Case 1.8 Crazy Eddie, Inc.
Case 1.8 Crazy Eddie, Inc.
Case Summary:
At age of 16, in 1978, Eddie Antar opened Crazy Eddie Inc in New York City. This was an electronics store where leadership positions were assumed by family and relatives.
Their excellent advertising techniques through radio and their cut rate prices allowed the company to become “transhipper”, selling goods to other electronic retailers in NYC area.
Crazy Eddie Inc went public in 1986 in order to finance expansion program and in that year, it was discovered that the company engaged in fraudulent accounting.
In 1986, Antar resigned as president due to discoveries from company investigations and faced takeover in 1987. A$65 million in inventory shortage eventually lead the company to file for Ch 11 bankruptcy in 1984. This was due to Antar’s obsession with enhancing revenues and profits and having his staff contribute as parties. Because Antar failed to appear in court, he became fugitive and was arrested in 1992 in Israel. The case needed $42 million settlement, and Antar was sentenced to seven year in federal prison in 1997.
Key Facts:
Antar became well known for his sales tactics. He made sure that no one left without a purchase and did so by lowering prices.
6 months after company went public, Antar had an employee inflate inventory by $2 million which increased gross profit.
Parties of fraud: director of internal audit staff, the acting controller, director of accounts payable.
The family members were under qualified for the upper management positions.
Answers to Questions:
1) Key Ratios
Interesting to note that short term investment has a zero balance in 1985 and 1984.
Merchandise inventory increased by $87 million between 1984 and 1987. Inventory turnover decreased 4.5 to 3.22. This is crucial because the company was facing competition and needed to move its inventory fast before it becomes obsolete. Current ratio was 2.27 in 1987 and 1.34 in 1984. This fluctuated over the years
Case Summary:
At age of 16, in 1978, Eddie Antar opened Crazy Eddie Inc in New York City. This was an electronics store where leadership positions were assumed by family and relatives.
Their excellent advertising techniques through radio and their cut rate prices allowed the company to become “transhipper”, selling goods to other electronic retailers in NYC area.
Crazy Eddie Inc went public in 1986 in order to finance expansion program and in that year, it was discovered that the company engaged in fraudulent accounting.
In 1986, Antar resigned as president due to discoveries from company investigations and faced takeover in 1987. A$65 million in inventory shortage eventually lead the company to file for Ch 11 bankruptcy in 1984. This was due to Antar’s obsession with enhancing revenues and profits and having his staff contribute as parties. Because Antar failed to appear in court, he became fugitive and was arrested in 1992 in Israel. The case needed $42 million settlement, and Antar was sentenced to seven year in federal prison in 1997.
Key Facts:
Antar became well known for his sales tactics. He made sure that no one left without a purchase and did so by lowering prices.
6 months after company went public, Antar had an employee inflate inventory by $2 million which increased gross profit.
Parties of fraud: director of internal audit staff, the acting controller, director of accounts payable.
The family members were under qualified for the upper management positions.
Answers to Questions:
1) Key Ratios
Interesting to note that short term investment has a zero balance in 1985 and 1984.
Merchandise inventory increased by $87 million between 1984 and 1987. Inventory turnover decreased 4.5 to 3.22. This is crucial because the company was facing competition and needed to move its inventory fast before it becomes obsolete. Current ratio was 2.27 in 1987 and 1.34 in 1984. This fluctuated over the years