Crazy Eddie

Topics: Crazy Eddie, Fraud, Big Four auditors Pages: 15 (4785 words) Published: November 16, 2010
CASE 1.8

Crazy Eddie, Inc.

In 1969,Eddie Antar, a 21-year-old high school dropout from Brooklyn, opened a consumer electronics store with 150square feet of floor space in New York City 1 Despite this modest beginning, Antar would eventually dominate the retail consumer electronics market in the New York City metropolitan area. By 1987,Antar's firm, Crazy Eddie, Inc., had 43 retail outlets, sales exceeding $350 million, and outstanding stock with a collective market value of $600 million. Antar personally realized more than $70 million from the sale of Crazy Eddie stock during his tenure as the company's chief executive. A classic rags-to-riches story became a spectacular business failure in the late 1980s when Crazy Eddie collapsed following allegations of extensive financial . wrongdoing by Antar and his associates. Shortly after a hostile takeover of the company in November 1987,the firm's new owners discovered that Crazy Eddie's inventory was overstated by more than $65 million. This inventory shortage had been concealed from the public in registration statements filed with the Securities and Exchange Commission (SEC). Subsequent investigations by regulatory authorities revealed that Eddie Antar and his subordinates had grossly overstated Crazy Eddie's reported profits throughout its existence.2

Eddie Antar: The Man Behind the Legend
Eddie Antar was born into a large, closely knit Syrian family in 1947.After dropping out of high school at the age of 16,Antar began peddling television sets in his Brooklyn neighborhood. Within a few years, Antar and one of his cousins scraped together enough cash to open an electronics store near Coney Island. It was at this tiny store that Antar acquired the nickname "Crazy Eddie:' When a customer attempted to leave the store empty-handed, Antar would block the store's exit, sometimes locking the door until the individual agreed to buy something-anything. To entice a reluctant customer to make a purchase, Antar first determined which product the customer was considering and then lowered the price until the customer finally capitulated. Antar became well known in his neighborhood not only for his unusual sales tactics but also for his unconventional, if not asocial, behavior. A bodybuilder and fitness fanatic, he typically came to work in his exercise togs, accompanied by a menacing German shepherd. His quick temper caused repeated problems with vendors, competitors, and subordinates. Antar's most distinctive trait was his inability to trust anyone outside of his large extended family. In later years, when he needed someone to serve in an executive capacity in his company, Antar nearly always

1. This case was coauthored by Carol Knapp, Assistant Professor at the University of Oklahoma. 2. The facts of this case were drawn from numerous articles and SEC enforcement releases published over a period of several years. The New York Times and The Wall Street Journal, in particular, closely followed the colorful saga of Crazy Eddie and its founder, Eddie Antar. One of the more comprehensive investigative reports that documented the history of Crazy Eddie. Inc., is the following article: G. Belsky and P.Furman,"Calculated Madness:The Rise and Fall of Crazy Eddie Antar," Crain's New York Business, 5 June 1989,2]-33. That article provided much of the background information regarding Eddie Antar that is included in this case. 99



tapped a family member, although the individual seldom had the appropriate training or experience for the position. Eventually, Antar's father, sister, two brothers, uncle, brother-in-law, and several cousins would assume leadership positions with Crazy Eddie, while more than one dozen other relatives would hold minor positions with the firm.

Crazy Eddie's Formula for Success
In the early 1980s,sales in the consumer electronics industry exploded, doubling in the four-year period from 1981 to 1984 alone. As the...
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