steve madden, ltd. securities litigation 00-cv-3676 -consolidated amended class action
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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK
IN RE STEVEN MADDEN LTD. )SECURITIES LITIGATION )
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CIVIL ACTION NO. CV-00-3676 (JG)
Hon. John Gleeson
JURY TRIAL DEMANDED
CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
BASIS OF ALLEGATIONS - °
1. Plaintiffs allege the following based upon the investigation of their
counsel, including a review of federal grand jury indictments against defendant Steve Madden, a
complaint filed against Steve Madden by the Securities and Exchange Commission ("SEC"),'
filings, press releases and other public statements of defendant Steven Madden Ltd. ("SHOO" or
the "Company"), and securities analysts' and media reports, and plaintiffs believe that substantial
additional evidentiary support will exist for the allegations set forth herein after a reasonable
opportunity for discovery.
NATURE OF THE ACTION
2. This is a class action on behalf of purchasers of the common stock of
SHOO between June 21, 1997, and June 20, 2000, inclusive (the "Class Period"), seeking to
pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). As described
' Copies of the indictments in U.S. v. Madden, Cr. No. 00-601 (U.S.D.C., E.D.N.Y.), and
U.S. v. Madden, 00 CRIM. 0557 (U.S.D.C., S.D.N.Y .), and the complaint in SEC v. Madden,CV 00 3632 (U.S.D.C., E.D.N.Y .) (hereafter, "SEC Complaint"), are annexed hereto as ExhibitsA, B and C, respectively.
more fully below, defendants engaged in a course of conduct designed to conceal the fact that a
large block of SHOO common stock was secretly owned by a group of investors who acted as
principals of a stock brokerage firm that had been closed down by regulators, and that SHOO's
principal employee, Steve Madden, had committed fraudulent acts in connection with the public
offering of SHOO and other companies. When the truth concerning these events became public
following grand jury indictments and the commencement of an SEC action against Steve
Madden, the price of SHOO's common stock dropped substantially, damaging plaintiffs and
other investors.
JURISDICTION AND VENUE
The claims asserted herein arise under and pursuant to Sections 10(b) and
20(a) of the Exchange Act [15 U.S.C. §§ 78j (b) and 78t(a)], and Rule lob-5 promulgated
thereunder [17 C.F.R. § 240.10b-5].
4. This Court has jurisdiction over the subject matter of this action pursuant
to Section 27 of the Exchange Act [15 U.S.C. § 78aa], and 28 U.S.C. §§ 1331 and 1337.
5. Venue is proper in this district pursuant to Section 27 of the Exchange
Act, and 28 U.S.C. § 1391(b). SHOO maintains its principal place of business in this district
and many of the acts and practices complained of herein occurred in substantial part in this
district.
6. In connection with the acts alleged in this complaint, defendants, directly
or indirectly, used the means and instrumentalities of interstate commerce, including, but not
limited to, the mails, interstate telephone communications and the facilities of the national
securities markets.
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PARTIES
7. By Order of this Court dated December 8, 2000, plaintiffs Process
Engineering Services , Inc., Michael Fasci , and Mark and Libby Adams were appointed Lead
Plaintiffs in this action. Lead Plaintiffs purchased shares of SHOO common stock during the
Class Period at artificially inflated prices and were damaged thereby.
8. Additional plaintiffs James Connor, Jeffrey Dempster, Leigh Curry, on
Behalf of Guerrilla Partners, Maurice Blumenthal, Ann Baker Salafia, Michael Fahey and Diana
Fahey, and Morris Willner purchased shares of SHOO common stock during the Class Period at
artificially inflated prices and were damaged thereby.
9. Defendant SHOO is a Delaware corporation with its principal executive
offices located at 52-16 Barnett Avenue, Long Island City, New York 11104. SHOO designs and
markets footwear for women.
10. The individual defendants identified below (the "Individual Defendants")
served at all relevant times herein in the positions set forth opposite their names:
Name
Steve Madden ("Madden")
Rhonda J. Brown ("Brown")
Arvind Dharia ("Dharia")
Positions at SHOO
Chairman, Chief Executive Officer and, untilFebruary 29, 2000, President
Chief Operating Officer, Director and (as of
February 29, 2000), President
Chief Financial Officer, Secretary andDirector
11. Because of the Individual Defendants' positions with the Company, they
had access to the adverse undisclosed information about its business, operations and prospects
via access to internal corporate documents (including the Company's operating plans, budgets
and forecasts and reports of actual operations compared thereto), conversations and connections
with other corporate officers and employees, attendance at management and Board of Directors
meetings and committees thereof and via reports and other information provided to them in
connection therewith.
