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Business in History
BRING THE KIDS!
DEMOCRATIC CARTOON ABOUT THE REPUBLICAN TARIFFS OF THE 1890s LIKE THE DINGLEY BILL: UNCLE SAM SAYING: "I want you fellows to distinctly understand that I'm not racing with you!"
Forbes Forbes; 2/10/1986; Stern, Richard L.
ON PAPER, Saxon Industries Inc. looked so tempting that in 1980 raider Carl
Icahn made a pass at it. Icahn took $2 million in greenmail profits and went
away. He was lucky not so much for the greenmail but because he didn't win
control. The earning power and most of the assets that attracted Icahn to
Saxon's New York Stock Exchange shares were mostly fictional.
At a little before 10 a.m. on Thursday, Jan. 16, Stanley Lurie, 64, former
president of Saxon Industries, stood before the Honorable William C.
in courtroom 618, U.S. District Court, at Foley Square in Manhattan.
meek voice, Lurie pleaded for mercy in the sentence Judge Conner was about
to hand down. Here was no Ivar Kreuger, suave, handsome, articulate, but a
roly-poly, self-taught accountant who fooled dozens of people who should
have known better. More than the story of a nervy swindle, it is a fascinating tale of how dozens of ordinary people were pulled into aiding
the fraudulent scheme. Through Lurie's accounting magic, Saxon in 1981 was
listed by Fortune as the 381st-largest industrial company.
Lurie was sentenced to five years in prison; he'll probably serve three with
time off for good behavior.
Lurie previously had pleaded guilty to six counts of conspiracy, mail fraud,
securities fraud and bank fraud involving Saxon, a copier manufacturer and
paper company with offices and plants from New England to Florida to the
West Coast. Saxon filed for backruptcy three months before Lurie was ousted
in June 1982 as chairman. Its chief remaining asset, a paper distributor,
was sold in 1985 to Alco Standard Corp. for about $150 million.
Under Stanley Lurie, Saxon's inventories were neither FIFO nor LIFO But
PRESTO (FORBES, July 19, 1982). They were manufactured not by factories but
by bookkeeping entries. Here was a largely imaginary company. Lurie, in the
words of federal prosecutor Peter Romatowski, was the "chief architect" of
the Saxon fraud, bamboozling some of the nation's largest banks and most
sophisticated investors during 14 years. When Saxon Industries' bankruptcy
was totaled, shareholders and creditors were out more than $200 million.
When the company went under, it owed creditors $320 million. They have
received 33 cents to 48 cents on the dollar. And the holders of SXaxon
shares, who paid as much as $40 per share and depended on the public numbers
to make investment decisions? They received $1.25 per share. Not the biggest
swindle on record but certainly one of the most brazen.
How could one man pull off such a sleight of hand? He couldn't.
crime was not the deed of one man. It took the willing cooperation of representatives of outside auditors Fox & Co., compliant directors and
dozens of Saxon employees. While the auditors looked the other way, the
employees inflated inventories to whatever Lurie wanted them to be. Employees programmed computers to show increased sales and earnings. Hundreds of nonexistent copies were put on the books to provide collateral
for some of the banks, which lent Saxon more than $140 million.
Lurie's key lieutenant was Chief Financial Officer Alfred Horowitz, who was
sentenced to three years in prison. Each year Horowitz would compile "outside the routine accounting channels" Saxon's financial results.
inventories and sales of various divisions were adjusted to meet inflated,
phony results. Saxon, from 1975 through 1980, reported annual earnings in
the $4 million to $7 million range. But, after the house of cards collapsed,
the bankrupt Saxon took a $298 million loss for 1981 to set the books straight.
Around the company, according to the federal prosecutor, Horowitz' manipulations became known as "Al's f-ing games." Through a highly automated
computer system, $51.4 million in false entries were credited to the Saxon
copier division in Miami Lakes, Fla. Helping in Florida was a 300- pounder
named Arthur Montiel who later was to confess he had been eating himself to
death with worry over this giant larceny. Other millions in inflated inventories were on the books in various divisions.
Employees in Florida prepared false invoices to document the purchase of
nonexistent equipment and supplies, and to account for hundreds of phantom
copiers. In the end, when bankruptcy threatened to reveal the scheme, employees who had helped manufacture the numbers helped Lurie shred thousands of documents.
In all, four people have been convicted, while others traded cooperation
with the government for freedom from prosecution.
Where were the auditors? Until 1978 Fox' chief auditor on the Saxon account
was Leonard Harris, whom the government describes as "Lurie's handpicked
crony." According to public documents, Harris agreed to talk with the government under the proviso that nothing he said would be used against him.
One employee has told how Harris ended an audit of a West Coast division
when Lurie declared the audit was over. Another said that Harris regarded
the audits of the Florida copier division as a "vacation" and that Fox
auditors were frequently not allowed at the copier plant.
A junior auditor who asked bothersome questions was transferred. In July 1978, when the Fox partners reviewed Harris' audits of the
division, one warned in writing: This "is the most substandard audit file
that I have ever reviewe..... It is my opinion that it is very
that the inventory may be substantially overstated." But it wasn't until
three years later, when Fox ordered a truly independent review, that Lurie
fired the firm.
