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SEC v. ANTAR

August 23, 1993

Re: Securities and Exchange Commission
v.
Deborah Rosen Antar, Simone Antar, Nicole Antar, Danielle Antar, Gabrielle Antar, and Noelle Antar



The opinion of the court was delivered by: NICHOLAS H. POLITAN

 ORIGINAL ON FILE WITH CLERK OF THE COURT

 Dear Counsel:

 BACKGROUND

 Before the Court is another chapter in the saga of the Antar family. The naked question in this case is whether a person who has violated the securities laws can shield the ill-gotten gains from recoupment by causing those profits to occur in a trust for his children.

 The naked facts are living proof of the old adage, which unfortunately is the all too frequent credo in today's world: "let the ends justify the means". Placing Deborah Rosen Antar's testimony in the matrimonial action in juxtaposition to her testimony in this case, dramatically demonstrates that "truth" depends upon what result is sought. A sorry commentary. The real truth, however, compels rejection of her latest version of the facts placed before this Court to support her assertion that the ill-gotten gains should not be recouped. This Court will not be fooled by tears, nor mislead by the obvious appeal to its sensitivity for children. The ends can never justify the means. This Court in no uncertain terms rejects this ill-conceived evil principle. Let the truth be told and judged whatever the result. The law demands no more and no less than that.

 The custodial stock was purportedly held by Deborah Antar as custodian for her five children. The stock originated from purported gifts to the children that were made by Eddie Antar in December 1983 and January 1984 under the New York Uniform Gifts to Minors Act. For reasons expressed in this opinion, the Court finds that the adjudication of the SEC's case against the nominal defendants does not require a determination of whether Eddie Antar's purported gift was legally effective or whether Deborah Antar actually held title to the custodial stock as custodian for her five children.

 The SEC initiated this action in 1989, asserting claims against only former officers, directors or executive employees of Crazy Eddie, Inc.: Eddie Antar, Sam E. Antar, Mitchell Antar, Isaac Kairey, David Panoff, Eddie Gindi and Kathleen Morin. The SEC's original complaint sought injunctive relief against each of the defendants as a violator of the Securities Act of 1933 or the Securities Exchange Act of 1934, and the additional remedy of disgorgement of profits derived by each such violator.

 On or about April 9, 1990, the SEC filed an Amended Complaint to join Deborah Rosen Antar and her children as nominal defendants. In the Amended Complaint, the SEC alleged that Eddie Antar caused the sale of the custodial stock. The SEC alleged that Eddie did so at a time when he knew or was reckless in not knowing that the market price of the stock was based on materially false representations regarding Crazy Eddie's financial condition. The SEC alleged that Eddie was the person who made the decision to sell the custodial stock. The SEC also alleged that Eddie's sale of the stock violated section 17(a) of the Securities Act, 15 U.S.C. §§ 77q(a), section 10(b) of the Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

 The SEC alleges that the nominal defendants are constructive trustees with respect to the illegal profits derived from the sale of the custodial stock. According to the SEC, the nominal defendants hold the illegal profits under circumstances in which it is unjust or inequitable for them to retain the funds. The SEC also maintains that the nominal defendants are unjustly enriched by the illegal profits.

 The SEC asks this Court to impose a constructive trust on the illegal profits held by the nominal defendants and to order the nominal defendants "to account for and disgorge all profits and monies received as a result of the illegal conduct of Eddie Antar in connection with the sale" of the custodial stock.

 The nominal defendants have denied that the SEC is entitled to any recovery as against them, and have asserted as defenses, inter alia, that the SEC failed to state a claim, that Eddie Antar was never custodian of their shares, that Eddie Antar had no beneficial interest in their shares, that Deborah Rosen Antar as sole custodian made the decision to sell the children's shares, that the nominal defendants were innocent of wrongdoing, that the nominal defendants had received no illegal profit, that the nominal defendants had no fiduciary duties to Crazy Eddie, Inc. or its shareholders, that the SEC's claims are barred by the applicable statute of limitations, and that the Court lacks subject matter jurisdiction.

