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  • Writer's pictureJeff Matthews

Where’s Sammy Antar When You Need Him?


How Merck Saved $1.5 Billion Paying Itself for Drug Patents Partnership With British Bank Moved Liabilities Offshore; Alarmed U.S. Cracks Down

Those are the Wall Street Journal headlines, and they certainly seem terrible for the folks from Whitehouse Station, New Jersey.

Here are the details:

Thirteen years ago, Merck set up a subsidiary with an address in tax-friendly Bermuda, in partnership with a British bank. Merck quietly transferred patents underlying the blockbuster drugs to the new subsidiary, according to documents and people familiar with the transaction. Merck then paid the subsidiary for use of the patents. The arrangement in effect allowed some of the profits to disappear into a kind of Bermuda triangle between different tax jurisdictions. The setup helped Merck slash $1.5 billion off its federal tax bills over roughly the next 10 years. Sounds bad, huh?

Actually, I’d bet the ranks of companies that engage in same kind of offshore asset-shuffling tax-minimization that the Merck guys used include nearly every member of Fortune 500, and a few others too boot.

But instead of taking that bet, I’d suggest asking Sam E. Antar, the former Chief Financial Officer of one of the all-time great accounting scams—Crazy Eddie.

Sam is a self-described “reformed criminal” who now has a web site ( designed to offer guidance on how to “Protect Yourself against White Collar Crime.” I know this because Sam posted a comment on this blog recently. (See “Tom Joad’s Truck.”) It had been about twenty years since I’d heard anything about Sam, which was back when Crazy Eddie was the hottest retailer on Wall Street and before the fraud was discovered.

In those pre-Eddie-Antar’s-flight-to-Israel-days, Wall Street’s Finest had been rightly skeptical of Crazy Eddie at first blush, but the company kept blowing out earnings after earnings, which eventually created the kind of momentum that causes suspended disbelief among rational people—so much so that Crazy Eddie himself was the featured luncheon speaker at a giant retailing conference here in Manhattan, hosted by one of Wall Street’s Finest.

The presentation started with an emotional introduction by Jerry Carroll, the pitchman whose radio and TV commercials (“His prices are insane!”) made Crazy Eddie famous. Carroll introduced Eddie, they hugged, and then Eddie began a fast-talking pitch for the company to a ballroom filled with enthralled money managers and jealous competitors.

During the question and answer session, somebody asked Sammy, the CFO, what the company did to keep its tax rate lower than other retailers. This is, usually, a softball question that triggers, usually, a bland and highly generic sort of answer about how ‘we work hard to minimize taxes in a variety of ways…yadda yadda yadda.’ Usually.

But Sam didn’t yadda yadda yadda.

Instead, he launched into chapter and verse about how they registered trade names in low-tax jurisdictions and also, if I remember correctly, something about running products through low-tax jurisdictions in the same sort of way Merck apparently did with its drugs.

I don’t recall all the details, but I vividly remember sitting at a lunch table with the folks at Toys “R” Us, who immediately began making eye contact, shaking their heads and rolling their eyes at each other.

I whispered to the Toys “R” Us guy sitting next to me, “I take it you guys do that too?”

He said, “Yeah, but we don’t talk about it!”

That was twenty years ago. So I have to ask this: why did it take the U.S. so long to get “alarmed” at this kind of stuff?

Sam, you got any ideas?

Jeff Matthews I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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