Eddie Antar ( Crazy Eddie ) dominated the retail consumer electronics market in the New York City metropolitan country. By 1987. Antar’s house. Crazy Eddie. Inc. . had 43 retail mercantile establishments. gross revenues transcending $ 350 million. and outstanding stock with a corporate market value of $ 600 million. During his term as the company’s main executive. Antar had personal addition of more than $ 70 million. The first measure Crazy Eddie done in order to derive success was to spread out his small shop into many large consumer electronics supermarket and carrying the shops shelves with every electronic appliance available on the market.

As the house grew quickly in the 1970 and 1980. antar’s ability to purchase big measures in lower discounted monetary values allowed him to go an mediate provider for many smaller retail electronic shops in the New York country and spread out his grosss significantly. The most of import portion of antar success was his accent on advertisement in order to make the broad populace ; to accomplish it he filled the wireless and telecasting with eternal sum memorable commercials.

To further distinct his shop from the rivals. the company promised to return the difference between the merchandising monetary value of a merchandise and any lower monetary value for that same point that a client found in other shops within 30 yearss of the purchase day of the month In 1983. Antar decided to travel public and sell stocks of Crazy Eddie in order to raise capital to finance an aggressive enlargement plan. When using to travel public. the underwritre who examine the company reference several important jobs with the company the inquiry the ethical public presentation of the company and needed to be addressed in order before the company can be publicaly traded.

The most questionable job was the fact that about all of the company’s cardinal executives were members of the Antar household which may ensue in debatable internal controls and do the find of deceitful Acts of the Apostless hard because of the deficiency of independency of the different executives. Extra issues were the household members high wages ( Antar’s married woman and female parent. who receved wages nearing $ 100. 000 for small or no work. ) and many company minutess which were unrelated to the company’s chief line of concern ( extended related-party minutess. interest-free loans to employees. and bad investings ) .

The investment banker warned Antar that investors would oppugn the competency of Crazy Eddie’s executives who were his relations and urged him to engage a CFO who had experience with a public company and who was non a member of the Antar household nevertheless antar take to engage his cousin to function as the company’s CFO. Despite the investment banker concern. the sale of Crazy Eddie’s stock to the populace was a enormous success. And because of the high demand. the company’s investment banker obtained permission from the SEC to sell 200. 000 more portions than originally planned.

As a consequence of the high demand the monetary value of Crazy Eddie’s stock increased quickly. Many investors who pur- chased the company’s stock in the! PO realized a 1. 000percent addition in the value of their investings. However. as clip passed the and the enviorment changed. the company was in deep problem. The competition in the market increased significantly and decreased antars ability to have particular trades from providers which resulted in smaller net incomes for the company.

Additionally the growing rate decreased significantly compared to the old old ages and led antar. in effort to maintain posting impressive operating consequences to keep the upward tendency in the stock’s monetary value to execute many deceitful actions that were discovered subsequently: Since the company went public. antar ordered is employees to systematically exaggerate stock list and understate histories collectible by 1000000s of dollars ; as instructed. Crazy Eddie employees overstated year-end stock list by including in it consigned ware. and fixing stock list count sheets for points that did non be.

In order to minimize histories collectible. the employees prepared bogus debit memos and entered them in the company’s accounting records. Another deceitful tactic Antar used to exaggerate stock list involved transshipping minutess between Crazy Eddie and many of its smaller rivals. Gross net income from the gross revenues was written in the books with higher rates than truly sold and the stock list was overstated by non crediting it for the full sum. Same-store gross revenues were inflated for selected runing units. and stock list was over- stated with a corresponding addition in gross net income from gross revenues.

Despite of antar’s efforts. between 1984and 1987. The company’s one-year gross revenues volume decreased significantly and In late 1986. Eddie Antar resigned from his place as company president. and merely dropped out of sight. In the absence of Antar. Crazy Eddie’s fiscal status deteriorated rapidly and a coup d’etat group headed by two outstanding moneymans gained control of the company. The new proprietors discovered and exposed a $ 65 million deficit of stock list.

