NEW YORK (AP) â€” Designer and shoe retailer Steven Madden was arrested Tuesday on charges that he conspired to manipulate the value of his company during its initial public offering in the stock market.
Madden faces indictments in U.S. District Court in Brooklyn and Manhattan accusing him of making secret deals with broker dealers.
The deals were an effort to manipulate the value of his company as it grew from a regional small shoe company with limited assets into a multi-million dollar operation, prosecutors said.
Steven Madden Ltd., which is known for its clunky, high-heeled shoes, operates about 60 stores and sells its shoes in more than 3,000 department and specialty stores. Sales doubled in 1999 to $163 million.
The investigation into Madden's shoe operation apparently grew out of other investigations into corrupt broker dealers who ripped off investors for hundreds of millions of dollars during initial public offerings.
In the Brooklyn indictment, Madden was accused of engaging in two separate securities fraud schemes with Stratton Oakmont Inc. a now defunct broker-dealer of securities formerly located in Lake Success, N.Y.
A year ago, two former top executives of the securities firm pleaded guilty to charges that from 1990 through 1997 they manipulated the prices of stocks of at least 34 thinly capitalized public companies.
Among those fraudulent underwritings, prosecutors said, was a December 1993 initial public offering of Madden's company.
The Brooklyn indictment accused Madden of crafting the initial public offering of his company so that three top executives of Stratton Oakmont gained secret control of the majority of the fledgling company's shares.
The control allowed the three executives and Madden to artificially inflate the price of the company's securities and be ensured substantial illicit profits, prosecutors said.
The National Association of Securities Dealers had refused to approve the Madden initial public offering if any of the Stratton Oakmont executives owned more than 4.9 percent of the outstanding stock, the indictment alleged.
To get around this, Madden falsely represented that the Stratton Oakmont executives had sold more than 1.2 million shares, prosecutors said.
Actually, though, Madden had entered into a secret and unlawful agreement that the stock would continue to be held by the Stratton Oakmont executives, prosecutors said.
Later, Madden tried to renege on his secret deal, prompting one of the Stratton Oakmont executives to sue him in state court, the indictment alleged.
In the other scheme in Brooklyn, Madden was accused of participating in the manipulation of stock prices of more than a dozen stocks underwritten by Stratton Oakmont.
In federal court in Manhattan, Madden was accused of participating in a similar unlawful scheme with executives of another securities company, Monroe Parker Securities Inc., a now defunct broker dealer in Purchase, N.Y., prosecutors said.
Madden was held for an initial court appearance Tuesday.
If convicted of the most serious charge, conspiracy to commit securities fraud, Madden faces up to five years in prison.
In a separate action in civil court, the Securities and Exchange Commission sought an order barring Madden from serving as an officer or director of a public company as well as an order forcing him to give up any ill-gotten gains and to pay penalties.
Steven Madden Ltd.'s shares were down $1.938, or nearly 15 percent, at $11.188 in midday trading on the Nasdaq Stock Market.