Steve Madden IPO -- An ABSOLUTELY AMAZING DEAL !!
In 1992, Steve Madden Limited ("SML"), a company that designs and makes fashion footwear and which was incorporated in New York in 1990, sought to raise capital through an IPO that was to be underwritten by Stratton Oakmont. Prior to SML's IPO, and unbeknownst to the public, a series of transactions were entered into between SML and Stratton insiders, which created a large debt for SML through purported loans made by the insiders. When SML went public, the insiders took millions in profits while only .02% of $6.9 million invested by the public went to SML.
In the first of several transactions prior to the offering, Stratton employees Jordan Belfort ("Belfort"), Daniel Porush ("Porush")(25), and Kenneth Greene ("Greene") formed a company called Magnet which received $100,000 worth of convertible debentures from SML for a loan of funds that could not be substantiated as ever being received by SML. Thereafter, SML obtained two additional purported bridge loans from other Stratton insiders: one was for $200,000 from Elliot Levine ("Levine") through a company called Dongen, Inc., and the second was for $100,000 from Albert Honigman ("Honigman"). Further, all Stratton insiders, which includes its agents, owners, or family members, received a 2 for 1 split for their shares.
Between June and December 1993, Magnet converted its debentures into $2,040,000 worth of Magnet common stock shares. Belfort, Porush and Greene also entered into a stock purchase agreement with another Steve Madden company called Bocat, which in exchange for 1,284,816 shares of common stock received promissory notes. As a result of these insider transactions prior to the IPO, SML had outstanding promissory notes of $5,139,264.00. This amount was to be paid from the capital raised.
Also prior to the IPO, Stratton parceled out 997,304 shares of SML by selling 22 units of 45,332 shares at $25,000 a unit ($.55 per share) in a private placement for a total of $550,000. Then in December 1993, SML finally went public with 1,725,000 units at $4.00 apiece for a $6.9 million offering to the public. A unit consisted of one share of common stock, one Class A Warrant and one Class B Warrant. As a result of the offering, Belfort received $3.2 million, Porush received $1.387 million, Greene got a little over $500,000, and Honigman and Levine each received $600,000. Consequently, SML was left with $163,000 from the $6.9 million raised.
Although the company's negative net worth was contained in the original filings with the SEC, an investor would not have been able to piece together this fraud simply by reading the prospectus.(26) In addition, in soliciting investors, 49 enumerated misrepresentations were made.(27) Presumably, an average investor would not invest in a company knowing that of the nearly $7,000,000 raised only $163,000 would go to the company and the rest would go to insiders as profit.(28)
Steve Madden, SML's chairman, called the $163,000 figure "nonsense." Stratton Oakmont was "greedy, but they did raise money," he said, adding that no other company was willing to do that when he needed it.(29) |
