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Less than two weeks before he was to go on trial, shoe czar Steve Madden pled guilty Wednesday to securities fraud and money-laundering charges brought by federal prosecutors in Manhattan and Brooklyn. Madden, the chief executive officer of Steve Madden Ltd., also settled related civil charges filed by the Securities and Exchange Commission. The Nasdaq halted trading in shares of his company Wednesday on reports of the plea agreement and his subsequent court appearances. The shares were trading down $1.02, or 6.36 percent, at $15.01. The 44-year-old Long Island businessman, who built a loyal following for his trendy shoe designs with young women and teenage girls, was due to stand trial June 4. He was indicted a year ago on charges of securities fraud and money laundering for his role in the manipulation of several initial public offerings, including that of his own company in December 1993. All the charges arose from the manipulation of IPOs underwritten by two infamous and now defunct “boiler room” broker-dealers Stratton Oakmont Inc. of Lake Success, N.Y., and Monroe Parker Securities Inc. of Purchase, N.Y. In its civil complaint, the SEC accused Madden of serving as a so-called “flipper” in both the Stratton and Monroe manipulations. Flippers receive their stock with the understanding that they would sell the stock back to the firms at a pre-arranged price once trading had commenced in the after market. Stratton and Monroe would then reap huge profits by pressuring their own customers to buy the shares at artificially inflated prices. To settle the SEC charges that he helped manipulate 22 initial public stock offerings, Madden agreed to pay $7.82 million in fines and restitution. He agreed to pay another $3 million in forfeiture fines in connection with the criminal charges. As part of his SEC settlement, Madden also agreed to being barred from serving as an officer or director of any public company for seven years and from breaking securities laws in the future. The SEC also brought new insider trading charges against Madden on Wednesday. Those charges are based on his May 31, 2000, sale of 100,000 shares of his company’s stock when it was known to him that he would be indicted or criminally charged in the manipulation case. Madden entered into the agreement without admitting or denying the SEC charges. But Madden admitted his guilt in the criminal cases. In charges filed by the U.S. Attorney’s Office for the Southern District of New York in Manhattan, Madden pled guilty to a fraud related to Monroe Parker and its principals, Brian Herman and Alan Lipsky. The two previously pled guilty to using boiler-room sales practices and other manipulations. Federal prosecutors in Manhattan accuse Madden of opening several accounts at Monroe Parker and then using those accounts to buy and sell securities as an undisclosed nominee of Herman and Lipsky in connection with about 10 IPOs. Herman and Lipsky allocated IPO securities to Madden who then sold the shares back to Monroe Parker at pre-arranged prices. Herman and Lipsky then caused the brokerage firm to resell those shares to its customers at inflated prices. Federal prosecutors in Brooklyn contended that Madden engaged in a similar scheme with Stratton Oakmont principals Jordon Belfort and Daniel Porush. In that case, the stock prices of approximately 21 IPOs, including the Madden IPO, were manipulated. Eight of them were jointly written with Monroe Parker. Madden did not disclose that he was holding stock for the benefit of Belfort and Porush. The shoe magnate also pled guilty to money laundering or hiding illegal profits by disguising his kickbacks to Belfort as repayments of loans. Charles Koppelman, executive chairman of the board of the Madden company, said, “Today is a difficult day for the company.” Madden will step down as CEO July 1 and will also not stand for re-election to its board, the company said. However, he will become its creative and design chief until his departure. Madden will also have a job waiting for him when he gets out of jail. The company said it expects him to return to his position “upon completion of any time he serves.” The company said Wednesday that in connection with the plea bargain and management changes, it must amend its proxy statement, which will be sent to shareholders on or about June 11. As a result, the annual shareholder meeting has been rescheduled for July 10. Madden faces up to 41 to 51 months in prison as part of the plea agreement when he is sentenced Sept. 6-7 before U.S. District Judge Kimba Wood in Manhattan and U.S. District Judge John Gleeson in Brooklyn, respectively. Madden’s attorney, Corey Winograd of the New York law firm Winograd & Winograd, said, “Today, Steve Madden in his plea acknowledged errors in judgment based in part on his blind loyalty to childhood friends. Steve has settled all of the charges against him and is prepared to pay his debt to society.” Copyright (c)2001 TDD, LLC. All rights reserved.

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