SEC charges Antar with stock manipulation - Eddie Antar, founder of Crazy Eddie Inc. consumer electronics stores

Discount Store News, Sept 25, 1989

SEC Charges Antar With Stock Manipulation

NEWARK, N.J. -- The Securities and Exchange Commission has filed a civil action against Crazy Eddie founder Eddie Antar and a group of former executives, accusing them of manipulating the value of the company's stock by overstating profits and sales in financial reports.

The complaint, filed early this month here near the company's headquarters in Edison, alleges that Antar, members of his family, and company executives engaged in securities fraud and insider trading from the time the company first went public in 1985.

Antar, the complaint charged, made over $60 million from the conspiracy, selling off stock just before the real results of Crazy Eddie's evidently at best marginally profitable operations became public. He faces massive fines, including treble damages after paying back the $60 million the SEC contends he realized.

Justin Feldman, Antar's lawyer, declined comment, referring to earlier statements that Antar has denied any wrongdoing and continues to do so.

Meanwhile, the company he lost in a proxy battle in late 1987 continues to struggle, announcing the closing of eight more stores to reduce the count to 18. A year ago, the company operated 43 stores.

Crazy Eddie sought protection under Chapter 11 of the Bankruptcy Code in June after several vendors pressed for dissolution of the chain. Previously, president and ceo Elias Zinn, who took over after ousting the Antar management, had resigned in order to pay more attention to his own company, Entertainment Marketing.

Zinn, who continues as a Crazy Eddie director, said from Houston that "justice is slow, but it usually happens." Of the SEC action's effect on a $200 million shareholders' lawsuit against the Antar group, he said that the action "is the first time that anyone has said that all three financial statements (from 1985, 1986 and 1987) were fraudulent. Hopefully we'll see more from the government."

Antar and several of his management team are also under scrutiny by a Federal grand jury, probing into possible criminal misconduct in the alleged fraud. That jury is expected to issue a recommendation sometime later this fall. According to a report in the Sept. 11 issue of Crain's New York Business, the grand jury may possibly "accuse the former electronics retailer of violating federal racketeering laws as well as of securities fraud and insider trading."

Antar founded the chain in the late '60s, at first buying merchandise from other retailers and selling it at a discount. As his business developed, manufacturers, loathe to sell to a professed discounter, were forced to sell goods to him directly. He is generally credited with bringing discounting on a large scale to the electronics industry.

A Household Name

As the chain grew, Antar moved out of his Brooklyn base to take on Manhattan and the more affluent suburbs, which had until then been the near-exclusive preserve of upscale, value-added retailers. His razzle-dazzle openings, and more important, his high-profile advertising featuring rubber-faced pitchman Jerry Carroll, soon made Crazy Eddie a household name.

The chain went public in 1985, and shares were very popular among investors.

According to the SEC complaint, that event was also the beginning of a long-running fraud that eventually bilked investors of hundreds of millions of dollars.

"From the time that the false financial statements for fiscal 1985 were released and continuing through Nov. 16, 1987 [when Zinn and turn-around specialist Victor Palmieri took control], Eddie Antar sold a total of 5,623,000 shares of Crazy Eddie stock for which his gross proceeds exceeded $60 million," the SEC complaint charged.

"Because he had personally directed the fraudulent activities by which the company's income was overstated, Eddie Antar knew or was reckless in not knowing that the prices at which he was selling his stock did not reflect the true value of the company," the complaint continued.

From a relatively modest overstatement of $2 million in 1985 profits, management allegedly turned a "substantial" loss of millions of dollars in June 1987 into a $20.6 million profit, the SEC charged.

According to reports from those familiar with the case, Antar and his managers allegedly used several methods to pump up the value of the company, and therefore its stock. Among them were phony invoices, counting damaged goods on their way back to manufacturers as current inventory, moving inventory from store to store to baffle auditors, hiding or destroying accounts payable invoices, and altering documents.

According to Barbara Katron, an SEC attorney who conducted the investigation, the SEC plans to "prosecute this case vigorously and move forward as quickly as possible. We believe we have a strong case."

Those charged include Antar, his brother Mitchell Antar, his cousin Sam E. Antar, and company director David Panoff. All four are charged with violations of various provisions of both the Securities Act and the Exchange Act. Three other Crazy Eddie employees consented to the entry of permanent injunctions barring them from future violations of the Exchange Act.