No Redemption II
No Redemption II
By Ilene
(This is part two of my interview with Sam E. Antar. For more, read No Redemption I.)
Sam Antar, former CFO of the criminal enterprise “Crazy Eddie,” gave a lively and educational lecture on white collar crime in Portland to health care fraud investigators yesterday on behalf of the United States Department of Justice. He spoke about Crazy Eddie, white collar criminals, and the investigators charged with bringing them to justice. In the beginning of the seminar, Sam asked the audience, “Can anyone guess why I’m here?” A man raised his hand and suggested “because you got caught.” That was apparently the first correct answer to that question in twelve years.
Here is what else Sam told heath care fraud investigators:
About fraud
“All fraud is basically the same. All fraud is personal in nature. It’s done on a one to one basis. Your humanity, ethics, and sense of fairness are weaknesses that we – white collar criminals – seek to exploit. We have no morality. The more likable and friendly we are, the easier it is for us to commit our crimes. We build walls of false integrity. You never know who the real person is behind a criminal’s carefully choreographed wall of false integrity. Bernie Madoff had a wall of false integrity around him and the lawyers investigating him at the SEC were enamored by his status. That’s why they didn’t properly follow through on whistleblower Harry Markopolos’s tips about Madoff’s criminal activities.
“Punishment does very little to prevent crime. It’s not a great deterrent. Criminals don’t stop because they see other people getting caught. While Bernie Madoff committed his crimes for almost two decades, he saw many other criminal get caught. Did that stop him?
“When I cooperated with the government it was only to save my own skin. I only cooperated with the US Attorney’s Office, the FBI, the SEC, and lawyer representing victims of my crimes because I did not want to bend down to pick up a bar of soap and worry about who was going to be my boy friend.”
Fraud Triangle/Diamond
“Criminologists have identified three common elements to all white collar crime: incentive, opportunity, and rationalization. It’s known as the fraud triangle. In recent years, capability was added as a common element of white collar crime and the fraud triangle was renamed the fraud diamond.”
Incentive – “People think white collar crime is primarily motivated by personal profit, and many times it is. However, personal profit is not always the primary reason why white collar criminals commit their crimes. Such crimes, in many cases, are motivated by power and loyalty within the criminal group. Money is important, don’t get me wrong, we’re not communists, but it isn’t everything.”
“In the family business type of organized fraud, the members of the criminal group share family, religious, ethnic, racial and cultural ties, such as in the Mafia and other organized crime groups. The criminal participants are not just bound together by money, but by their sociology. I was in a group like this. We felt intense family loyalty. This loyalty and quest for status within our tight-knit group was part of my incentive to act criminally.”
Opportunity – “The textbook answer is that the opportunity to commit white collar crimes is due to lack of internal controls, lack of checks and balances, and lack of effective oversight. What is missing from the standard text book answer is YOU. Whatever makes you moral and ethical makes white collar criminals effective. Your morality and ethics limits your behavior, while giving the white collar criminal more flexibility and freedom to commit their crimes. The paradox we face is that the more humane our society is, the easier it is for criminals to commit crime.”
“For example, we don’t profile people in the U.S. No one wants to be accused of being a racist, bigot, or anti-Semite and the criminals know it and exploit society’s political correctness. We’d have to give up too many civil liberties and give the government far more powers to effectively fight white collar crime and the criminals know that too and exploit laws protecting civil liberties.”
Capability – “Intelligence without morality. For instance, I went to college to become a more effective crook. 95% of white collar criminals have no criminal records. The higher the monetary value of the crime, the less likely it is that the criminal will have a previous record.”
Rationalization – “Most people think that we have to rationalize our crimes. Not true. We know what we’re doing and simply do not care about our victims.”
Question from the audience:
“Why didn’t you care?”
Sam: “I simply didn’t. Rationalization is for sissy criminals. You have to take the moral compass out of the equation to really understand criminal behavior. Morality doesn’t exist in the criminal world, except it helps us when the other person has morality. We could be sociopaths, we knew what we were doing and didn’t care about hurting anyone.”
