SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17014 / May 23, 2001
SECURITIES AND EXCHANGE COMMISSION V. STEVE MADDEN, 00-CV-3632 (E.D.N.Y.)
The Securities and Exchange Commission announced today that it has reached a settlement with Steve Madden, President and Chief Executive Officer of Steve Madden, Ltd. (SHOO). The Commission filed a complaint against Madden on June 20, 2000, alleging that he violated the federal securities laws by participating in the manipulation of twenty-two initial public offerings (IPOs) underwritten by Stratton Oakmont, Inc. (Stratton), and Monroe Parker Securities, Inc. (Monroe), a Stratton spin-off, over a six-year period. Madden's own company, SHOO, was among the IPOs manipulated by Madden and Stratton.
Madden has now agreed to settle the Commission's action and has consented, without admitting or denying the allegations of the Complaint, to the entry of a final judgment that: (1) permanently enjoins Madden from future violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; (2) orders Madden to disgorge $5,183,450 subject to credit for restitution payments made to the United States in the related criminal actions pending against Madden; (3) orders Madden to pay a civil penalty of $1,000,000.00; and (4) bars Madden from serving as an officer or director of a public company for a period of seven years.
The Commission's Complaint alleges as follows:
From 1991 through 1997, Madden was a key participant in a series of manipulations orchestrated by Stratton and Monroe. Both firms were quintessential "boiler rooms" and the manipulations followed a standard formula. Stratton and Monroe gained control over the float of each stock by issuing allocations of IPO stock to persons with whom Stratton and Monroe had entered into secret agreements to serve as "flippers." The flippers received their stock with the understanding that they would sell the stock back to Stratton or Monroe at pre-arranged, below-market prices once trading had commenced in the aftermarket. Stratton and Monroe would then earn huge profits by selling the stock to their own customers at artificially inflated prices created by the use of high-pressure sales tactics. In each of the twenty-two manipulations, Madden sold his stock back to Stratton and Monroe and retained an agreed- upon profit for the transaction.
In certain cases, Madden received bridge units in exchange for bridge loans made to certain issuers. According to the prospectuses filed by these issuers, the bridge units were subject to lock-up agreements prohibiting Madden from selling the units for thirteen months after the IPO without the underwriter's permission. In each case, Madden entered into secret agreements with Stratton or Monroe to be released from the lock-up agreement as soon as trading commenced in the aftermarket. Contrary to representations that were made in the prospectuses for these IPOs, Madden sold his shares back to Stratton or Monroe at pre-arranged prices immediately after trading commenced in the aftermarket.
Stratton conducted the IPO for SHOO in December 1993. Stratton, with Madden's knowledge and participation, manipulated this IPO as well. In addition to the use of flippers, Madden and Stratton misled investors in SHOO by misrepresenting the relationship between Jordan Belfort (Belfort), Stratton's President, and SHOO. Belfort sought to retain a controlling interest in SHOO, but the National Association of Securities Dealers (NASD) would not approve the stock for listing if Belfort owned more than 4.9% of the stock. To evade this requirement, Madden and Belfort entered into a sham agreement in which Belfort purported to transfer his shares to BOCAP Corporation, a company owned by Madden, in exchange for a promissory note from BOCAP. Madden and Belfort secretly agreed that the shares "sold" to BOCAP still belonged to Belfort. The secret agreement was not disclosed in SHOO's prospectus, which falsely described the sham arrangement as a legitimate sale.
The Commission acknowledges the assistance of the United States Attorney's Offices for the Eastern District of New York and the Southern District of New York in this matter.