U.S. v. Antar

• Decision Date: 12 April 1995
• Docket Number: Nos. 94-5228 and 94-5230,s. 94-5228 and 94-5230
• Citation: 53 F.3d 568
• Parties: , Fed. Sec. L. Rep. P 98,670 UNITED STATES of America v. Mitchell ANTAR, Appellant in 94-5228. UNITED STATES of America v. Eddie ANTAR, Appellant in 94-5230.
• Court: U.S. Court of Appeals — Third Circuit

Page 568

53 F.3d 568

63 USLW 2703, Fed. Sec. L. Rep. P 98,670

UNITED STATES of America v. Mitchell ANTAR, Appellant in 94-5228.

UNITED STATES of America v. Eddie ANTAR, Appellant in 94-5230.

Nos. 94-5228 and 94-5230.

United States Court of Appeals Third Circuit.

Argued March 2, 1995.

Decided April 12, 1995.

Gerald B. Lefcourt (argued), Joshua L. Dratel, John P. Monahan, III, John R. Ford, Lefcourt & Dratel, New York City, for appellant Mitchell Antar.

John J. Barry (argued), Adam N. Saravay, Barry & McMoran, P.C., Newark, NJ, for appellant Eddie Antar.

Faith S. Hochberg, U.S. Atty., Paul A. Weissman (argued), Victor Ashrafi, Asst. U.S. Attys., Newark, NJ, for appellee.

BEFORE: GREENBERG, NYGAARD, and McKEE, Circuit Judges.

GREENBERG, Circuit Judge.

The final judgments of sentence and conviction from which the defendants appealed marked the culmination of a decades-long rise and fall of an electronics retail chain called Crazy Eddie and the family that ran the company. When all was said and done, the saga involved: a New York-based chain which achieved enormous success over the past few decades in large part due to the company's aggressive advertising; an alleged behind the scenes sophisticated family-run conspiracy to operate Crazy Eddie in an unlawful manner, which allegedly netted the defendants millions of dollars; a series of rancorous intrafamily disputes--both business and personal--which wound up, tragically, in an in camera conference during the criminal trial centering around whether a defendant's presence at his daughter's funeral would be helpful or hurtful to the family; the flight of a defendant to Israel and his ultimate return to this country to stand trial; and a lengthy high-profile criminal case resulting in a prison term of more than ten years and a $121 million restitution order against the best-known defendant.

I. Factual Background and Procedural History ¹

The Crazy Eddie, Inc. chain of consumer electronics stores began as a small operation in the 1970s and in a fairly short time grew into a major New York area consumer retail chain with stores in four states and with reported annual sales totalling over $300 million. Crazy Eddie began as a family-controlled operation with Eddie Antar as the key figure. At the relevant times, Eddie ² was the company's president and chairman of the board, though in December 1986, he resigned as president. Eddie's younger brother Mitchell Antar worked for many years at Crazy Eddie and then was appointed vice-president in charge of purchasing and became a member of the board of directors in May 1984. Mitchell subsequently became one of three members of Crazy Eddie's "Office of the President." On June 5, 1987, Mitchell resigned from all his positions at the company, but did not divest himself of Crazy Eddie stock.

On September 13, 1984, Crazy Eddie conducted an initial public offering ("IPO") of its stock. Originally sold at $8 per share, by 1986 the stock was trading at over $75 per share. So by all appearances, investors in Crazy Eddie had discovered a gold mine. However, according to the indictment ultimately returned, behind the scenes the defendants were manipulating the books and falsifying financial statements which rendered the optimistic appearances misleading. The scheme allegedly began between 1980 and 1983, when Eddie and other defendants engaged in an unlawful practice called "cash The indictment alleges that during the next few years, Eddie directed employees to inflate year-end inventory figures, and to falsify the company's books to improve the financial information it would report to the SEC. This conduct enabled the defendants to conduct successful second and third public offerings of stock. The various defendants allegedly committed other, similar fraudulent acts during this time period. By the end of 1986, the company had begun to lose money, but, the government alleges, the defendants still continued to fabricate Crazy Eddie's financial statements. In May 1987, Eddie attempted, through the initiation of a tender offer, to buy back the company's shares and take it private. In June 1987, Elias Zinn of Entertainment Marketing, Inc. launched a competing tender offer. Eddie's tender offer failed, and while Zinn withdrew his competing offer, he also began a proxy fight in cooperation with the Oppenheimer-Palmieri Fund to take over the board. Their proxy fight became successful on November 6, 1987. After taking control, Zinn and the Fund took a physical count of the company's inventory, only to find that inventory valued on its books at about $45 million was missing.

