Crazy Eddie CFO shares how companies trick auditors and fleece investors: Plain Dealing

Crazy Eddie was a discount electronics chain whose screaming TV ads were so recognizable throughout the Northeast, they were parodied on "Saturday Night Live."

The New York company spent the '60s and '70s making bait-and-switch sales to consumers and dodging taxes. In 1984, the company decided to go public to fleece a new set of victims: investors. But first, it had to finagle its books.

Company owner Eddie Antar sent his cousin, Sam Antar, to work as a spy at the accounting firm (the forerunner of KPMG) that would conduct the audit for the public offering. That way he'd know how to stay ahead of the audit.

It worked. Crazy Eddie went public with cooked books and overpriced stock.

"Our fraud was never uncovered by auditors," Sam Antar bragged last week at a financial fraud seminar at the University of Akron.

The company imploded in 1987 after a hostile takeover, when the new owner checked the inventory and found warehouses were filled with empty electronics boxes.

Antar, who now travels the country talking about white-collar crime, spoke with great relish about his past to a crowd of mostly lawyers and accountants. As he played old TV news clips about the Crazy Eddie scam, Antar laughed and shook his head as the on-screen investigators and prosecutors said things like, "Eddie had more fires and floods than the Bible."

The University of Akron hosted the seminar to give some oomph to its announcement that it will be launching a new degree that combines a master of science in forensic accounting with a law degree. The program starts next fall.

While some law schools offer joint law and accounting degrees, Thomas Calderon, chair of the school of accountancy said, "This is the first joint program between an accounting school and a law program that focuses on financial forensics."

Forensic accountants are the detectives of the number-crunching world.

They're the people who sift through clues to figure out how financial crimes were pulled off and find out where the cash went.

Someone with the new degree, Calderon said, would better understand both how to investigate financial frauds and how to weave those details into a narrative for the court.

Graduates of the new program would likely be in demand at federal law enforcement agencies, regulatory agencies that supervise the financial industry, law firms that represent investors or defend corporations against wrongdoing and even by corporations monitoring against financial fraud by employees, Calderon said.

The combined degree will tack an extra semester onto law school for students who come in with an accounting background and add as much as a year and a half for people who don't.

But the forensic accounting specialty is likely to give law school graduates an edge in a tight job market, Calderon said.

The idea for the degree was born from a series of scandals that rocked the financial world, starting with the collapse of Enron in the early 2000s and leading right up to the mortgage meltdown of 2008.

"One theme common in all of these is the financial fraud component," Calderon said.

Had more attorneys with forensic accounting backgrounds been at regulatory agencies before the financial meltdown, he said, it might not have been as massive, both because regulators would have spotted the fraud faster and had rules in place to prevent it.

Monday's crowd was mostly accountants and lawyers who signed on for continuing education credits. But students sat in, too, and Antar had a powerful lesson for them all.

Antar, who served as Crazy Eddie's CFO, gleefully recounted how he bamboozled the outside auditors and then avoided prison by testifying against his cousin. (Eddie spent several years in prison for fraud after leading law enforcement on an international manhunt.)

Crazy Eddie, Antar said, outfoxed auditors with simple ploys that companies continue to use today.

Antar and his cousin befriended and flattered the company's auditors, knowing they'd be less suspicious if they viewed the Antars as pals.

They complained to auditing firms about auditors who seemed immune to flattery or asked tough questions.

And Sam Antar reshaped the high-pressure sales tactics Crazy Eddie used on consumers to better foil auditors. Knowing an audit took eight weeks, Antar held back most documents until the last couple weeks so that auditors would be too rushed to spot problems.

Antar cheerfully described himself as "a liar" and a "criminal" during the talk, and when a member of the audience asked if he'd changed his ways, the affable Antar spread his arms wide and shrugged.

"Would you believe me?" he asked.