Tuesday, August 25, 2009

Crooked Crazy Eddie's

One of my iconic memories from the 80's is the commercials for Crazy Eddie's, a NY-NJ-CN area consumer electronics store that claimed to offer "insane" prices. Since I grew up in RI, I had no direct experience with Crazy Eddie's and never knew what became of the company.

My ignorance came to an end upon listening to an interview of the company's former CFO in episode 82 of NPR's Planet Money podcast. Evidently, Crazy Eddie's was crooked!

The corruption began with skimming sales and tax revenues but progressed to full-fledged money laundering as the company's size grew and the amount of unreported money became considerable. As the CFO became more financially savy, he hit upon the clever and even more profitable idea of:

  • taking the company public
  • gradually bringing the skimmed monies back onto the books to artificially inflate revenues and profits which led Wall Street to overestimate the company's future growth and over-value the stock
  • selling the owner's majority equity position at the inflated market prices yielding over $100M of capital gains

What a story! In the end greed tore the family owned business apart which resulted in someone informing the authorities out of revenge thus bringing the whole operation to an end.

The podcast is very entertaining if you're interested in this kind of thing as the CFO seems to be proud of his cleverness despite its illegality. As it happens, he is now a consultant and instructor to various government agencies on the topic of corporate fraud. So much for the notion that crime doesn't pay.