Shoe Designer Held on Fraud Charges
Steven Madden, a high-fashion shoe designer who heads Steven Madden Ltd., was arrested Tuesday on charges of securities fraud in a case involving the alleged manipulation of 22 initial public stock offerings.
Madden participated in schemes to manipulate IPOs--including his own company’s--that were underwritten between 1991 and 1997 by brokerage Stratton Oakmont Inc. and its affiliate, Monroe Parker Inc., according to federal prosecutors in Manhattan and Brooklyn.
Madden, a childhood friend of Stratton’s president, Daniel Porush, had secret arrangements with the now-defunct firms to serve as a “flipper,” prosecutors said.
He allegedly received stock in the IPOs that he quickly sold back to Stratton or Monroe at low, prearranged prices once trading started in the aftermarket. The practice enabled the firms to maintain a supply of shares at favorable prices while hiding the fact that they retained control over almost all of the outstanding shares for each sale.
The firms, through their “boiler room” operations, would then profit by selling the stock to their own customers at artificially inflated prices through high-pressure sales tactics, prosecutors said.
Madden, 43, made $7 million through an understanding with the brokerages that he would keep an agreed-upon profit when he flipped the stock, said the Securities and Exchange Commission, which also charged Madden in a civil suit.
“Investors who purchased these IPO stocks paid a price that was rigged by Stratton and Monroe with key help from people like Mr. Madden, who profited handsomely,” said Wayne Carlin, associate director of the SEC’s New York regional office.
Madden surrendered to authorities and agreed to post a $750,000 bond. “I am absolutely not guilty,” Madden said as he left court in Brooklyn.
Madden’s own company, which is based in Long Island City, N.Y., was a regional shoe seller with limited assets that went public in 1993 and now has more than 50 trendy stores in several states and reported $163 million in net sales last year.
News of the charges on Tuesday prompted Nasdaq to suspend trading in Madden’s stock--which goes by the ticker symbol SHOO--until the company “has fully satisfied” the market’s request for additional information. The shares fell $1.94, or 15%, to $11.19, before the halt. The stock had been as high as $22.69 in April.
Madden is known for designing clunky sandals and oversized platforms that are popular with young women. Customers are primarily teenagers and young women ages 16-25.
Madden began his career as a fashion entrepreneur selling his shoes out of the back of a van in 1990.
