Before Theranos, Before Enron, There Was Crazy Eddie.

Founded by Eddie Antar, Crazy Eddie was a chain of consumer electronic stores in the Northeast. After going public in the 1980s, the stock became nearly a 10-bagger before investigators found it to be a fraud.

Ricky Mulvey talked with Gary Weiss, author of Retail Gangster: The Insane, Real-Life Story of Crazy Eddie, about topics including:

• Why investors bought into Eddie Antar's hype.
• How criminals save money on sales tax.
• The eventual downfall of Crazy Eddie.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 23, 2022.

Gary Weiss: It's a little bit like a Ponzi scheme. If you begin by committing fraud, you got to continue committing fraud, and that's exactly what he had to do. So, how do you commit fraud? One of the ways you commit fraud, one of the easiest ways to boost your earnings is just to inflate your inventory. It's not known to most laypeople. It certainly wasn't known to the people in the warehouses in Crazy Eddie. But if you want to increase your inventories, if you inflate your inventories, you're inflating profits.

Chris Hill: I'm Chris Hill and that's author Gary Weiss. Before Theranos and before Enron, there was Crazy Eddie, a chain of consumer electronics stores throughout the Northeast founded by Eddie Antar. The business went public in 1984, and within two years the stock was up more than nine times in value. But the good times didn't last because Eddie Antar was boosting his company's margins and profit growth with fraud. Ricky Mulvey caught up with Gary Weiss to get the background on one of the most colourful stock scams of all time, which Weiss details in his new book, Retail Gangster: The Insane, Real-Life Story of Crazy Eddie.

Ricky Mulvey: Joining us now is Gary Weiss, he is the author of Retail Gangster: The Insane, Real-Life Story of Crazy Eddie. Thanks for being here.

Gary Weiss: My pleasure, entirely.

Ricky Mulvey: But let's get into it. Before Eddie Antar started one of the more well-known stock scams, he was working in clip joints in Times Square where he was selling overpriced gizmos and electronics to the tourists there. What was his experience there like and how did that experience shape Eddie's attitude toward business and interacting with investors?

Gary Weiss: Well, first of all, thanks very much for having me. I really appreciate this for. Those clip joints, I think there may still be a few left in Times Square, you walk past and get these windows filled with all these cameras and gadgets and so forth. You go in and what you find is that they're selling you products grossly overpriced. Now, Eddie was taught to rip off people essentially in these clip joints, and the art of ripping off someone and really overcharging them, this art was perfected at these Times Square stores, you really have to be good at selling in order to sell someone a $60 camera for $400. Now, you have to be really good. You have to really know what to do. You go into one of these stores, this is in the old days. You go into one of these stores and they jump on you and they con you and they lie to you. This is how Eddie learned salesmanship and this is what he inculcated in his stories. Except, of course, they weren't quite that bad. They didn't rip off people quite the way he did in Times Square and that's where he learned salesmanship.

Ricky Mulvey: For Eddie, was there any difference for him between a Wall Street analyst who's looking at the IPO considering recommending the company and a tourist who is in those Times Square stores?

Gary Weiss: Yeah, I think maybe the Wall Street analysts were stupid, they also maybe had more reason to be skeptical than the tourists wandering after they were trained supposedly to sniff out fraud. They just swallowed whole the lies that he fed to them in the run-up to the IPO, which was a work of art in the stock. Afterwards, he just continually cooked the books to elevate the stock price.

Ricky Mulvey: At the heart of this, is a company that did make some amount of money. It was a chain of electronic stores throughout the New York area or the tri-state area up in the Northeast. I know you've never stepped foot in a Crazy Eddie store, but you walked through the customer experience in the book. What was it like for someone who wanted to go, let's say buy a microwave or a television, maybe saw a commercial on television, and then walked into a Crazy Eddie store?

Gary Weiss: Well Eddie, personally, he jumped on you. Their philosophy was you walk in the store, you're not to leave without buying something, NAD, nail at the door. You go in and you're looking for like a Sony stereo, he might have advertised on The Village Voice, other places, and he would want to sell you not the higher-priced Sony, but a lower-priced stereo, which provides them with a higher markup, which he would manipulate in order to make maximum money. It didn't look to the customer necessarily like bait-and-switch because usually bait-and-switch is you're trying to sell somebody something that is more expensive, you try to sell you something that was less expensive. But it was still basically the same principle. Customer walks in looking for an advertised product and he walks away with something else. That was the big, big con game in Crazy Eddie, that was the big switch that they were pulling. It was a big switch game and it was from the beginning to the end.

