ednesday May 23, 5:48 pm Eastern Time
Steve Madden Pleads Guilty to Fraud
Shoe Designer Steve Madden Pleads Guilty to Security Fraud and Money Laundering
By ANNE D'INNOCENZIO
AP Business Writer
NEW YORK (AP) -- Shoe designer Steve Madden, who built a $200 million company based on his trademark chunky shoes for teen-agers, pleaded guilty Wednesday to federal charges of securities fraud and money laundering.
``It's been traumatic,'' said Madden, wearing a white collared shirt, navy blue jacket, khakis and black shoes, in his address to Judge Kimba Wood in Manhattan federal court.
The guilty plea closes a chapter on a scandal that captivated the fashion industry since Madden was arrested last June in connection with reaping the benefits of manipulating 23 initial public stock offerings underwritten by the now-defunct companies Stratton Oakmont Inc. and Monroe Parker Securities Inc. It included the 1993 IPO of his own company.
Madden pleaded guilty to similar charges of securities fraud and money laundering in Eastern Federal Court in Brooklyn Wednesday afternoon before Judge John Gleeson, according to Michele L. Adelman, one of the prosecutors in the U.S. Attorney's office in Brooklyn.
Under the plea agreement worked out with U.S. attorneys in both districts, Madden faces total prison time of between 41 and 51 months, must forfeit $3 million and pay at least $5.18 million in restitution.
Madden could have faced a maximum prison sentence of 25 years. Both plea agreements still need to be approved by the judge. Sentencing is set for Sept. 6 in Manhattan and Sept. 7 in Brooklyn.
``Today is a difficult day for the company,'' said Charles Koppelman, executive chairman of the board of directors for the Long Island City, N.Y.-based Steven Madden Ltd [NasdaqNM:SHOO - news]. ``We cannot help but recognize Steve's vision, inspiration and energy, which have done so much to build this dynamic and successful company.''
Madden, 44, who announced he was resigning as chief executive of the company earlier this month, will stay on as creative and design chief of the company. Madden is expected to return to the company upon completion of any time he serves, the company said.
The fashion company also announced that the designer has reached a separate settlement with the U.S. Securities and Exchange Commission.
Under that agreement, Madden agreed to pay $1 million in civil penalties to the SEC and return approximately $5 million of illegal gains as restitution. He also agreed to be barred from serving as a director or officer of a public company for a period of seven years.
The company said Madden will not stand for re-election on the board and will relinquish his role as an officer effective July 1.
The SEC and Madden also settled a new civil complaint, filed on Wednesday in Brooklyn federal court, in which the SEC charged Madden with insider trading.
In its complaint, the SEC charged Madden with selling 100,000 shares of Madden Ltd. stock on May 31, 2000, after he already had been advised by federal prosecutors that he was a target of grand jury investigations in Brooklyn and Manhattan.
Under the settlement, Madden agreed to return $835,000 in illegal gains and interests, and pay $784,000 in civil penalties.
Shares of the company closed at $16.13 on May 31, 2000. On June 22, when Madden was arrested, shares plummeted to $5.50.
Following the pleas, Steve Madden officials sought to shore up confidence that the fashion shoe business is moving forward.
``The company is extremely strong, positioning us to maintain our superior status in the footwear market and enhance our growing market share,'' said Rhonda Brown, president, in the same release. ``We are fortunate to have so many talented and experienced people in our organization.''
The company reiterated recently announced management appointments, including Jamieson Karson, who will succeed Madden as chief executive.
Joe Teklits, an analyst at Ferris Baker Watts, a Baltimore-based investment firm, observed that sales have been solid since Madden's arrest, and he doesn't anticipate ``any derailment'' of that trend.
``Steve had been phased out in the day-to-day process, including design. The company has had an opportunity to strengthen the team,'' Teklits said. He added, however, the brand could suffer from negative publicity surrounding the case, any cutbacks from buyers and possible low morale among its employees.
``Employees could rally behind the company or give up,'' he added. ``But, given that a lot of people at Madden are homegrown, they will probably rally around until he gets back.''
Shares of Steve Madden fell $1.02, or 6 percent, to $15.01 in trading on Nasdaq Stock Market. Shares of the company have stabilized since Madden's arrest, reaching a high of $18.11 last month.
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