 The SEC moved for summary judgment against the nominal defendants, and the nominal defendants cross-moved for summary judgment dismissing the Amended Complaint as against them. The motion and cross-motion were argued on October 28, 1991. In support of their motions, the parties submitted affidavits, documentary evidence and, in the case of the SEC, transcripts of testimony given by Deborah Antar. This Court found at the hearing that the only disputed factual issue was the question of who sold the custodial stock. Citing Securities and Exchange Commission v. Cherif, 933 F.2d 403 (7th Cir. 1991), cert. denied, 117 L. Ed. 2d 131, 112 S. Ct. 966 (1992), the nominal defendants posit that the issue of "who sold the stock" is immaterial as a matter of law. The SEC disagrees and maintains that there is no genuine issue regarding who sold the stock.

 To facilitate resolution of the motion and the determination of the claims and defenses, this Court directed an evidentiary hearing solely on the issue of "who sold the stock." The issues of law that the parties raised in their motions were taken under advisement.

 This Court held a trial on November 21 and 22, 1991 on the issue of who sold the custodial stock. See Transcript of Proceedings, Securities and Exchange Commission v. Deborah Rosen Antar, et al., Civil No. 89-3773 (D.N.J. November 21 and 22, 1991) ("Tr."). At trial, five witnesses testified resulting in a trial transcript of 262 pages. The witnesses were: Myrna Felder, attorney for Deborah in Deborah Antar v. Eddie Antar, Index No. 06755/88 (N.Y. Sup. Ct. Kings Co.); Deborah Rosen Antar; Robert S. Rosenbaum, President of R.S. Rosenbaum & Company, the firm that printed the June 28, 1985 Proxy Statement of Crazy Eddie, Inc.; Theresa Miselis, keeper of the records of Bank Leumi Trust Company of New York; and Lillian Rosen, the mother of Deborah Antar.

 In addition to the testimony of the five witnesses who appeared at trial, portions of testimony that Deborah gave at deposition and trial in Deborah Antar v. Eddie Antar, at deposition in Deborah Antar v. Eddie Antar and Solomon Antar, Index No. 15910/87 (N.Y. Sup. Ct. N.Y. Co.), and at deposition in this case, were offered into evidence. The two actions above that Deborah brought against Eddie star and/or Solomon Antar are referred to herein as the "matrimonial case." Furthermore, sworn affidavits that Deborah submitted in this case and in the matrimonial case were received in evidence. The Court also admitted into evidence portions of deposition testimony that Lillian Rosen gave in the matrimonial case, and the entire transcript of deposition testimony that Ted Serure gave in this case. Ted Serure was the broker who executed the sale of the custodial stock.

 The following exhibits were received into evidence at trial: SEC Exhibits ("Px") 1 through 17, 20 through 24, and 42 through 48; Nominal Defendants' Exhibits ("Dx") 1 through 31. These exhibits included public documents from the matrimonial case and documents from the files of Crazy Eddie, Bank Leumi Trust Company of New York, the SEC, R.S. Rosenbaum & Company, and Bear, Stearns & Company. This Opinion constitutes the Court's Findings of Fact and Conclusions of Law.

 FINDINGS OF FACT

 EDDIE ANTAR SOLD THE CUSTODIAL STOCK

 Based on the evidence that was presented at the trial held on November 21 and 22, 1991, the Court hereby finds that Eddie Antar was the person who sold the custodial stock on June 28, 1985. The reasons for the Court's finding are set forth below.

 Deborah Antar's Prior Sworn Statements Establish That Eddie Was The Person Who Decided To Sell The Stock

 In the matrimonial case, Deborah unequivocally identified Eddie as the person who decided to sell the custodial stock. In her September 21, 1987 and October 2, 1987 affidavits, Px1 and Px2, Deborah recounted how Eddie told her that he was selling the stock:

 
Nor was I ever aware that I had any power over our daughters' stock. In the summer of 1985, Eddie told me that he was selling our children's stock so that their future could be assured. He told me that Teddy Serure would be calling me and I was merely to say okay. I did follow those orders, but it was not I who made that decision nor did I even know that I could control that stock.

 Px 1, P 38; Px 2 P 43 (emphasis in original).

 At the trial in this case, Deborah admitted that all of these statements are true. Trial Transcript ("Tr.") at 119-21.