Ricky Mulvey: That was one of them, there could be a case, let's say, I'm looking for a Sony television, and then I hear my salesperson is going out to lunch, what's really going on?

Gary Weiss: Well, as I said, the switch was the main thing. But let's say you were really a tough customer, and you, well, I want that Sony. I came in for that Sony, I'm going to get it. You're one of these educated consumers. You are not going to be switched. If it's in stock, they're going to sell it. There was actually a chance that it was going to be out of stock because a lot of people want a Sony. You might hear somebody say, "Well, let's go out to lunch. We got to go lunch." What happened was that was a code word that they go into the back, they take a table model or a model that was returned because it wasn't all that great, it was maybe defective, and they polish it off and they put it back in its original packaging. The tools were kept in a bag called the lunch bag. It looked like a lunch bag. They'd bring it out and say, "Here it is." Actually, they were selling you a used and possibly even defective product. That was known as the lunch process.

Ricky Mulvey: The way that he was able to beat competitors at that time was simply skimming the sales tax. The stores would charge customers sales tax for the products and then return nothing to the IRS. I understand that this was a period where crime was relatively ramping in New York, but how was the IRS not hip to this? This seems like the one institution you really wouldn't want to mess with.

Gary Weiss: Well, it wasn't just the IRS, it was also the New York state tax authorities, too. They were supposed to be collecting sales tax and all these purchases. Of course, they'd send some money over to the New York state sales tax authorities, but majority of it was not sent. You are charged like say $200 is supposed to be getting $200 plus say, a $14 sales tax on a particular item. The $14 sales tax was not sent to the state taxing authorities, it was a built-in profit pushing for Eddie, and this $14 was used to enable Eddie to actually charge less than sometimes on the wholesale price. He was able to charge less, cut his prices, by suddenly swindling the customer. He was basically lying to the customer that he was collecting sales tax and committing tax fraud and he was never caught for it.

Ricky Mulvey: If this is going so well for him, the business, Sam E. Antar as well, why go public, why take the risk of opening your books to more investors when you have a perfectly good crime going?

Gary Weiss: Well, they just wanted to make more money. The way to make money if you're in business is to, certainly in those days when the IPO boom is just beginning, was to sell stock to the public. They correctly gauge the market for electronic stores that there would be a market it was very hot in those days. Nowadays, you think, my God, electronics, who's going to buy stock in electronics? It was very hot those days. It was the big thing. It was like Bitcoin. It was 1980s equivalent of Bitcoin or one of these other crappy things that they're selling, like AMC, whatever. They decided, "Look, we're going to go public." Sam E. Antar, the financial wizard, the cousin, Eddie Antar's cousin. Sam E. Antar came up with a terrific idea to make that IPO really shine, he came up with that.

Ricky Mulvey: That idea was simply reducing the skim, right?

Gary Weiss: That idea was to reduce the skim. He's decided look, they were taking money out of the companies. See, they would take money out of the company, taking money out to avoid paying taxes. He was saying, "Look, you're shooting yourself in the foot, guys." You're shooting yourself in the foot, you're taking money out of your profits, but you want more profits. You want profit growth in order to really entice investors. Take money out of the company in less and less quantities to make it seem as if you're really growing. It was a brilliant idea. They had 2% profit growth in 1983, '84. They expanded that to 48% profit growth, and it was ridiculous. But because, they were able to do it and they got a great Oppenheimer, they've got Wall Street behind them off. We're off to the races at that point.

Ricky Mulvey: One of the ways that most people know about Crazy Eddie was from the advertising, the commercials, the famous Jerry Carroll screams, we have an example of this, and this is the only time will do free advertising on the show.

Jerry Carroll: It's a Crazy Eddie blowout blitz. Crazy Eddie is not playing with the full deck because he's breaking. He's giving away TVs, VCRs, microwaves, ovens, stereo video anything and everything at home entertainment and a lot of home appliances too. Remember, we are not undersold, we will not be undersold, we cannot be undersold and we mean it. It's a Crazy Eddie blowout blitz. Crazy Eddie is going nuts with his lowest sale prices ever. See Crazy Eddie now, his blowout blitz prices are insane.

Ricky Mulvey: Gary, what do these crazy, fast-talking commercials mean for the company? That's how most people knew the business, right?

