Big City Bagel scheme allegedly cooked up by indicted shoe mogul
Nation's Restaurant News, July 10, 2000 by C. Dickinson Waters
Save a personal copy of this article and quickly find it again with Furl.net. Get started now. (It's free.)NEW YORK -- Defunct sandwich operator Big City Bagels Inc. is at the center of an alleged securities fraud and money-laundering scheme detailed in a federal indictment of shoe mogul Steve Madden and principals of the Purchase, N.Y.-based brokerage firm Monroe Parker Securities Inc.
Madden is a shoe designer and retailer best known for his trendy platform shoes.
Federal prosecutors in two different U.S district courts in New York and officials from the Securities and Exchange Commission allege that Madden conspired with two brokerage firms to manipulate the prices of public stock offerings -- among them, Big City Bagels, which was based in Hicksville, N.Y.
According to the charges, Madden purchased large blocks of stocks in companies immediately after their initial public offerings by Monroe Parker and then, in a practice known as "flipping," resold the shares back to the brokerage shortly after they began trading.
Madden, 42, pled not guilty to all the charges and was released on two separate bonds of $750,000 each. According to Madden's lawyer, Joel Winograd, "Mr. Madden denies any improper conduct, and we will defend him vigorously."
The indictments specifically detail a scheme in which Madden lent $200,000 to Big City Bagels as a "bridge loan" in exchange for 100,000 bridge units. It is alleged that at the time of the loan, Madden also agreed to sell the bridge units at times and prices directed by Bryan Herman, a principal of Monroe Parker.
Big City Bagels changed its name to VillageWorld.com Inc. and ceased operations as a food retailer after a July 1999 reverse merger with VillageNet Inc. and Intelligent Computer Solutions Inc. The transaction, in which the two private technology companies merged with and acquired control of the publicly traded Big City Bagels, was initiated by the technology firms simply as a means of gaining access to the public marketplace.
According to Peter Keenan, president and chief executive of VillageWorld, he and his partners had zero interest in the food business and engineered the acquisition of Big City Bagels because it was a public company with an established franchise operation that was failing and therefore "in reach" financially. At the time Keenan and partners took control of the company, Big City Bagels was trading at 50 cents a share.
According to Keenan, the remaining bagel franchisees were expected to continue on in business on their own. VillageWorld.com Inc. provides targeted Internet services to specific "communities of interest" and plans to market a low-cost, set-top computer that can be plugged into a TV.
The recent indictments revolve around a "lock-up" agreement Madden entered into with the brokerage firm. Under the agreement -- noted in the registration statements and prospectus prepared for the Initial Public Offering of Big City Bagels' stock -- Madden purportedly agreed not to sell the 100,000 bridge units for a 13-month period following the company's IPO.
Within hours of Big City Bagels' May 1996 IPO, Monroe Parker allegedly released Madden from the lock-up agreement, and he sold all 100,000 of his bridge units to the brokerage firm for $2 a share. At that time, the market price for the units was $13 a share.
Madden faces a host of other charges involving both his own company, Steven Madden Ltd., and his relationship with Stratten Oakmont, an alleged penny-stock "boiler room" operation, so called because of its high-pressure sales tactics. In all, the former shoe salesman and Cedarhurst, Long Island, native faces a total of 17 charges. If found guilty of all counts, Madden could face as much as 25 years in prison as well as hefty fines.
Adding to Madden's problems is a civil suit brought by the Securities and Exchange Commission, seeking to force him to disgorge his allegedly ill-gotten gains with interest and pay a civil penalty. The SEC suit also would ban Madden from serving as an officer or director of any public company, including his own.
Madden has "temporarily relinquished his role" as chairman of Steven Madden Ltd. pending the resolution of the charges against him, according to a company spokesman. He will, however, continue to serve as the chief executive of the firm.
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