 In the September 21, 1987 affidavit filed in the matrimonial case, Deborah stated under oath: "The facts of the matter are . . . I never independently acted as the custodian for our children's shares of stock -- I merely followed Eddie's orders, as always." Px 1, P 47(i). At trial in the present case, Deborah admitted that this statement is true. Tr. at 121-22.

 More than a year after her affidavits, Deborah gave deposition testimony in the matrimonial case. Px 4. In that testimony, she stated that she did not sell the custodial stock, but was told to sell it:

 
Q. Did you sell 300,000 shares of stock as custodian for your children, June of '85?
 
A. No.
 
Q. You did not?
 
A. As co-custodian I was told to sell it.

 Px 4 at 1530. At trial in the present case, Deborah admitted that this testimony is true. Tr. at 128-29.

 At her deposition in the matrimonial case, Deborah stated that her only participation in the sale of the custodial stock was "saying yes on the phone." Px 4 at 1531. She also testified as follows: "I didn't do anything. I was told to say yes to Teddy [Serure] on the phone. Nothing more." Px 4 at 1533-34.

 After the matrimonial trial in June and November 1989, Deborah continued to maintain that Eddie was the person who sold the custodial stock. In her post-trial reply memorandum, Deborah stated through counsel: "Plaintiff believes that Mr. [Ted] Serrure's [sic] testimony shows the heavy hand of Eddie Antar throughout . . . the sale of the children's stock on June 1985 at $ 27 a share." Px 5 at 44.

 Deborah's "Explanations" For Her Sworn Statements Are Not Credible

 In this case, Deborah has sought to "explain" her statements in an effort to show that she was the person who decided to sell the custodial stock. For the reasons stated below, the Court finds that Deborah's "explanations" are not credible.

 At trial in the present case, Deborah said that her prior affidavits do not tell the "whole story." Tr. at 119. However, she offered no reason for her failure to tell what she now says is the whole story. When asked if there was any reason, Deborah responded: "No. I don't know of any reason." Tr. at 120.

 At trial, Deborah said that paragraph 47(i) of her September 21, 1987 affidavit, Px1, was a true statement "as part of the picture." Tr. at 122. Paragraph 47(i) is the statement that reads: "I never independently acted as the custodian for our children's shares of stock -- I merely followed Eddie's orders, as always." Px 1 P 47(i). Deborah indicated at trial that the paragraph did not include "the other parts of the picture." Tr. at 122-23.

 In response to the Court's inquiry, Deborah could not point to an affidavit of hers in the matrimonial proceedings that would support what she now says is the "whole story":

 
BY THE COURT:
 
Q. Mrs. Antar, the only place -- let's get to the nub of it. The only difference, you say, between your position today and what is contained in that affidavit [Px 2, P 43] is you say you were badgering [Eddie] to sell the stock prior to its being sold; is that correct?
 
A. Correct.
 
Q. Okay. Is there anything, to your knowledge, in any of the affidavits that you signed in your matrimonial proceedings which would support that assertion, to your knowledge?
 
 
A. I don't remember any. I don't know.

 Tr. at 127.

 At the close of her examination, Deborah could not point to any instance in the matrimonial case where she testified that the sale of the custodial stock was the result of her badgering Eddie. Tr. at 137.

 It was not until a declaration submitted to this Court on March 26, 1990 that Deborah swore that she demanded of Eddie that the custodial stock be sold. Px 24 PP 7-11. That declaration was submitted four days after the SEC had announced, in the presence of Deborah's counsel, that its attempted recovery of the custodial funds would be premised on the question of who made the determination to sell the stock. 3/22/90 Hearing Tr. at 16-17.

 At a deposition of an SEC attorney on the very morning of Deborah's March 26, 1990 declaration, counsel for the nominal defendants was specifically told that the SEC had information

 
that the [custodial] shares were sold by Eddie Antar. Eddie Antar made the trading decision. It was Eddie Antar that was well aware that Crazy Eddie's financial condition had been materially misstated in certain publications since it was Eddie Antar, himself, who directed the misstatements.

 3/26/90 Barbara Katron Dep. at 95.

 As of March 26, 1990, the nominal defendants were well aware that both the SEC and the trustee/receiver in this action were claiming that the custodial funds were the product of a trading decision made by Eddie Antar on the basis of inside information. The obvious purpose of Deborah's declaration was to offer "proof" in this case that Deborah rather than Eddie was the person who sold the custodial stock.

