PERPETRATOR The Fraud Triangle consists of pressure


The Fraud Triangle consists of pressure, opportunity and rationalization. They can take many forms and usually, all three are present when there is fraud. There are exceptions however, especially in the case of Crazy Eddie and Panama Pump, Eddie Antar, the main perpetrator and owner of Crazy Eddie’s consumer electronic stores fraud. Reading through the case, one could easily find how pressure and opportunity drove Eddie Antar to commit the fraud that he did, but they would not find any rationalization that he would have had. Eddie Antar did not have to rationalize the crimes he committed because he owned the company and he could not see that he was hurting anyone by committing the fraud. Greed served as a blinder to Antar in that, he would continuously try to raise the company’s stock price, doing whatever he had to do to raise it.
Greed served as one of the pressures that caused this fraud. After years and years of getting away with the fraud, there was no reason to stop. He committed just about every fraud that you could commit. From reading the case, it seemed like Antar and his company formed a certain prestige’s reputation in New York City, being the best place to buy electronics. To maintain this reputation that Crazy Eddie’s stores was indeed the best, committing the fraud was necessary to make this true.

Another pressure faced by Antar was that he had to keep sales in his stores constantly looking good. This was somewhat a pressure he put on himself so the financial analysts would report that Crazy Eddie’s was doing well, which would in turn affect the stock price of the company. He had to maintain the appearance of success in his stores to get this good report from the analysts. To maintain these impressive operating results that analysts looked favorably towards, he had to commit the fraud that he did.

Antar also received pressure from competition that was entering into the consumer electronics market. He had to prove that his stores were doing better than other retailers. One way he did this was by falsifying the annual percentage change in individual stores. This percentage gave financial analysts an idea of how individual retail stores were doing financially. Any drop in this percentage in particular stores would have been seen as bad news by financial analysts and could result in a poor report of the company. Due to the pressure to maintain this percentage, Antar inflated sales, improperly recorded certain sales and overstated inventory in particular stores.

The opportunity that Eddie Antar had to misstatement the financials of Crazy Eddie’s was limitless. He had all the opportunity that he could possibly get because he was the president of the company. No one could stand in his way to make the financial statements fraudulent and if they did, he could have just fired them. However, it did not help matters that the director of internal audit staff, director of accounts payable and the acting controller were involved in the fraud. The involvement of these important accounting people made the fraud hard to detect on the part of the outside auditors. It was not until the company was sold the fraud was finally detected.
I think that Eddie Antar does this fraud as good as possible. He was the owner of the company. He had all the opportunity in the world, all he had to do was think of ways to fake the numbers to make his company look good. He didn’t really hire his family and I don’t think a person’s family will be the first to turn someone into fraud. He also saves the scam for a long time, which is a major fall. Besides that, I don’t think anyone could have committed this fraud any better because most people would not be in the position that he was in, which was being able to control everything in his company. From looking at the case, it seems like he was in the perfect situation to have complete control over the company. In dealing with fraud, you’re always going to get caught so I don’t think anyone could have done it better, getting away with it for as long as Antar did.

The SEC charged Eddie Antar with securities fraud and illegal insider trading.

A Federal district judge ordered Antar to repatriate more than $50 million he had transferred illegally to Israel. He was also ordered to appear in court to explain what had happened with the money. When he failed to appear, an arrest warrant was issued. Eddie surrendered to U.S. Marshals a week later, but was released and ordered to appear at a second hearing. When he failed to appear at that hearing, a second arrest warrant was issued and his assets were frozen.

Eddie was arrested in June 1992 on allegations of federal competition conspiracy and extradited to the United States in January 1993. Eddie was found guilty of seventeen counts of fraud. His brother, Mitchell, was found guilty of three counts, and released on two. Eddie was sentenced to ?12 1?2 years in prison. The Antars’ lawyers immediately filed an appeal, citing what they believed was bias on the part of the presiding judge.

Eddie Antar finally pleaded guilty to federal accusations of fraud in May 1996. In February 1997, he was sentenced to eight years in prison. He was also ordered to pay more than $ 150 million in fine, in addition to more than $ 1 billion in his judgment against him due to various civil suits. An attempt to raise additional money from the Antar family on behalf of the deceased shareholders was completed in 2012
In conclusion we examined some of the techniques used to disguise fraudulent activities from auditors. In many situations it is very difficult for a fraud to be detected as criminals will go through great lengths to get away with the crime. Auditors however, have a responsibility to provide reasonable certainty of the financial statements accuracy. Auditors cannot afford to be complacent or they will fall victim to these criminals. In the Crazy Eddie case the auditors were careless in performing the audit. Many “red flags” went undetected and resulted in millions lost by investors. We may never be able to completely eliminate fraud from occurring, but we can learn from frauds like this one. Many of the problems that occurred in this case are now being eliminated thanks to regulations like Sarbanes Oxley which have created an awareness throughout the accounting and auditing community.

A recommendation I could give is don’t have your auditors performing more than one service for you as Crazy Eddie’s auditors did performing the audit and consulting services for the company. The auditors barely charged them to audit the financials but they charged Crazy Eddie’s millions for consulting services. There was no independence on the part of the auditors. However, this recommendation would not be of use to them now because of Sarbanes Oxley, which would prohibit the outside auditors from being both Crazy Eddie’s auditors and consultant advisors.
Another important recommendation is to simply follow Generally Accepted Accounting Principles (GAAP). If GAAP was followed, of course, there would have been no fraud. The driving force behind the fraud that pressured Antar to commit these acts was greed. He had to maintain the company’s appearance, no matter what the cost. His greed to keep raising the company’s stock forced him to make fraudulent financial statements. The opportunity for him was there and Antar ultimately faced the consequences of committing fraud.