Only in New York (Part 2)

It is as ancient as the scriptures written by the prophets in the 1st century, and as current as the six o’clock news read by the pundits in the 21st century: The love of money (greed) is the root of all evil.

Throughout the centuries, greed has not only been thought of as one of the seven deadly sins, but it could be considered the cornerstone for the other six as well:

Lust: Greed for Sex
Gluttony: Greed for Excess
Envy: Greed for What Others Have
Sloth: Greed for Avoidance
Pride: Greed for Greatness
Wrath: Greed for Revenge

Today it seems like prophets have been replaced by profits and, as Gordon Gekko suggested in his famous speech from the movie Wall Street: “greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, for money, knowledge—has marked the upward surge of mankind.” (Click here; requires Windows Media)

Gordon Gekko was, of course, only a fictional character played by Michael Douglas in that classic 1987 movie. In real life, corporate greed often transcends into what we euphemistically like to call “white collar” crime.

But there is a ring around that collar, and it is usually investors who are taken to the cleaners—or, more aptly, hung out to dry. In the past few years, corporate crime has become so commonplace that we have almost become numb or even oblivious to the practice. Regrettably, it seems all scandals, past, present and future, will be viewed through the prism of the mother of all corporate scandals, one which can be summed up in a single word: Enron.

The name “Enron” has become synonymous with corporate greed, corruption and fraudulent business practices on a national, or even an international, scale.

When we turn on the evening news, we see the personification of greed in the likes of Enron’s Ken Lay, Jeffrey Skilling and Andrew Fastow. Or convicted former CEOs, MCI’s Bernie Ebbers and Tyco’s Dennis Kozlowski, as well.

Minus the mayhem, these executives stole more with a pen—or a keyboard and mouse—than Jesse James, Al Capone and John Dillinger could ever have dreamed of stealing with a gun.

However, corporate crime is not new to the 21st century. I can recall a few from the ’80s, like insider traders Michael Miliken and Ivan Boesky, and savings-and-loan swindler Charles Keating.

Perhaps it was their pedigree, intelligence, arrogance, wealth or highly paid teams of lawyers, but many of these rogues have had (or will have) their day in court.

I remember three who cheated the justice system; they opted to flee and became fugitives. Robert Vesco in the 1970s, who fled to Costa Rica, comes to mind, as does Marc Rich (later pardoned by President Clinton), who fled to Switzerland to avoid prosecution for illegal trading and tax evasion.

But no one schemed, scammed and then scrammed with the recklessness, carelessness and foolishness as the brash, street-tough CEO from the NY electronics chain that bore his name: Crazy Eddie Antar (see Part 1).

Whereas all the aforementioned executives were akin to the slick, polished Gordon Gekko, Eddie Antar could best be described as “the Joey Buttafuoco of corporate criminals.”

A high-school dropout, Antar started at the age of 20 with one store in Brooklyn. With his memorable advertising campaign (“his prices are so low they’re insane”), he even made it to Hollywood: in a scene from the movie Splash, the mermaid (played by Darryl Hannah) goes shopping in Bloomingdale’s and becomes frightened by the Eddie commercial because the actor, Jerry Carroll, is screaming that Crazy Eddie will beat any price because “he's insane.” (Click here)

Largely based on these zany spots and well-run, well-stocked stores, Antar nearly single-handedly built the Crazy Eddie chain into one of the premier consumer electronics retailers in the United States during the late ’70s and early ’80s. The Crazy Eddie’s Electronics Chain dominated the market for blank tape, as well as VCRs, stereos, CB radios, televisions, records and prerecorded tapes—even jewelry. The image that Crazy Eddie always sold electronics, records and tapes for less was honed to perfection.

At first he did it by circumventing New York’s Fair Trade Laws, which were meant to protect small retailers against the pricing practices of “discounters." Supporters considered the laws to be protection for small retailers against predatory pricing. Eddie would buy merchandise from other retailers on what we liked to call an “out the back door” basis, and sold it at steep discounts.
As his business grew, manufacturers who had been reluctant to sell to price discounters like Eddie eventually acquiesced, because his presence and market power had become overwhelming. The Crazy Eddie chain was generally credited with bringing discounting on a large scale to the consumer electronics industry. (The Free Trade laws were eventually repealed in 1976 by Congress, considering the laws a form of price-fixing).

