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Highlights
- Steve Madden, chairman and CEO of Steve Madden Ltd, was taken into custody on Tuesday on criminal charges for manipulating the initial public offerings.
- The criminal charges were filed in the Manhattan and Brooklyn federal courts for multiple counts of money laundering, conspiracy, and securities fraud.
- The charges arise from the manipulation of IPOs backed by Stratton Monroe Parker Securities and Oakmont, both of which no longer exist.
Steve Madden (NASDAQ:SHOO) held 18% of the total shares of Steve Madden Ltd, a high-fashion footwear company founded in 1990. In its IPO, the company raised $5.4 million via the sale of 1.5 million shares at $4.00 per share. The company registered robust growth since its initial public offerings (IPO), driven by the brand’s continued expansion in various segments. In 1996, it also took over the footwear brand David Aaron and rolled out LEI footwear in 1998.
Steve Madden, the chairman and CEO of Steve Madden Ltd, was taken into custody on Tuesday on criminal charges for scheming to manipulate IPO, including the IPO of his own company in 1993. The criminal charges were filed separately in the federal courts of Manhattan and Brooklyn. The courts accused Steve Madden of money laundering, conspiracy, and securities fraud. The charges arise from IPOs backed by Stratton Monroe Parker Securities Inc. and Oakmont Inc., both of which no longer exist.
Brooklyn indictment
The US Securities and Exchange Commission (SEC) filed an eight-count civil injunctive action in the Brooklyn federal court for violating federal securities laws by manipulating defunct company-backed IPOs for over six years, including the Steve Madden Ltd in December 1993.
The indictment accused Madden and three executives from Stratton Oakmont of designing the IPO in a manner that the three Stratton Oakmont principals secretly controlled majority shares. The underwriter’s principals artificially manipulated and inflated prices of Madden’s securities, thereby ensuring high illegal profits for the three principals and CEO. It also stated cheating regulators of the National Association of Securities Dealers (NASD). They disapproved the IPO on the grounds that the Stratton Oakmont principals owned more than the specified percentage of stocks.
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The SEC’s complaint against Madden pointed out that the company’s shareholders were cheated on the issuance of misleading and false claims. The SEC is obtaining an order that prohibits Steve Madden from serving as a key executive in any public company and even return illegal profits and civil damages. Madden was accused of falsely representing sales of 1.28 million shares to BOCAP, a Madden-owned company, so that it would appear that the principals owned a lesser percentage of shares.
According to the indictment, the share sale was an eyewash as Madden secretly and illegally agreed to allow the stock held by BOCAP to be owned and controlled by Stratton Oakmont. One of the Stratton Oakmont principals sued Madden in a New York state court and was later settled by paying the principal $4.1 million.
In the other charge, Madden was accused of price manipulation of stocks underwritten by Stratton Oakmont. According to the statement, Madden received stocks from Stratton Oakmont at low prices and sold them at inflated prices through pre-arranged trade deals to generate huge profits. Madden allegedly paid the principals a portion of the profits. He also allowed the principals to use his account credentials to buy Stratton Oakmont stocks and then resell them to Stratton Oakmont (flip trade), enabling the firms to control the market.
Charges as per Brooklyn indictment
For every conspiracy charge stated in the Brooklyn indictment, there is a maximum imprisonment sentence of five years and a $250,000 fine or two-times the loss or gain from the crime. Each of the other three securities fraud charges carries maximum imprisonment of 10 years and a fine of $1 million. The court defined imprisonment up to 25 years and a fine of up to $500,000 for every money laundering charge.
Manhattan indictment
Filed in the Manhattan court, the nine-count indictment charges Madden of taking part in unlawful activities along with Monroe Parker principals during the 1994-1997 period. However, the indictment did not involve any Steve Madden Ltd related trading. Monroe Parker and Stratton Oakmont principals pled guilty to the securities fraud in 2020.
Charges as per Manhattan indictment
In the Manhattan court, the conspiracy charge carries a maximum imprisonment sentence of five years and a $250,000 fine, and a maximum imprisonment of 10 years and a $1 million fine was fixed for every securities fraud. A fine of $500,000 fine and imprisonment of up to 20 years was defined for the money laundering conspiracy.
What next?
The CEO was granted bail of $750,000 in a pre-arranged deal, and his attorneys’ confirmed further contest of charges. Steve Madden Ltd. clarified no role in the legal actions related to the alleged securities violations by the CEO. However, the company announced to monitor the situation closely and plans to continue executing long-term strategies. The over-the-counter share trade of Steve Madden was halted on Tuesday.