 The Evidence Supports Deborah's Sworn Statements That Eddie Was The Person Who Sold The Custodial Stock

 The Court finds that the circumstances surrounding the sale support Deborah's earlier statements that Eddie was the person who decided to sell the custodial stock. The evidence shows Eddie Antar's "heavy hand," as Eddie unilaterally implemented his decision to sell and thereafter took sole control over the proceeds.

 Eddie caused Ted Serure, his stock broker and close friend, to execute the sale of the custodial stock. Px 4 at 1531; Tr. at 88-90. Deborah, on the other hand, did not know which brokerage house sold the custodial stock, Tr. at 130, "didn't care" who handled the sale, Tr. at 90, and did not know that Serure was a stock broker. Tr. at 88.

 Deborah did not sign any documents to sell the custodial stock. Tr. at 94. Lillian Rosen, Deborah's mother, signed Deborah's name to the Rule 144K letters necessary for the sale. Tr. at 94-95. Deborah "didn't know" that Lillian Rosen signed the Rule 144K letters. 1/17/89 Mat. Dep. at 1857; see Tr. at 97-98.

 Lillian Rosen's testimony confirms that Deborah had no knowledge as to the signing of the Rule 144K letters. Lillian Rosen testified that Eddie had Lillian sign Deborah's name to the Rule 144K letters. Tr. at 221. She admitted that she did not speak to Deborah before she signed the documents, and that she saw no reason to speak with Deborah. Tr. at 222-24. In fact, Lillian Rosen did not have any discussions with Deborah regarding the sale of the custodial stock, and did not know whether Deborah was aware of the fact that the stock had been sold. Tr. at 224, 227.

 It is clear from the testimony of both Deborah and her mother that Eddie acted alone in effecting the sale of the custodial stock. In obtaining "Deborah Antar's" signature on the Rule 144K letters, Eddie acted without Deborah's knowledge. 1/17/89 Mat. Dep. at 1857; Tr. at 95, 223.

 Two days after the stock was sold, Deborah signed some customer agreements and requests for taxpayer identification numbers with respect to the custodial accounts at Bear, Stearns & Company ("Bear, Stearns"). Px 21; Dx 2; Dx 7; Dx 16; Dx 21. But she did not know what she was signing. Instead of Bear, Stearns customer agreements, Deborah believed that she was signing documents making Eddie joint custodian. Tr. at 94. Deborah testified that "Mr. Serure had come to my house that Sunday and I signed what I thought then was signing forms to change the custodianship to co-custodianship." Tr. at 91. Eddie was the person who told Deborah that the documents would make him joint custodian:

 
Q. And [Eddie] told you to sign the papers making you joint -- making him co-custodian?
 
A. Yes.
 
Q. He told you it was important, didn't he?
 
A. Yes, he did.
 
Q. You did what he said, right?
 
A. Yes, I did.

 Tr. at 98-99 (counsel's objection and Court's ruling omitted). Deborah accordingly signed forms that "I was told would change the custodianship from sole custodian to co-custodian of the proceeds from the sale of the stock because Eddie said, like, 'God forbid something happens to me.' So I did it." Tr. at 92.

 In fact, the documents Deborah signed established the custodial accounts at Bear, Stearns, and did not have anything to do with making Eddie joint custodian. Px 21; Dx 2; Dx 7; Dx 16; Dx 21. Ted Serure testified at his deposition that he "picked up some documents from [Deborah] personally. I visited her home and she signed some documents." Dx 30 at 54. Serure obtained Deborah's signature "sometime during the period of time between the 27th and the 30th of June 1985." Id. at 55.

 The documents that Deborah signed were the customer agreements entered into evidence as Defendants' Exhibits 2, 7, 16, and 21, and the requests for taxpayer identification numbers entered into evidence as Plaintiff's Exhibit 21. The parties have found no document signed by Deborah making Eddie joint custodian.

 The manner in which the Bear, Stearns documents were signed directly refutes Deborah's contention that the sale of the custodial stock was a joint effort between herself and Eddie. The Court finds that if Eddie had been handling the various aspects of the stock sale with Deborah's knowledge and consent, he would have had no reason to misrepresent the nature of the Bear, Stearns documents that she was signing. The signing of the Bear, Stearns documents demonstrates that Eddie effected the sale in a way that ensured Deborah knew as little as possible about it.