                skimming."   Cash skimming involves keeping certain cash receipts off the books so that it can be put to tax-free personal use.  The defendants soon decided to curtail the cash-skimming in preparation for the IPO, because suddenly putting more profits on the books would cause potential investors to believe that the company experienced an exponential growth in earnings.  In reality, though, by manipulating the profits entered on the books, the defendants artificially fostered a false appearance of growth.  These activities resulted in the filing of a false financial statement with the Securities and Exchange Commission
                

In August 1987, the SEC began an investigation into the alleged fraud at Crazy Eddie. The indictment alleges that upon learning of this, Eddie and others attempted to destroy damaging records to conceal the extent of their fraud. Ultimately, though, on September 6, 1989, the SEC filed a civil action in the United States District Court for the District of New Jersey, alleging that Eddie and several others on a number of occasions had falsified Crazy Eddie's financial statements. Upon motion by the SEC, the district court preliminarily enjoined Eddie from making any false statements in connection with securities filings. Additionally, the court ordered that:

[D]efendant Eddie Antar shall transfer all assets, funds or other property representing or derived from the $43,989,640.38 transferred to Bank Leumi Israel on or about February 17, 1987, or from the funds in the aggregate amount of $8,367,325.25 transferred to Bank Leumi Israel on or about November 27, 1987, December 3, 1987, December 15, 1987, and January 21, 1987, ³ presently held in foreign locations in the name of Eddie Antar, for his benefit, under his control or over which he exercises actual investment or other authority, to be held and invested in accordance with such instructions as the Court may issue upon notice to the parties.

SEC v. Antar, No. 89-3773, January 24, 1990 Order at app. 1063 (the repatriation order). ⁴ Eddie failed to comply with the order--asserting his Fifth Amendment privilege against self-incrimination--even after the court granted him extensions of time to comply. Finally the court issued an order to show cause why he should not be held in contempt. On February 9, 1990, the district court entered an order finding that "Eddie Antar did not comply with the Court's order for the transfer of assets" and that his "failure to comply with the Court's order is willful and contumacious." App. 1065. Thus, the court held him in contempt, and ordered him incarcerated until he complied with the repatriation order. Eddie appeared before a different district judge in order to purge the contempt, and at that hearing agreed to appear before the district court on February 27, 1990. He did not appear on that date On April 6, 1990, the court ordered that Eddie's answer to the SEC's complaint be stricken and four days later it entered an order of default against him. In response to a motion by the SEC, the court on June 29, 1990 determined that "(1) Eddie Antar made illegal profits of $52,519,548 from the sale of the stock of Crazy Eddie, Inc. and is obligated to disgorge that amount; and (2) Eddie Antar is liable for prejudgment interest in the amount of $20,976,884." App. 1051. The SEC subsequently moved for final judgment, and on July 6, 1990, the court entered final judgment against him. In that order, the court, among other things, ordered him to "pay disgorgement in the amount of $52,519,548 (which amount constitutes Eddie Antar's illegal profits from the sale of the stock of Crazy Eddie, Inc. in violation of the federal securities laws) to ... the trustee/receiver appointed by this court, to be distributed pursuant to a plan of distribution proposed by the [SEC] and approved by the court." App. 1055-56.

and, as it subsequently became known, he fled the country.

On June 11, 1992, a federal grand jury returned a multi-count indictment against Eddie Antar, Mitchell Antar, Allen Antar and Eddie Gindi. Count 1 of a superseding indictment charged all the defendants with conspiring to conduct or participate in the affairs of Crazy Eddie through a pattern of racketeering activity in violation of 18 U.S.C. Sec. 1962(d), i.e., RICO conspiracy, and alleged as predicate acts securities fraud and mail fraud violations resulting from the falsification of Crazy Eddie's books and the artificial inflation of the market price of Crazy Eddie stock. Counts 2 through 4 charged all the defendants with causing false and misleading statements to be made in documents Crazy Eddie filed with the SEC, in violation of 15 U.S.C. Secs. 78m and 78ff(a). Count 5 charged the defendants with mail fraud, in violation of 18 U.S.C. Sec. 1341, for mailing a false SEC filing to a shareholder. Counts 6 through 16 charged Eddie with substantive securities fraud arising from the sale of stock, in violation of 15 U.S.C. Secs. 78j(b) and 78ff(a) and 17 C.F.R. Sec. 240.10b-5. Counts 17 and 18 charged Mitchell with similar substantive securities fraud violations. Count 19 charged all the defendants with conspiring to commit securities fraud and mail fraud, in violation of 18 U.S.C. Sec. 371.

When the indictment was filed, Eddie's whereabouts were unknown, but in June 1992, he was arrested in Israel. After several...