By:Jeff Lipton
Steve Madden, who built an international women's footwear empire after humble beginnings as a salesman and stock boy in the Five Towns, pleaded guilty last week to charges of securities fraud and money laundering, authorities said.
Madden, formerly of Rand Place in Lawrence, faces a prison term of between 41 and 51 months when he is sentenced on Sept. 6, officials said, adding that he must pay back at least $5.18 million in restitution to the victims of his crimes and forfeit another $3 million. He also agreed to pay $2.6 million to the Securities and Exchange Commission in penalties. By pleading guilty, he avoids a potential sentence of up to 25 years in prison.
Madden was accused of manipulating 23 initial public offerings (IPOs), which were underwritten by Stratton Oakmont, Inc., of Lake Success and Monroe Parker Securities of Purchase N.Y., both defunct broker-dealers. Madden, 44, who now lives in Manhattan, is the chairman and chief executive officer of Steve Madden Ltd., a designer and retailer of women's shoes. He pleaded guilty on Wednesday, May 23, to separate indictments in federal court in Manhattan and Brooklyn.
"I think by entering the plea Mr. Madden wants to move forward with his life," said his attorney Joel Winograd. "Steve has lived the American dream and yesterday's [May 23] plea did not change that. The great thing about America is that we all get a second chance and Steve being a creative genius that he has been in the fashion industry will close one chapter in an entirely productive life."
"He realizes he must pay the penalty for his personal investment activities, which were improper," Winograd said.
Winograd said the plea lifted a "a heavy burden from his shoulders." The day after he entered his guilty plea, he returned to work at his offices in Long Island City at 8 a.m. and was greeted by a rousing ovation from his employees, who wore "We love Steve Madden" T-shirts.
According to the indictment, Madden helped Daniel Porush, a former Five Towner and childhood friend of Madden, and Jordan Belfort, another ex-Five Towner, in manipulating the stock prices of 21 different IPOs, including the IPO of Madden's own company in December 1993, which was then a small shoe company with limited assets and is now a multi-million dollar international operation. Porush and Belfort are former principals of Stratton Oakmont, which orchestrated a massive fraud, duping unsuspecting investors out of more than $200 million in a classic boiler room operation between 1990 and 1997, authorities said.
Porush and Belfort pleaded guilty to charges of manipulating stock prices at Stratton Oakmont and laundering the proceeds and in September 1999 agreed to cooperate with the federal government's continuing investigation into the company and its associates. After they agreed to cooperate with the government, Madden was arrested on June 20, 2000, officials said.
The indictment states that Madden received large allocations of stock in the various IPOs and failed to disclose that he was secretly holding the stocks for the benefit of Stratton Oakmont and Porush and Belfort. Stratton Oakmont then caused the prices of these stocks to be artificially inflated by using high-pressure sales tactics and other schemes, officials said. "Nominees" like Madden eventually sold the stocks at a significant profit and shared the illegal proceeds with Porush and Belfort. When the prices of the stocks collapsed, customers sustained hundreds of millions of dollars in losses, authorities said.
According to the indictment, as part of the scheme, Madden also allowed Porush and Belfort to use his account at Stratton Oakmont to buy significant blocks of the stocks immediately after the effective dates of the offerings and resell the shares to Stratton Oakmont shortly after they began trading. Through these transactions, known as "flip" trades, Stratton was able to guarantee its control of the market and therefore manipulate it, officials said.
Madden was able to hide the illegal profits by disguising his kickbacks to Belfort as repayments of loans, when there were no loans, according to the indictment.
U.S. Attorney Mary Jo White said: "Today's convictions send a message that law enforcement casts a wide net in prosecuting securities fraud 'boiler rooms,' catching not only those who arrange the crooked deals and work the telephones, but also those like Madden who, behind-the-scenes, act as secret nominees for the boiler room owners in order to manipulate the offering, conceal and launder the illegal profits and reap large profits for themselves."
Under the settlement with the government, Madden agreed to be barred from serving as a director or officer of a publicly-held company for seven years. Madden began as a stock boy and a salesman at Jildor and from that he built his shoe empire, which generates $180 million annually in sales.