 Eddie's handling of the $ 8 million in sale proceeds also shows that Eddie acted alone in selling the custodial stock. When asked at trial whether Eddie handled the deposit of the proceeds into an account at Bank Leumi Trust Company of New York, Deborah responded: "Completely." Tr. at 101-02. Deborah, on the other hand, did not know where the stock sale proceeds were going to be placed. Tr. at 130. She did not communicate with Bank Leumi regarding the investment of the $ 8 million. Tr. at 102. She never put her signature on file with Bank Leumi as custodian for the children. Id. Throughout 1985, she did not know that the $ 8 million had been deposited into Bank Leumi. 6/30/89 Mat. Tr. at 2260-61.

 When he deposited the $ 8 million, Eddie unilaterally became joint custodian over the funds. The nominal defendants assert that "as sole custodian of the stock, only [Deborah] could authorize [the] change" making Eddie joint custodian. 1/6/92 Defs. Brief, P 57. That might be true as a legal matter, but as a matter of fact the change was made without Deborah's authorization. Eddie "magically" became joint custodian when the $ 8 million in sale proceeds was transferred from Bear, Stearns to Bank Leumi. Compare Dx 27 with Px 22. Deborah has conceded that she did not sign any signature cards or agreements with Bank Leumi regarding the custodial accounts. Tr. at 102. There is no document signed by Deborah making Eddie joint custodian -- at Bank Leumi or anywhere else.

 In August 1985, Eddie transferred the $ 8 million to the Cayman Islands without Deborah's knowledge. Px 22; Px 24, P 13. Deborah did not learn of the transfer until nearly four years later, when she was informed of it by the judge presiding over the matrimonial case. Tr. at 103-04. The Court finds that Deborah's contention that the transfer was not concealed from her -- because for four years she confused Bank Leumi's Grand Cayman branch, Px 22, with a Cadman Plaza branch, Tr. at 103 -- is not credible. Indeed, Deborah's counsel informed the Court nearly two years ago that the transfer was a preparatory effort by Eddie to steal the $ 8 million from his own children. 3/29/90 Hearing Tr. at 10.

 The circumstances existing before the sale of the custodial stock indicate that Eddie was the person who made the decision to sell. In March 1985, Eddie and others participated in a secondary public offering of 1.2 million shares of Crazy Eddie stock. Px 10. In that offering, Eddie sold 240,000 shares of stock as custodian for his nieces and nephews under the Uniform Gift to Minors Act. Id. at 87. No one told Deborah about this custodial sale, even though she purportedly had been badgering Eddie to sell the 300,000 shares at issue in this case. Tr. at 87.

 The timing of the sale of the custodial stock was dictated, not by Deborah's knowledge or wishes, but by Crazy Eddie's public announcements of phenomenal performance -- which were fueled in large part by a financial falsification that Eddie had ordered. The June 28 sale took place within weeks following Crazy Eddie's release of its Form 10K Report for fiscal year 1985. Px 12. That Report contained false representations of the company's financial performance. The day before the custodial stock was sold, Crazy Eddie announced its financial results for the first quarter of fiscal year 1986. The first sentence of the company's June 27 press release states: "Crazy Eddie, Inc. (NASDAQ:CRZY) today reported that new income for the first quarter ended June 2, 1985 more than doubled on a 53.2% sales increase." Px 15 at 1.

 The Court finds that the SEC has proved, by clear and convincing evidence, that Eddie Antar was the person who decided to sell the custodial stock. According to Deborah's sworn statements, Eddie told her that he was selling the stock. Deborah followed Eddie's orders, but it was not her decision, nor did she even know that she could control the stock. As a matter of fact, Deborah never independently acted as the custodian for the stock -- she merely followed Eddie's orders, as always.

 Deborah's newfound explanations for her sworn statements are not credible. Through her explanations, Deborah seeks to make her prior statements mean the exact opposite of what they say. Moreover, the evidence surrounding the sale of the custodial stock demonstrates the truth of Deborah's sworn statements by ...


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