That stock list deficit. which was larger than the entire net incomes the loony eddie had reported since it went public in 1984. finally led company into bankruptcy and sent the regulative governments in chase of Eddie Antar for an account RULLINGS: in January 1990 a federal justice ordered antar to direct back $ 52 million that he hold transferred to his foreign bank histories in 1987 Anter was present for the first hearing but after it he became a fleeting and was caught merely 2 old ages subsequently on June 25. 1992 when an Israeli force arrested him while life in a little town near tel aviv presenting to be an Israeli citizen.

After being extradited back to the US. antar was convicted in July 1993 on 17 counts of fiscal fraud including: racketeering. confederacy and mail fraud. He was sentenced to 12. 5 old ages in federal prison and was forced to pay back $ 121 million to former shareholders and creditors. On April 1995 the determination was overturned and a new test was announced based on the claim that the old justice had been biased against eddie antar. In may 1996 the instance ended in colony.

Eddie antar was sentenced to 7 old ages in prison nevertheless he received recognition for clip he already spent in prison. and as a consequence he had to function merely 2 old ages To day of the month. Governments have recovered more than $ 150 million from the parties that profited from the fraud. Significance every bit far as auditing is concerned: For scrutinizing brainsick eddie sceneraio opened the eyes to many internal controls issues that if non addressed can ensue in important deceitful behaviour and should move as a warning visible radiation for future battle. Independence

the independency of the chief hurdman was questionable. foremost he done utmost steps to maintain loony eddie satisfied in order to maintain him as a client including bear downing him low audit fees in order to supply the company consulting services that will cover for the impermanent loss. Additionally chief hurdman developed the company’s stock list system therefore is objectiveness in look intoing it is impaired. Due attention Along the old ages. antar systematically hired is former hearers. this is besides common today nevertheless the loony eddie scenario shows the danger when formers hearers are hired in the company. mat

In order to look more dependable for the wider populace. Antar dismissed Crazy Eddie’s foremost local accounting house. before he took the company populace. As a replacing. Antar hired Main Hurdman to function as Crazy Eddie’s audit house. Main Hurdman had a countrywide accounting pattern with several outstanding clients in the consumer electronics industry. In the mid-1980s Following the corporate coup d’etat of Crazy Eddie in 1987. the new proprietors replaced Peat Marwick with Touche Ross. CASE 1. 8. CRAZY EDDIE. INc. Main Hurdman charged Crazy Eddie relatively modest fees for the company’s one-year audits.

A prima critic of major accounting houses a lleged that Main Hurdman had “Iowballed” to obtain Crazy Eddie as an audit client. recognizing that it could do up for any lost audit gross by selling the company consulting services. ——– he audit them for a lower monetary value in order to derive them as a client. and acquire gross from them from another side through consulting services This same single challenged Main Hurdman’s ability to objectively scrutinize an stock list system that it had efficaciously developed.

Main Hurdman’s independency was besides questioned because many of Crazy Eddie’s comptrollers were former members of that accounting house. company that hires one or more of its former hearers can more easy hide deceitful activities during the class of subsequent audits Most of the unfavorable judgment directed at Crazy Eddie’s hearers stemmed from their failure to bring out the immense exaggeration of the company’s stock list and the material understatement of histories collectible The hearers were accused of “aiding and abetting” the fraud by neglecting to thoroughly investigate legion leery fortunes they discovered.

For illustration when the hearers requested client paperss. and were told that those paperss had been lost or unwittingly destroyed. To the auditer’s defence. antar done many attempts to hide the frauds ; after finding which stock list sites the hearers would be sing at year-end. Antar shipped sufficient stock list to those shops or warehouses to hide any deficits. Likewise. antar workers consistently destroyed implying paperss to hide stock list deficits Main facet of the Crazy Eddie dirt was the engagement of several cardinal accounting employees in the assorted deceitful strategies.

These parties included the manager of the internal audit staff. the moving accountant. and the manager of histories collectible. Pastaudit failures demonstrate that a fraud affecting the collusion of cardinal accounting forces is hard for hearers to bring out. Crazy Eddie’s pattern of engaging its former hearers is non unusual besides today. Many accounting houses really arrange such “placements” with audjt clients. and back up the transportation of it employees to the client’s company from the belief that this will increase the opportunity of future cooperation between the 2 sides.