Gary Weiss: Sure. I mean, these commercials are just terrific. To this day, people remember them. In those days they drove people into the stores. People didn't necessarily like a commercial, didn't necessarily like being bombarded with these commercials day in and day out and day there but nevertheless, it made people curious in Crazy Eddie and they drove into their minds the idea that you're going to get the cheapest price at Crazy Eddie. It really drove sales for the company and it made them expand and expand. At their peak, they had 43 electronics stores and it'd be unheard of today, 43 electronic stores in the Northeast from Philadelphia up into Massachusetts. It was all because of Jerry Carroll and the commercials. Terrific guy.

Ricky Mulvey: There's a couple of hallmarks of the commercials that I found interesting. The first of which is that while there's a lot of fast talking about low prices, they never promised a specific deal. Was that deliberate?

Gary Weiss: Yeah, they weren't promising the deal. They're playing off everybody else's prices, you bring in their prices and we'll beat it. The competitors lost the credibility of their pricing and they hated Crazy Eddie for doing that because no matter what we charge he's going to beat them. Now, in actual fact, he didn't beat them. Most people didn't want to negotiate, they didn't want to do all that but nonetheless, that was their image and they didn't really give customers the lowest prices necessarily. Most people didn't ask for but nevertheless, it just really upended the whole world of electronics because in those days, it was very hard to engage in discounting because of the fair trade laws and Eddie surmounted them in various ways. He surmounted those fair trade laws and he did beat the competition. He did.

Ricky Mulvey: Was there a point where the novelty of these wore off? One of the ventures that I found particularly interesting is that Crazy Eddie tried to have Jerry Carroll on for a full hour of that fast-talking delivery, which sounds, first of all just exhausting, but second of all, struck me as a point where the effectiveness of just bombarding people with these fast-talking, yet memorable ads wore off.

Gary Weiss: At one point, they attempted to create a home shopping network -- those were very hot in the '80s, home shopping -- they try to create a Crazy Eddie Home Shopping Network with Eddie on for like constantly. The problem is he couldn't ad lib that much so they had to write every single word. It just didn't work. He was good for 30 seconds.

Ricky Mulvey: Not all of Eddie's schemes were public knowledge during the IPO process that you talked about except the bait and switch, which was a little bit of a different method. It's hard to guess though that a company is artificially boosting growth by reducing its cash skim. What did the public and particularly those Wall Street bankers know about the bait and switch and why didn't they really care you think?

Gary Weiss: Well, they didn't care for a couple of reasons. First of all, they just figured well, if the state doesn't care, they were very rarely were there consumer complaints against Crazy Eddie. There was very little on the public record indicating that these were sleazeballs when it comes to sales and they just didn't care. They use euphemisms. Eddie used to use euphemisms in describing what they were doing, educating the consumer, rather than switching the consumer. They didn't really care. Their job was to sell stock, it was to bring in merchandise, be it stock, be it companies, and sell it. That was the aim. It was supposed to do due diligence. They still are. They supposed to do due diligence. They did due diligence, but they were easily misled and who the hell knows whether they really wanted to be misled because they did not ever determine that what was going on. They never really saw what was going on under the surface.

Ricky Mulvey: How did Crazy Eddie court these Wall Street analysts? My understanding is that he would spend one-on-one time with them for hours, take them through the stores, take them out to dinner, and that had a huge effect on the stock and reception of his company.

Gary Weiss: Yeah. Well, Eddie was very good at one-on-one. He didn't like to appear. He didn't like to be interviewed. He never gave interviews, at least not at that point. If you'd interview he never appear. But he was actually very persuasive and charming on a one-on-one basis so they hired a PR guy named Ed [UNCLEAR] that was an old-time Wall Street PR guy did a wonderful job for them and he would set up Eddie with these analysts and Eddie would take them on tours. This store that they aren't 57th Street because they're showcased already go one-on-one on them.

The one-on-ones, as they call them, really charmed the pants off these analysts and it led to glowing analyst reports not in these cheesy little investment banks but in major investment, the Donaldson, Lufkin & Jenrette, which nowadays it's known mainly for the junk bonds or Michael Milken, but they had a very powerful equities research component and man they. They were charmed. They charmed the hell out of those guys. Major analysts, major retail analysts were completely bamboozled by Eddie.

Ricky Mulvey: Eddie's intense focus on his stock price kicked off a number of other scams as a public company, including bloating inventory numbers. At first, you may wonder that's not like bloating your sales numbers so why was it in Eddie's interests and Sam E. Antar, who is the CFO at the time. Why was it in their interest to bloat the amount of inventory they have on the books?

