Crazy like a fox

Sam E. Antar knows a thing or three about fraud.

He was chief financial officer at New York’s Crazy Eddie, the infamous “insaaaaane” appliance retailer where executives skimmed profits, evaded taxes, laundered cash and fudged inventories for a Madoff-esque 15 years before the company collapsed in 1987.

Mr. Antar pleaded guilty to conspiracy and obstruction-of-justice charges but avoided jail by turning against the relatives who ran the business with him. He was the government’s star witness at a 1993 trial.

His cousin, chief executive Eddie Antar, ultimately went to prison for about seven years.

Now Sam Antar, 52, is using the expertise he gained as a criminal to uncover accounting problems at other companies. Exhibit A for him these days is Overstock.com Inc., an online retailer with a recent history of accounting issues.

In August, Mr. Antar posted on his blog a detailed report explaining how Overstock is, he claims, creating a “cookie jar” of reserves that it can use to sweeten future results.

He forwarded his analysis to the Securities and Exchange Commission, which had investigated Overstock’s accounting practices from 2006 through last year without taking any action. But armed with what Mr. Antar boastfully calls “a bulletproof case,” the regulators decided to take a second look: Last month, Overstock acknowledged that the SEC is investigating it once again.

“I’m doing to Overstock what the FBI and SEC did to me,” Mr. Antar said in a Brooklyn accent made raspy by years of cigar smoking. “I take the numbers and work backwards to see how the company arrived at them. I know the scams. I know the games. I did them all 20 years ago.”

Overstock chief executive Patrick Byrne called Mr. Antar’s allegations of accounting fraud “completely -spurious.”

“He’s a criminal who works for short-sellers,” said Mr. Byrne, who controls a 30% stake in the company. “He throws mud day after day. No matter what he says, he finds some spurious thing to jump up and down about.”

Mr. Antar admits that he has worked for a short-seller before. He did research into a small oil company for Barry Minkow, an investor who served prison time in the 1990s for running a fraudulent carpet-cleaning service.

But he insists that he is acting at the behest of no one these days as he digs into Overstock, calling his work “a freebie for the government.”

And Mr. Antar said that he is motivated at least in part because Mr. Byrne reminds him of his cousin: “Patrick’s ironclad control, his combativeness, yeah, that’s like Eddie Antar. Patrick fascinates me.”

Despite his felonious past, Sam Antar has earned credibility with law enforcement officials.

He has spent much of the past decade talking to the FBI, the Department of Justice, the Internal Revenue Service, accounting students and business groups, explaining how Crazy Eddie fooled auditors for so long.

The former certified public accountant said that he feels bad about what he did and wants to help overmatched investigators try to root out savvy fraudsters.

“He knows accounting backwards and forwards,” said Richard Simpson, an SEC attorney who helped lead the government’s probe into Crazy Eddie.

Mr. Simpson declined to say if Mr. Antar’s research into Overstock triggered the latest SEC investigation. An SEC spokesman didn’t return a call seeking comment.

Former SEC attorney Thomas Newkirk said that he came to trust Mr. Antar as the government dug through Crazy Eddie’s books in the early 1990s.

In addition to speaking about his crimes, Mr. Antar has started blogging in recent years.

Mr. Antar’s first “investigation” that captured the government’s attention seems to have been his look at the accounting practices of Bidz.com, an online retailer.

In March 2008, he posted a re-port on his blog, called White Collar Fraud, saying Bidz failed to comply with generally accepted accounting principles.

Mr. Antar bolstered his case by comparing the company’s practices with how things should be done according to arcane accounting bulletins.

In February this year, the SEC ordered Bidz to produce documents related to its inventory reserve policies and other matters.

The company didn’t respond to a request for comment.

Mr. Antar also has trained his sights on The Children’s Place, a retailer that he accused in June of violating SEC accounting regulations. A company spokeswoman declined to comment.

Mr. Antar has been stalking Overstock since 2007, after reading about it in other blogs. The company has been a hot topic within the investment community for years.

It specializes in selling discounted merchandise and hasn’t posted an annual profit since its launch in 1999. It also has sued its critics on several occasions.

The company is scheduled to go to trial in February against a hedge fund that Overstock alleges bet against its stock and caused, among other outcomes, “intentional interference with prospective economic advantage.”

LOTS OF SUITS

Overstock also has sued The Goldman Sachs Group Inc., Morgan Stanley and nine other Wall Street banks, seeking $3.5 billion in damages for the firms’ alleged participation in what the company calls an illegal market manipulation scheme that has depressed the share price of Overstock, which has a market value of about $350 million. The banks are fighting the lawsuit.

The company has even sued New York state, contending that its move to tax online sales is illegal. A state court dismissed the suit, and Overstock has appealed.

The alleged accounting violations, Mr. Antar said, boil down to Overstock’s understating the amount it can reasonably expect to collect from vendors who sell discounted merchandise on its website. He said that “proper accounting” would turn Overstock’s $1 million fourth-quarter profit into a $286,000 loss, nearly double its $2.1 million first-quarter loss, and shrink second-quarter profit by 23% to $300,000.

Mr. Byrne said that there is nothing improper about his company’s accounting.

He acknowledges that Overstock twice restated previously reported results, in 2006 and 2008, but said that much of that was because the accounting was deemed “too conservative.”

“Our accounting department is a bunch of square Mormon Eagle Scouts, and their orders are to be as straight-laced as possible,” he said. As for the government’s latest investigation: “I can understand that any company with two restatements in two years can expect the SEC to take a hard look.”

Clearly, Mr. Antar has gotten under Mr. Byrne’s skin. The chief executive has mentioned his nemesis by name in each of Overstock’s last four quarterly conference calls, according to transcripts.

For his part, Mr. Antar heartily enjoys the fireworks.

“Patrick Byrne is gonna get me into heaven,” he said, before unveiling a devilish grin. “Nah, that’s not right; I’m still gonna go to hell for what I did, and so is he.”

Aaron Elstein is a senior reporter at sister publication Crain’s New York Business.