During break
On break, I asked Sam if he was a sociopath. “No,” he says, he doesn’t think so. But Crazy Eddie Antar may have been a sociopath.
So, perhaps the message is that we’re not born with morality. Or not all of us are. We may be born with moral impulses, or instinctive urges for social cooperation that can be shaped for better or worse, but how the neurological connections develop depends on environment, culture, and education. They can go awry.
Back to the lecture
Sam: “Criminals know that people live on hope and it’s our job to exploit your hopes and dreams. In the five years before going public Crazy Eddie’s reported income quadrupled due to our gradual reduction of skimming that increased our reported earnings. So the growth rate looked great for Crazy Eddie’s initial public offering to investors.”
“Once you go public it does not pay to skim money off the top. Instead you inflate your reported earnings by such methods as double counting inventory. Inflating earnings increased the market capitalization of Crazy Eddie and allowed Antar family members, who owned most of the company’s stock, to sell shares at inflated prices.”
Question from the audience: “Did you plan this out?”
Sam: “Of course we planned it out. Criminals control every aspect of the crime scene. We had all ends covered.
“Right from the start, Eddie was skimming money, hiring family members and paying them off the books. We only stopped skimming to commit an even bigger crime – securities fraud.
We brought Crazy Eddie public to defraud the public. The entire empire was built on deceit. Criminals are no different from you in how we plan our moves, except anything goes for us. The Crazy Eddie IPO was at $8 and the stock went up to $80, split adjusted.
“Crazy Eddie wasn’t a discounter like we advertised. We were essentially a bait and switch operation. When we could not switch customers to higher profit margin products, we subsidized discounts by not paying sales taxes. We bought used and damaged merchandise and sold it as brand new. Eddie went to war against the big companies, he brought down fair trade. That made him a hero of the NYC metropolitan area consumer. However, Eddie Antar was no hero. His so-called discounting was a ruse, a wall of false integrity he built around his criminal empire.”
Inventory fraud
“Why didn’t the auditors count the boxes of inventory we lied about? Think about it. They come in wearing expensive suits. They feel too proud to be climbing on stacks of boxes counting inventory. We knew they wouldn’t. We exploited their self-esteem. To quote Al Pacino playing Satan in the “Devil’s Advocate” movie, ‘Vanity is my favorite sin.’
“We hardly ever obstructed our auditors, we just distracted them, like a magician in a magic show. To get the auditors to do what you want, it’s always better to give them things, like consulting work on the side, to corrode their skepticism.”
Investigations
“To investigate a criminal enterprise, an investigator has to form alliances with some criminals to catch the bigger criminals – bigger fish. The most effective investigators seem to like the criminals on some level, they have a fascination with crime. If the investigator is repulsed by the criminals, he can’t communicate well with them and get the lower level criminal to help him catch the bigger fish.
A good investigator cannot be judgmental towards cooperating criminal witnesses. It’s a war of wits between the investigator and the cooperating criminal, but there’s also a bonding process that goes on. I’m on good terms with all the investigators that went after me.
Question from the audience: What are you doing here?
Sam: “You’ll never know. I don’t give closure.
“Let me give you an example, like a drug addict in recovery. An addict, even in recovery, is always an addict. Likewise, a convicted felon, like me, always has the same criminal mind, even if I’m not committing a crime.
“The most effective drug counselors are addicts in recovery, who are helping other addicts to get off their addictions. I’m no different from a substance abuser. I have the same fascination with crime as I did before. It’s more fun and less risky to talk about crime than do it. But if I were to tell you I wasn’t a criminal today, should you believe me?”
After the lecture
After Sam’s lecture, we went to dinner and discussed the next step in a project to find other Crazy Eddies for purposes of inverse investing, or at least, investment avoidance. Sam, as always, was quite friendly and seemingly sincere. In spite of all I have been learning from him, I still can’t see through Sam’s deception and false walls of integrity. As the prisoner in The Lady and The Tiger conundrum, I’m left wondering whether Sam’s telling the truth, and he’s still a criminal, or lying and is really on the path to redemption.
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