Good Example Of Essay On Crazy Eddie, Inc.

Crazy Eddie, Inc. was established in 1969 by Eddie Antar who was a 21 year old high school dropout from Brooklyn. The company became a market leader in the retail consumer electronics business in a short span of 18 years. It had a total turnover of more than $350 million and a collective market value of $600 million by 1987. Crazy Eddie’s empire soon collapsed when a major financial scandal was uncovered at the end of 1987. Eddie Antar and his associates were found to be fraudulently involved in the overstatement of inventory and profits and the understatement of account payables.
After dropping out of school, Eddie Antar and one of his cousins opened an electronics store near Coney Island. His unusual yet persuasive marketing skills were evident from how he used to persuade even the most reluctant customers to buy atleast one product by blocking their exit and lowering the product’s price until they finally bought it. Eddie was famous for his unusual sales tactics, unconventional business methods, fitness fanaticism, quick temper and his inability to trust outsiders in the business. He gave nearly all of his family members’ top positions in his company’s management.
During the 1980s, demand for electronics products grew rapidly upon which Eddie converted all his electronic stores into supermarkets. He stacked all the retail outlets with every gadget and electronics product that was available and created seven product lines in his company. Antar was proficient in realizing profits and minimizing the repair costs by pressuring customers into buying extended product warranties on all the products. The company recovered the repair costs from the factory warranties it received from its manufactures thus, realizing 100 percent profit from its warranty revenue. Eddie followed the practice of transshipment for extracting profits, which was to purchase electronic products at concessional prices from its manufacturers and to sell them at increased rates in his stores. He believed in extensive advertising and used television and radio channels to popularize his products. Antar also hired a popular radio personality, Doctor Jerry who acted as Crazy Eddie’s radio spokesperson for 15 years. The company was also famous for its wild discounting policies of which one was to refund the amount of difference between the selling price and any lower price the customer was able to find within the next thirty days of the purchase.
Crazy Eddie, Inc. went public in 1973 and sold its stock to the public for the first time to finance its aggressive expansion programs. The company’s Initial public offer was delayed for more than a year when the underwriter to the issue found several faults with the company’s financial records. The underwriter discovered several related party transactions, speculative investments, interest free loans to employees and executives’ family relations with Eddie Antar. Eddie was encouraged to appoint a Chief Financial Officer, unrelated to him to clear up the anomalies in the finances of the company. He however, appointed his first cousin as the CFO and the company’s stock was finally sold.
The company sold 200,000 shares more than the original due to the oversubscription by the public. The IPO was tremendously successful leading the financial analysts and public to believe that the company was financially sound and healthy. Analysts were quite impressed with Eddie’s exceptional convincing skills and salesmanship which led them to give positive reports about the company’s strength. The company’s market price thus, boomed resulting into a 1,000 percent gain to the investors.
The company’s growth was exceptional till the beginning of 1986. By the end of the year, Crazy Eddie’s growth rates began decreasing tremendously due to increased competition and poor demand. The company faced problems in extracting sweet deals with its suppliers thus, creating a major corporate meltdown. By 1987, the company was completely in shambles and was acquired by Zinn in a hostile takeover. The new owners soon discovered that Crazy Eddie’s financials had been fraudulently manipulated and its profits were overstated by the top management for several years. The company’s auditor, Main Hurdman was also found to have charged only $85,000 for a complete audit in a year because of which he was also believed to have aided and abetted the fraud. His independence was also questioned since most of Crazy Eddie’s former accountants were the audit firms’ employees. The audit firm was also suspected to be a party to the fraud since the auditors had failed to uncover the overstatement in inventory and understatement in account payables even when they came across suspicious circumstances several times.
The auditors defended that Eddie Antar and his associates engaged in deceptive tactics to defraud the auditors. They argued that they used to destroy incriminating documents, ship inventory to stores which were about to be examined and employ manual inventory systems to conceal the fraud. Further investigations found out that several key managerial personnel such as the director of the internal audit staff, director of accounts payable and acting controller were also colluding with Eddie Antar to defraud its auditors and the public.
Several lawsuits including a civil suit and criminal indictment were filed against Eddie Antar. He filed a bankruptcy petition in June 1989 and was ordered to repatriate $52 million from foreign bank accounts in January 1990. He disappeared after a court hearing which was held a few months later and was officially declared as a fugitive. On 25th June 1992, he was caught posing as an Israeli citizen in Tel Aviv and was extradited in December 1992. In July 1993, Antar was convicted on 17 counts of financial fraud including racketeering and conspiracy. He was sentenced to 12.5 years in federal prison and was ordered to pay $121 million as restitution charges. Later, Antar pleaded guilty as per a plea bargain agreement and publicly admitted to have deceived the investors by manipulating accounting records of the company. In 1997, Eddie’s sentence was reduced to seven years in federal prison. Eddie’s accomplices including Sam E. Antar, the former CFO of the company were also convicted and/or pleaded guilty of the charges.
More than $150 million was recovered by the law enforcement authorities from those parties which had profited from the fraud. Several civil lawsuits which remained pending were closed and settled in March 1993. In 1998, Eddie Antar’s business was revived as ‘new’ Crazy Eddie, Inc. by two of his nephews where he joined them as an executive of the company and as the ‘creative force’ of their marketing team.