Eddie, it seemed, had the Midas touch, and soon he expanded into Manhattan and the more affluent suburbs of Long Island and New Jersey, which, at that time, were dominated by upscale retailers and department stores. At his stores’ grand openings, he would delay opening the doors, letting the shoppers queue up outside, and then let them in gradually so he always had a line at the door, adding to the excitement. Even the media covered the store openings.
Soon Crazy Eddie had become a household name.

From my perspective, though, greed was not good, bad or indifferent to Eddie—it was an addiction.

Forty-three stores, 300 million dollars in sales, five children (all girls), fame, the satisfaction of knowing that even despite a high school education, that he had created a substantial business that employed hundreds of people: it wasn’t enough. Eddie’s philosophy was not “it’s not how you play the game that matters” but “he who owns the most when he dies, wins.”
As the regional manager for Maxell at the time, I was in awe of the chain. On one of my first sales calls in 1981, they placed a staggering order in the amount of $385,000 for blank audio and videotape, without flinching. In today’s terms, that would translate into an order of about $1 million. But these orders would usually come with some strings attached.

For example, soon thereafter, they requested that we (Maxell) provide them with five business-class tickets on El Al Airlines, so they could visit Israel. Being a bit of a self-righteous jerk, I thought what chutzpah they had, asking us to pay for tickets they could certainly afford to buy for themselves. I wanted no part of it, and didn’t quite care to play the role of travel agent, either.

Intimidated, however, by their clout, our upper management buckled and purchased the five airline tickets.

Well, I rationalized, perhaps the trip was for religious reasons, or for a family reunion, and, after all, they were my biggest customer.

I learned many years later that it was for business all right—monkey business.

The trips were meant to smuggle cash out of the US. In their bags, each member of the party carried as much $50,000, which they used to open accounts at Bank Leumi in Israel. Once the accounts were open, family members would routinely transport several hundred thousand dollars per trip. According to a relative, “Eddie made several trips himself, strapping stacks of large bills across his body before boarding the plane.” He was carrying so much cash and had so much difficulty walking that the flight attendants called for a wheelchair. Their Israeli bank account grew to over $6 million.

Once Antar’s Israeli bank account was overflowing with cash, he wanted to avoid the scrutiny of Israeli officials should they inquire on their own, or on behalf of American investigators; the money was then wire-transferred to overseas banks with secrecy laws.

Hey, had I known this was the real reason for the airline tickets, I would gladly have come down off my high horse and bought my own plane ticket! (Just kidding, folks.)

It was estimated the Antars skimmed off in cash 20% of the earnings. So much cash was trimmed from the operation that relatives were running out of hiding spots. Eddie himself kept a minimum of $200,000 under his bed, and it was believed Eddie gave his wife $1 million in cash after an argument. (Hope my wife isn’t reading this.)

But the idea now was to take the company public, so skimming had to cease for a while in order to attract the attention of investors, and not the SEC or the IRS.

In the years prior to the Crazy Eddie Initial Public Offering (IPO), the company gradually cut down on its skimming each year, to increase the growth of its reported earnings. The amount gradually declined from $3 million per year in 1980 to $2.5 million 1981; $1.5 million in 1982; $750,000 in 1983. The effect of this gradual reduction on skimming had a positive effect on the bottom line.

Having dealt with Crazy Eddie for almost three years, from my perspective, I never believed the SEC would approve them.
Another Jerry—Jerry Carroll, the TV pitchman who served Eddie as “consigliere,” as well as ad man—reminded Eddie: “Going public is the wrong thing. It’s a different world, and it’s run in particular ways. You’re the wrong guy to go public,” Carroll lamented. “Eddie always did what he wanted,” Carroll shrugged.

By late 1984, with the VCR leading the charge, electronics retailers were doing $35 billion in the US and enjoying double-digit growth. I was wrong about the SEC never allowing Eddie to go public, and on September 13, 1984, there was an Initial Public Offering of the stock trading under the symbol CRZY. Originally sold at $8 per share in 1984, by 1986 the stock was trading at over $75 per share. So to all appearances, investors in Crazy Eddie had discovered a gold mine.

Gold “shaft” might have been more apropos.

The cash-skimming notwithstanding, the warehouses were stocked with empty boxes filled with bricks. Inventory was “rented” from distributors, then returned after the audit. Returns were counted as new, and even the auditors themselves were steered to stores packed with bogus merchandise.

Greed is good; he who owns the most when he dies, wins… Eddie was soon to add one more motto to his legacy: “Take the money and run.” Literally.

(To be continued)