Gary Weiss: Well, everything went public. Eddie continued to commit fraud. They had to continue to elevate the stock price because Eddie was the biggest shareholder and he wanted to get rid of the company's garbage. He wanted to dump it. In order to do that they have to keep on generating better and better numbers because this is a little bit like a Ponzi scheme. If you begin by committing fraud, you got to continue committing fraud and that's exactly what he had to do. How do you commit fraud? One of the ways you commit fraud, one of the easiest ways to boost your earnings is to inflate your inventory. It's not known to most lay people.

It certainly wasn't known to the people in the warehouses at Crazy Eddie, but if you will increase your inventories, if you inflate your inventories, you're inflating profits because inventory levels are used to compute profits. I won't go into the mathematics now but they are. It's really simple math, too. He called in the guys from the warehouses and he said look, we've got to boost the value of the profits. We got to boost the value of the warehouses. We got to boost what's in them warehouses, and he said why do we have to do this? Look, it's good for the company, got to do it, so they did and it really boosted their profits and it enabled Eddie to produce phony financial statements, and dump. It was that simple.

Ricky Mulvey: The only thing that Eddie really couldn't lie about to investors was his stock sales it seems.

Gary Weiss: That's right.

Ricky Mulvey: When the price of the Crazy Eddie stock went up, his PR representative would go to the press and say we're still intensely focused on growth and then there might be a little paragraph that, Eddie Antar sold millions of dollars worth of stock.

Gary Weiss: Yeah.

Ricky Mulvey: For investors, at the time because I'm sympathetic to them. You want to believe what you read in an IPO document and they aren't necessarily fools. Was the insider selling really the only sign that you think, let's say a retail investor at the time could have picked up that something wasn't right?

Gary Weiss: Well, for one thing those insane growth numbers were seemed a little suspicious. There was a negative article before the IPO in Barron's. They actually did. One of the very few skeptical articles was embarrassing. They looked at these numbers and it was a skeptical article they said it's going to be very hard for them to sustain these numbers. Of course, they had no idea that there was any fraud but there were certain red flags that were showing up like the excessive far-too-good-to-be-true numbers. There was also self dealing. There was constant self-dealing among the Antars which had to be disclosed in the IPO and then the financial statements, which just didn't look it illegal, but it didn't look good and there was a lot of smoke, but there was no fire.

Ricky Mulvey: What kind of self-dealing?

Gary Weiss: Well, for instance, one of the things that Eddie did, he established a medical school in the Caribbean --

Ricky Mulvey: Oh, yes.

Gary Weiss: As one of his side businesses. He's a guy with a high school dropout, bright guy but he is operating a medical school in the Caribbean with partners in the Caribbean where the whole pitch was. You see, if you wanted to get into medical school and you didn't have the grades, well, come down to the Caribbean and we'll let you in. It was a big scam but because he loaned money because Crazy Eddie, the business loaned money to his medical school venture, he had to disclose it. He didn't have to disclose it, but they couldn't take the risk that let's disclose everything. They disclosed it. It was in the IPO and it looked Barron's and their article in 1984, they focused on this very comment, a little medical school in the Caribbean. But it didn't bring down the whole company, it was just a red flag.

Ricky Mulvey: Yeah. You mentioned that the administrator of the medical school was essentially hired because he was loyal to Crazy Eddie and that gave them the qualifications to run the medical school in the Caribbean?

Gary Weiss: Yeah. Well, actually one of Eddie's pals was a licensed psychologist. He wasn't a medical doctor, they didn't have any medical doctors on the faculty. They did have one of their guys who was actually a store manager down there in the Caribbean to manage things and eventually had to bribe his way out of the country because they wanted to arrest him. Apparently, they arrested people in the Caribbean if you owe money and they had thrown him in jail. So he sent Sam E. Antar and his cousin down to the Caribbean with a whole lot of cash and they bribed everybody and got them out of there.

Ricky Mulvey: One of my favorite lines in the book is, "Frauds were like hungry rattlesnakes that needed to be fed lest they strike and kill." You interviewed Sam E. Antar extensively for the book, the CFO of Crazy Eddie, was there a point where the frauds became too much to contain? Was there a singular point where at least for Sam that he realized there's really no turning back from this inventory scam? We started with a couple of million dollars of lies and now we're at 50 million.

