
pay the disgorgement in the amount of $52,519,548 to the receiver
appointed by court.9
The amounts were recovered from the Crazy Eddie, Inc.

9
Ibid

8
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
4 FACTUAL FINDINGS

4.1 OBJECTIVE 1: DESCRIBE OBJECTIVE 1 BRIEFLY AND GIVE

THE FACTUAL FINDINGS ON IT. YOU COULD ALSO PUT
THIS SECTION IN A TABLE FORMAT.

i. What did you find?

I find out many facts and details about the Crazy Eddie’s case. A
part of which I find out is given;
The Crazy Eddie’s financial statements had many fraudulent in
many ways that the auditors should have caught. They prepared
fake sales invoices to show that the company was growing faster
than it actually was. By this trick, they presented a good image of
company to the investors. The company’s vendors also
collaborated by lying to the auditors when the auditors attempted
to confirm some of these receivables and other details. That
wasn’t been audited properly.

They overstated assets by overvaluing inventory. Next, the

accounting process with supplier wasn’t very good and the
auditors didn’t properly inquire about the merchandise that it
wasn’t billed. Another thing was the shifting of inventory from
one store to another and make it double count. This should have
been caught by the auditors by inquiring about whole inventory
and must verified it.

Crazy Eddie were off the records and didn’t do a proper paper-
work. By this they pass the accounting period and overstated
their assets and income by boosting sales. They reduce the
liabilities and expenses by not recording or selling off the
transcripts them until the next period. The auditors needed to
verify the transactions around the end of the period.

Main Hurdman, auditor for the company’s annual audits,

consulting division was charging Crazy Eddie millions of dollars
to computerize Crazy Eddie’s inventory system. This violates the
rule that auditors can’t objectively audit an inventory system they
developed.

Crazy Eddie’s employees later replaced computer-based

inventory system by manual system. The auditors should have

9
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
 noticed that they were removing quality control in the inventory
system.

Many of Crazy Eddie’s accountants were former members of

Main Hurdman accounting firm. In this situation, SEC added a
requirement in the Sarbanes-Oxley Act. Which requires an audit
team member, not to work at/for the client for one-year on some
certain management positions.10

ii. After careful review of information from our investigations, and

based on the interviews held with staff, there is no evidence of
involvement of other staff with the key suspect in theft.
iii. Avoid the following
a. Writing the word draft report, as there cannot be any
‘DRAFT’ facts
b. Giving your opinions in the investigations report
c. Stating that you used sampling or materiality; as it shows
you did not look at all critical information; which if you
had done, could have changed the quality of the report
d. Don’t include internal control weaknesses. Your report
was to find who did what, when and how and why. Focus
on addressing these issues.
e. For every point you write down, provide supporting
evidence. Avoid writing hearsay or your own opinion or
those of what others think happened. Support it with
facts.

10
https://www.ukessays.com/essays/communications/auditor-crazy-eddie.php

10
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
Objective 2: what is your objective 2?

a) What was the investigation objective?

The amounts were recovered from the company, the fraud they
did in the stock exchange and their market prices.
b) What did you do?
I do a case study of the Crazy Eddie, Inc fraud case. Find out
about their frauds and other details.
c) What exactly did you find on this objective?
An investigation of the Crazy Eddie’s fraud case helps me to
understand some part of the stock market. I have studied the
case, Crazy Eddie’s statements, details of their auditors, about
their CFO/CPO who later works for the government.

11
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
5 Investigation/ work done

i. Formalised contract signing with SEC; specifying the objectives of

the assignment, as indicated in section 3 above.

ii. Held an inception meeting with SEC HR Manager, Finance Manager

and HR Assistant about the assignment. All information was
provided to the investigation team including the (a) the SEC internal
investigation report, (b) interview notes done during investigation,
and (c) list of people to interview. We then reviewed whole gathered
information.

iii. We analyzed the report for each of the staff to check for any
communication with the key suspect and made notes of our findings.

iv. With that information, the team in the presence of an observer from
SEC interviewed the following staff with the objectives called for in
this assignment. No staff was compelled to take the interviews.

v. Documentation of this report of the factual findings of our

investigations.

5.1 Limitations

i. We did not undertake email investigations because we were never

furnished with any email addresses. We did not also undertake
forensic investigation of the suspect staff to examine the contents.

ii. We did not undertake thorough internal processes review. We relied

on the report of the first investigation work.

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© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
 iii. Our work was restricted to interviewing selected staff in the SEC
customer help department.

iv. We did not undertake mobile forensics. The MTN Forensics

department was tasked to do it

v. We did not interview the relatives of the suspects, as we had less

time to conduct the assignment.