The greatest mystery is, Why did so many people trust Lurie? A bit of investigation would have revealed his shady past. In 1961 Lurie pleaded
guilty and was sentenced to probation for petty larceny, a misdemeanor
reduced from original charges of forgery and grand larceny. As a
self-employed accountant, Lurie had borrowed $6,000 using a client's signature. A probation report at the time, delving into Lurie's past, found
other allegations. A former accounting client described Lurie as "a completely unethical individual who fraudulently issued annual financial
statements to benefit his own personal needs."
Accountant? Lurie had no collee degree and no licensing as a certified
public accountant. A 1961 probation report describes as "generally unsatisfactory" his record as a student at New York University.
Nevertheless, Lurie was hired by a predecessor firm to Fox in the year he
pleaded guilty to petty larceny, and was eventually put in charge of the
According to the public records, Lurie helped Saxon's then-chairman, Myron
Berman, set up a phony company called Camden Industrial Sales, and through
this and other means over the next 15 years diverted what the government
says was "at least" $825,000 in Saxon funds for himself, Berman and others.
In 1968 Lurie joined Saxon as senior vice president for operations and
administration. Shortly before Berman died in an auto accident in
Lurie took over as president.
In memos filed by his lawyers and in a nervous plea before Judge Conner,
Lurie argued that he was only a lieutenant, that his predecessors at Saxon
were the masterminds. Begging for mercy, Lurie argued that when he became
president he only continued the fraud, believing "I could solve all of
Saxon's many problems if given enough time. I was weak, very weak, weak in
purpose and weak in not having the ability to divine he seriousness of the
wrongful acts in which I was playing a major role."
Curious fact: There's no proof that Lurie and Horowitz stashed away great
sums, nor was Lurie a particularly big spender for a corporate leader.
it be that Lurie was merely a petty crook with a big imagination? From the human point of view, perhaps the most significant fact emerging
from this swindle involves the midle-level people who helped Lurie carry out
his forgeries. They received little in the way of reward. There were bonuses, of course, and good salaries, but not great salaries. Al Horowitz
was paid $90,000 a year. The chief reward for the lesser people who made the
whole fiction possible was that they kept their jobs and kept out of trouble. They followed orders.
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Another Business Fairy Tale
Filed under: Uncategorized | Tags: | June 28th, 2002
Once upon a time, twenty-five years ago, my widowed mother dated the CEO of a public multi-national paper company. The company, Saxon Industries, was formed as the result of a series of mergers and acquisitions among small paper companies, and its first CEO had been one of the smaller companies' owners, a friend of our family named
Mike Berman. Berman Paper Company had swallowed a larger company, become listed on the NYSE, and gone on to eat several other companies. Follow me to the end of this, because there’s a lesson here.
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As a friend and neighbor of Berman, my father had been the architect of the roll-up, and was still on the board of Saxon Industries at the
moment of his untimely death. A CPA, Stan Lurie, was the CFO, although they didn't call it that at the time. A reasonable time after my
father died, my mother began dating Stan (who was married). A reasonable time after that, Mike Berman mysteriously ran his car into the side of a tunnel on a freeway in Westchester, and Stan became the CEO of Saxon Industries.
I never liked Stan.
Young and idealistic, I didn't like business either. But I really thought Stan, in business or in person, was a slime ball. Of course I told this to my mother, who merely responded that I wouldn't like
*anyone* she dated, because he wasn't my real father. That was one hundred per cent true, so I was on shaky ground with regard to moral authority, even though I believed I knew something.
For years, Stan tried to buy my affection and that of my young children. When my first child was born, he sent a sidecar of disposable diapers to my house (they were a novelty at the time, and
his company manufactured them). Every time he and my mother visited our home in Phoenix (which was a geodesic dome heated with solar energy) from New York, he took my children shopping and to fancy resorts. In contrast, my husband and I didn't even have a telephone in the house and were growing a vegetable garden with a compost pit.
Even our dogs knew Stan was a loser. We warned Stan that the male dog was a biter, but he arrogantly said "you'll see, if I don't show fear,
he won't bite me." We had to cart Stan off to the hospital in his three-piece suit after Tiaba ripped into his leg.
Time passed, and computers became more common in large companies. Saxon Industries appeared to thrive, until one day my mother called and told me Stan had been indicted — for white collar crime. She was sure he had done nothing wrong. I was sure my moment of justification had arrived.
As the SEC investigations unfolded, it turned out that Stan had used the computer to falsify revenues by adding days to the year; days on which sales were booked that rightfully belonged to the following year. My mother thought that being indicted for this was grossly unfair. Stan, she said, had only been trying to save people's jobs by keeping the company going.
The company quickly unraveled and ceased to exist. Stan went to a minimum security prison in Florida, with the Gucci heirs and other tax evaders. The shareholders lost everything. The vendors got caught in the bankruptcy. The employees filed for unemployment. I wasn't one of any of them, so I felt vindicated.
What is the lesson from this? Nothing has changed. Enron, Tyco, Adelphia, and Worldcom are the Saxon Industries of today. A greedy CEO is a greedy CEO in the old or the new economy, and a cheater is a
cheater - on his wife or on his shareholders.
THE SENATOR FROM UNION PACIFIC
COAL NEAR SCRANTON, PA