Gary Weiss: Well, one of the things that really nailed the was comp-store sales because they were growing. Investors would look on that at the sales store-by-store. Are they growing because of expansion or are they growing because more people coming in and buying stuff, comp-store sales, they looked at the sales of stores that had been around for a while. They had a boost. Everything was lousy. There was a lot of competition, people were coming in and they were competing with Eddie on price because he's going to open the door and a competition electronics and all stores coming into all we have the real lowest prices. They were being hammered by their competition around 1985, 1986 so they had to boost comp-store sales to do this. They had cash in Israel that they'd skimmed in previous years. Look, let's take this money that we got sitting there in the Caribbean.

Let's bring it in, let's stuff it into the cash registers at these older stores to boost comp-store sales. That became known as the Panama pump. It was one of the more interesting instances of money-laundering going into reverse to prop up a company, Panama pump. They pumped in money from Israel through Panama. They thought, well, if we put it through Panama, nobody will notice. They don't realize that bank secrecy isn't what it's all cracked up to be. They were eventually discovered but anyway, they brought in this money and they threw it into the cash. Then they improved their cost of sales, enabling Eddie to cash out his stock, but they couldn't really continue doing this. It was just getting to be too big. There was too much fraud so Eddie decided, I got to get out of here. I can't be here anymore so he started an exit strategy. I got to get out of here. What am I going to do? Sends his money to Israel and he followed.

Ricky Mulvey: He followed with fake identities and fake passports and he made the mistake of assuming that Israel would be OK with lying about his identity?

Gary Weiss: Yeah. Well, he gave a citizenship to a nonexistent person to an alias which Israel didn't like setting up citizenship for an alias. Terrorists could do that but you see and what got them overseas you see, was taken obviously they didn't occur to them when they went public. It didn't occur to them that when you go public and you selling stock to the public, that somebody can come and buy up all your stock, kick you out and then if they do that and it's a fraudulent company, well, they're going to discover the fraud and that's exactly what happened with Eddie. They started to get interest, takeover interest and sure enough, that's what was the catalyst. That was actually a catalyst that that got Eddie out of the company and into Israel. He knew that the volume of fraud was. He was going to go to jail unless he got out of the company but he messed up his flight to Israel. As you point out, he violated the law in Israel, too, and the Israelis didn't like it.

Ricky Mulvey: Something I found shocking about the takeover candidates is well, were that once they found out that there were some amount of fraud going on at the company, that still didn't dissuade them from wanting to take over the company. Sam Antar basically told them, you have no idea what you're opening by trying to, you don't want this company and yet even when they found that amount of fraud with inventory levels, when they went in and looked at the books that they were still interested in taking over this bum company.

Gary Weiss: Well, they didn't really discover the inventory fraud until after the check cleared. Don't celebrate until the check after they bought the company. When I say they, I'm talking about smart guys. I'm talking to my fellow named Victor Palmieri and he was one of the sharpest takeover people in the 1980s. He had puff pieces coming out his ears, believe you, me, and this guy, he had some of the best publicity. He was a sharp dude. He took over the company in partnership with this fella from Texas and they took over. The new CFO came in, they threw out the old management. New CFO came in and they said, there's going on here. They discovered that the inventories have been grossly inflated and then it was all downhill from there. They were done.

Ricky Mulvey: One part that shocked me, surprised me, I should say, about Eddie Antar's trial when he'd been brought back to the United States out of Israel, is that none of the equity analysts who had been duped by him showed up to testify?

Gary Weiss: Yes.

Ricky Mulvey: And these were some of the people who were these fraud victims and yet they didn't want to explain how they'd been duped.

Gary Weiss: That's right. The prosecutor went to all the guys who would recommend that the stock and they said, look, you were victimized by Eddie, he lied to you, so you relied on those lies so let's testify. They said no, you don't get it they said to them. We were selling the stock. That was our job to sell stock so we weren't misled by now that we saw that. We can't testify that. None of them would testify for the prosecution because the prosecution was naive well, for a time naively believed that these guys were victims, they weren't victims. They were co-conspirators, and they admitted to it. They got some schlep, they got some little investor to testify that he bought the stock and they had to get somebody you see that testified. They get some little guy from New Jersey to testify, I believe, that when I read they couldn't get the pros -- they couldn't get the analysts to do it.

Ricky Mulvey: The book Retail Gangster: The Insane, Real-Life Story of Crazy Eddie. I recommend it. It was a wild ride. I very much enjoyed it and thank you for joining us on Motley Fool Money, Gary Weiss.

Gary Weiss: Thank you. I enjoyed talking to you, thank you very much.

Chris Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.