I’ve read numerous books on financial fraud and business failure over the years. Oddly, such books can serve as great primers on the recipe for ‘legitimate’ business success. However, I’m not sure I’ve ever read a story where the owners were as brazen in their financial improprieties as the family members and managers of the consumer electronics store chain, Crazy Eddie. No, Retail Gangster by Gary Weiss is not dark comedy or satire, but it seemed like it.
Interview Highlights
- The most bizarre business story this interviewer has ever read
- The origin of the book
- Our shoutout to Sammy Antar, the former CFO of Crazy Eddie, now a forensic accountant teaching others
- The reason this book should be a 10-part Netflix docuseries
- Eddies’ story, a Shakespearian Tragedy
- Modest beginnings on Kings Highway in Brooklyn
- For the financial pure in heart, an explainer on skimming, insurance fraud, and lunching
- Hiding places for tax-free dollars – yes, bed mattresses
- Eddie’s odds of being successful and an honest business owner
- The reasons behind the store chain’s IPO and turning losses into profits on paper
- Secrets to cheating auditors during the year-end examination
Books Mentioned by Gary Weiss
- Any book by Gerald Posner
- Any book by Ben Macintyre
Important Links
Mark’s 5-Star Notes
I could have easily talked to Gary for two or three more hours, and I’m sure he would have let me. Instead, I will share some of the notes and questions I jotted down in my journal as I read this narrative. All quotes are from Gary’s book – I’ll only reference the page number. By the way, I’m giving this book 5 stars.
Nehkdi and aversion to paying taxes were a leftover habit from Ottoman Syria, where few services were provided to the populace by the Turkish rulers except conscription and taxation.
Page 4
- The subtitle of the book tells it all – The Insane, Real-Life Story of Crazy Eddie. This is a crazy story of insanity that goes wrong that has a bad ending.
- Was Eddie always crazy or did he become crazy over time?
- Eddie was a strategist. He had to figure out ways to get products that vendors would not sell to him.
- As a former controller in a retail chain, I had never heard of the term, lunching. It’s the process of getting full price for vendor returns and display models of brand-name products.
- Eddie’s strategic advantage was charging less than other retailers. He did that by pocketing sales tax dollars paid by customers. The sales tax dollars were remitted – not to the state but to bed mattresses and other hiding places. That means they could even sell under cost and still make money.
- The reason they didn’t get caught was that there were not enough field auditors to thwart these crimes.
- Upselling was another way Crazy Eddie generated excess profits – selling cheap stereos by inflating accessories. I’m surprised customers didn’t go elsewhere for these items. We learn in the book the people on the sales floor were extremely persuasive.
- Sammy is a cousin with a penchant for numbers. Instead of reading Sports Illustrated, he reads the Wall Street Journal. Eddie sends him to school knowing he’ll become the company accountant upon graduation. This is a critical milestone in the Crazy Eddie story.
- Both the author and I found it interesting that Sammy learned from one of the great accounting minds in the country who preached truth in the numbers.
(Professor) Briloff taught that accounting was an exercise not in black and white, true or false, legal or illegal, but shades of gray. In the wrong hands, the numbers could be made to dance.
Page 45
- Great history lesson on the Crazy Eddie commercials. And these guys were not crazy idiots, they knew what they were doing. The idea of running spots late at night on cable was both successful and savvy at the time. There were no storyboards. The outcome? Brand recognition as strong as the U.S. president at the time.
- Ahhhhhhh, more fraud – insurance fraud. Wow, these guys were brazen.
- That IPO never happens without the insights of Sammy.
Investors and analysts asked about a lot of things during the road show, but there was a common theme: growth. Was Crazy Eddie a growth company? Did it justify the price-earnings ratio that was contemplated in the prospectus? In other words, was Crazy Eddie caviar or chopped liver?
Page 90
- I liked chapter 10 and the mention of Alan Abelson of Barron’s. Gigi Mahon wrote a non-flattering story about the store chain … come on, Gigi, keep digging, keep pressing, and keep asking questions. Gary and I touched on this during the interview.
- Of course, all of the analysts loved the Crazy Eddie quarterly results.
- More fraud tactics – warranty fraud. I know inflating inventory is coming next, but what fraud is coming next? We learn from Gary’s research this type of fraud was common and rarely prosecuted.
- The first inflating of fraud started at a warehouse for $2 million.
- When inventory starts, you create a hole for the new year, and each year the hole keeps getting bigger.
- I learned another new term – transhipping. That’s another way to distort top-line numbers. Revenues are inflated by selling merchandise to other retailers and wholesalers.
- Eddie starts dumping shares. If you haven’t read the book yet, you might be thinking this is a bright red flag for analysts and investors. Story spinning was alive and well in the 1980s, and Eddie got away with it.
- In retrospect, this is humorous, ” … best consumer electronics chain … ” in 1985 according to Drexel Burnham’s, Barry Bryant.
We judge the results no less than outstanding.
Wise words from another industry expert at the time – page 124
- Sammy was either incredibly smart, bold, or another trait I can’t put into words. He never worried about the auditors or the SEC.
Fraud is not always a great, cynical master plan, with sinister characters gathering in smoky bars to hatch their schemes. The people involved can be ordinary, not criminals, willing to do a favor for a friend, a colleague, or an employer. Willing to look the other way. Willing to not think too closely about what they’re doing.
Page 128
- Fabricated profits reached $12 to $14 million by 1986
- “Houston, we have a problem.” I mean a big one. In 1986, Eddie is now being beaten by the competition thanks to a full-blown price war. Now the competition has a strategic advantage over Crazy Eddie. They are not mired in accounting fraud. This won’t end well.
- The Home Shopping Network? No way that works. It could have, they didn’t approach that concept with a solid plan.
- For fiscal year 1987, pre-tax earnings were $20.6 million. The real loss was estimated at around $20 to $25 million.
- The plan to take the company private made sense. But the family was not the winning bidder. Uh-oh.
- The buyer finds an inventory deficit of around $50 million. That number grew to $65 million.
- The game is finally over on October 2, 1989.
Crazy Eddie, may he rest in peace.
The last Crazy Eddie commercial, page 214
- Remarkable – the SEC had recovered about $120 million in cash by 2012. I heard Sammy say this has been the largest fraud recovery in the SEC’s history. Incidentally, Eddie is never prosecuted without Sammy’s help and meticulous paper trails, and the tangible evidence he provided. I highly recommend reading his outstanding blog – White Collar Fraud.
- The real tragedy of Eddie Antar – bad family relationship, no true friends (he used them until he no longer needed them), and his own family along with the two Debs.
- There are no visual timelines in the book … if you are curious, the first store opened in 1969. The store name was changed to Crazy Eddie in 1973. The second store was opened the following year. By 1979, the chain had grown to seven units. In 1986, nine store additions brought the total to 32, and they plateaued at 42.
If you like these types of books, here are three interviews you should check out:
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