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© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
6 Summary of the interviews

i. Below are the summaries of the interviews conducted (research

base) from different persons, who have somehow something to
do with this case. The interviews are reported as;

N Staff Interview Date Interview outcomes

o. & Time
1 Eddie Antar N/A Eddie Antar claimed that he come to US on his own (he
(CEO) was in Israel) after being arrested in Israel last year.
But the fact is he was about to be extradited.
On ABC news Antar claimed that he has done
nothing illegal. He has come to defend himself and
prove his innocence.11
2 Mitchel N/A Mitchel Antar is the defendant brother and he was
Antar also alleged in the claims. He told us about his
company and their frauds, how much money they
earned through this and through which processes,
and how all these things started.
3 Main N/A Main Hurdman was the company auditor. We
Hurdman inquired about company audit reports about the
auditors and other staff. We inquired about the
falsification of documents report etc.
4 SEC staff N/A We interviewed with SEC staff and get some details
from them which contain the Crazy Eddie
investigation report.
5 Sam E. Antar November 17, Sam E. Antar, one of the masterminds of the 1980s
(Chief 2014: 7:22 AM fraud, in an interview with CNNMoney said about the
Financial fraud in these words, "We are in the golden era of
Officer) white-collar crime. My biggest regret is I should've
been a criminal today rather than 20 years ago". Sam
Antar detail interviews and writings.121314

11
https://www.youtube.com/watch?v=3ckNvfAd6aQ&ab_channel=TrutherTVArchives
12
http://money.cnn.com/2014/11/17/investing/fraud-wall-street-crazy-eddie/
13
https://www.youtube.com/watch?
v=rJxpMki9N8s&ab_channel=BloombergMarketsandFinance
14
https://www.worth.com/why-the-cfo-of-a-famously-corrupt-company-from-the-1980s-is-
working-for-the-government/

14
© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
Note: The AFM 540 team found it rather strange that all staff were denying
having discussed about the lost items among themselves or with the key suspect,
which we thought should be normal as it shows they were concerned about the
loss.

Attach all interview scripts signed by the respective interviewees as a true

record of the interview.

Also attack pre-interview statements taken at commencement of the

investigations?

End.

This template is meant for XXXX internal use only. Do not use outside of XXXX.

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© AFM 540 Trimester 1 2021 All rights reserved.
Forensics. Advisory. Security
References

EduCheer. (2018, January 4). Crazy Eddie, Inc. financial fraud case. EduCheer!
https://educheer.com/term-paper/crazy-eddie-inc-financial-fraud-case/

Dollarhide, M. E. (2019, February 19). 4 Massive Frauds You’ve Probably

Never Heard Of. Investopedia.
https://www.investopedia.com/articles/economics/12/four-unknown-massive-
frauds.asp

Justia. (2021). United States of America v. Mitchell Antar, Appellant in 94–

5228.united States of America v. Eddie Antar, Appellant in 94–5230, 53 F.3d
568 (3d Cir. 1995). Justia Law. https://law.justia.com/cases/federal/appellate-
courts/F3/53/568/498864/

Casetext. (1995, April 12). U.S. v. Antar. https://casetext.com/case/us-v-antar

The Lectric Law Library. (n.d.). Crazy Eddie’s Investor Fraud Case.
LECTLAW.COM. https://www.lectlaw.com/files/cas04.htm

Egan, M. (2014, November 17). Crazy Eddie CFO: “We are in the golden era
of white-collar crime.” CNNMoney.
https://money.cnn.com/2014/11/17/investing/fraud-wall-street-crazy-eddie/

Man, D. (2019, December 12). Tool6_Theft-investigations-report-

template.docx. Scribd.
PUBLIC.RESOURCE.ORG. (1995, April 12). 53 F.3d 568. Law.Resource.Org.
https://law.resource.org/pub/us/case/reporter/F3/053/53.F3d.568.94-5230.94-
5228.html

Chegg Inc. (2021). Chegg.com. Chegg Study.

https://www.chegg.com/homework-help/questions-and-answers/question-1-1-
company-blue-thinking-implementing-various-internal-control-procedures-two-
pr-q20968531

Antar, S. (2021). Crazy Eddie Fraud. White Collar Fraud.

https://whitecollarfraud.com/crazy-eddie/crazy-eddie-fraud/

Andrews, N. (1989, October 4). Retrieved from The NewYork Times:

https://www.nytimes.com/1989/10/04/business/crazy-eddie-to-liquidate-ending-
move-to-reorganize.html

Archives, T. T. (1993, March 21). Retrieved from YouTube.

https://www.youtube.com/watch?v=3ckNvfAd6aQ&ab_channel=TrutherTVArchives

Bloomberg Markets and Finane. (2019, October 7). Retrieved from YouTube:
https://www.youtube.com/watch?v=rJxpMki9N8s

Celarier, M. (2019, August 2019). Retrieved from Worth: https://www.worth.com/why-

the-cfo-of-a-famously-corrupt-company-from-the-1980s-is-working-for-the-
government/

Eddie, C. (2015, January 1). Retrieved from UK Essays:

https://www.ukessays.com/essays/communications/auditor-crazy-eddie.php
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Forensics. Advisory. Security