Crazy Eddie Corporation Case Study

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Introduction “We are not undersold, we will not be undersold, we cannot be undersold, and we mean it! Crazy Eddie – his prices are – I-N-S-A-N-E!” This standard disclaimer, screamed by a manic actor in Crazy Eddie’s commercials for 17 years, accurately sums up how the chain operated. Crazy Eddie would do anything to make a sale, even if that meant committing 18 years’ worth of fraud. While this fraud case may not have the financial audacity of more recent crimes, the variety of frauds and the timespan over which they occurred makes it a fascinating example of what some people will do to make money and gain power. • 1969: The Crazy Eddie chain of appliance stores, originally named “Sights and Sounds,” was founded by three men – Eddie Antar,…show more content…
 Manager might be paid $5,000 on the books and $50,000 off the books. o Phony warranty claims: The firm would submit claims to manufacturers to repair appliances that were not damaged. o Insurance fraud: The firm would submit false insurance claims for damaged & destroyed merchandise. • 1971: Eddie buys Ronnie’s 1/3 share of the store for $25,000. • 1972: Fair trade regulations ends, meaning retailers can sell at prices lower than MSRP; Eddie changes store to “Crazy Eddie.” • 1975-1980: Eddie sends Sam E. to college to study finance and accounting. • 1980: Sam passes CPA exam; Works as unofficial CFO for Crazy Eddie; Works for Penn & Horowitz. o Clearly a conflict of interest, so Sam E. kept Crazy Eddie job a secret and was paid off the books. o Worked at P&H in order to: 1. Fulfill auditing experience requirement to obtain CPA license. 2. Learn how to take advantage of auditors when Crazy Eddie went public. • 1980: Reduction in skimming begins in order to prepare Crazy Eddie to go public. o $3MM/year in 1979 to $0 in 1984. o Pro forma annual profits grow from $1.709MM in 1980 to $7.975MM in 1984 (factoring in new store openings, pro forma profit/store grew from $219,975/unit in 1980 to $617,738/unit in 1984). ****GRAPH…show more content…
 The bank drafts were issued in either $25,000 or $100,000 amounts so they could be deposited into stores that needed to boost their revenue.  The drafts were deposited over the weekend on the first day of the new fiscal year without invoices.  Family members deposited to various stores about $500,000 in skimmed cash hidden in their homes.  An additional $200,000 sale (at cost) to another retailer was counted as retail sales and also included in the same store sales.  Although the transactions occurred after the end of the first quarter, since it was the weekend, the money was not noticed.  The total was $2.2MM and increased fiscal year reported profits by $2MM.  Result: 14% same stores sales increase YOY, and 10% YOY for Jan & Feb rather than the expected 4%. o Eddie & father sold $30MM in stock after the sales figures were released but before auditor reports regarding store profits were released. • 1986: Inventory

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