12. It is appropriate to treat the Individual Defendants as a group for pleading
purposes and to presume that the materially false, misleading and incomplete information
conveyed in the Company's public filings and statements as alleged herein are the collective
actions of the narrowly defined group of Individual Defendants identified above. Each of the
Individual Defendants, by virtue of his or her high-level position with the Company, directly
participated in the management of the Company, was directly involved in the day-to-day opera-
tions of the Company at the highest levels and was privy to confidential proprietary information
concerning the Company and its business, operations and prospects. Said defendants were
involved in drafting, producing, reviewing, approving and/or disseminating the materially false
and misleading statements and information alleged herein, were aware or recklessly disregarded
that the false and misleading statements were being issued regarding the Company, and approved
or ratified these statements , in violation of the federal securities laws.
13. As officers and controlling persons of a publicly-held company whose
common stock was, and is, registered with the SEC pursuant to the Exchange Act, and was
traded on the NASDAQ National Market System ("NASDAQ"), and governed by the provisions
of the federal securities laws, the Individual Defendants each had a duty to disseminate promptly,
accurate and truthful information concerning the Company and its business, operations and
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prospects and to correct and update any previously-issued statements that were materially
misleading or untrue, so that the market price of the Company's publicly-traded securities would
be based upon truthful and accurate information. The Individual Defendants' misrepresentations
and omissions during the Class Period violated these specific requirements and obligations.
14. The Individual Defendants participated in the drafting , preparation , and/or
approval of the various public filings and statements complained of herein and were aware of, or
recklessly disregarded, the misstatements contained therein and omissions therefrom, and were
aware of their materially false and misleading nature. Because of their senior positions at
SHOO, each of the Individual Defendants had access to the adverse undisclosed information as
particularized herein and knew or recklessly disregarded that these adverse facts rendered
representations made by or on behalf of SHOO materially false and misleading.
15. The Individual Defendants, by virtue of their positions of control and
authority, were able to and did control the content of the various SEC filings and other public
statements pertaining to the Company. Each Individual Defendant, during the time of his or her
association with the Company, was provided with copies of the documents alleged herein to be
misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to
prevent their issuance or cause them to be corrected. Accordingly, each of the Individual
Defendants is responsible for the accuracy of the public filings and statements detailed herein
and is primarily liable for the representations and omissions contained therein.
16. Each of the defendants is liable as a participant in a fraudulent scheme and
course of business that operated as a fraud or deceit on purchasers of SHOO common stock by
disseminating materially false and misleading statements and/or concealing material adverse
facts. The scheme, among other things, (i) deceived the investing public regarding the true
ownership of a significant block of SHOO common stock; (ii) deceived the investing public
concerning defendant Madden's role in the fraudulent acts undertaken in connection with the
initial public offerings of numerous companies (including SHOO), (iii) deceived the investing
public regarding SHOO' s business, operations and the intrinsic value of SHOO common stock;
(iv) enabled defendants to sell significant amounts of SHOO common stock at artificially inflated
prices; and (v) caused plaintiffs and the other members of the Class to purchase SHOO common
stock at artificially inflated prices.
PLAINTIFFS' CLASS ACTION ALLEGATIONS
17. Plaintiffs bring this action as a class action pursuant to Federal Rule of
Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all those who purchased
SHOO common stock during the Class Period and who were damaged thereby. Excluded from
the Class are defendants and all present and former officers and directors of the Company,
members of each of the Individual Defendant's immediate families, each defendant's legal repre-
sentatives, heirs, successors or assigns and any entity in which any defendant has had a control-
ling interest.
18. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, SHOO common stock was actively traded on the
NASDAQ. While the exact number of Class members is unknown to plaintiffs at this time and
can only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds
or thousands of members of the Class. Record owners and other members of the Class may be
identified from records maintained by SHOO or its transfer agent and may be notified of the
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pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions..
19. Plaintiffs' claims are typical of the claims of the members of the Class as
all members of the Class were similarly affected by defendants' wrongful conduct in violation of
federal law, as described herein.
20. Plaintiffs will fairly and adequately protect the interests of the members of
the Class and have retained counsel competent and experienced in class and securities litigation.
21. Common questions of law and fact exist as to all members of the Class
and predominate over any questions solely affecting individual members of the Class. Among
the questions of law and fact common to the Class are:
a. whether the federal securities laws were violated by defendants'
acts as alleged herein;
b. whether defendants issued statements that contained material
misrepresentations or omissions;
c. whether defendants acted knowingly or recklessly in omitting
and/or misrepresenting material facts;
d. whether the market price of SHOO common stock was artificially
inflated during the Class Period; and
e. to what extent the members of the Class have sustained damages
and the proper measure of damages.
22. A class action is superior to all other available methods for the fair and
efficient adjudication of this controversy since joinder of all members is impracticable.
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Furthermore, as the damages suffered by individual Class members may be relatively small, the
expense and burden of individual litigation make it impossible for members of the Class to
individually redress the wrongs done to them. There will be no difficulty in the management ofthis
action as a class action.
SUBSTANTIVE ALLEGATIONS
Background Facts and Madden's Participation in Fraudulent PracticesInvolving the Initial Public Offerings of SHOO and Other Companies
23. SHOO designs and markets footwear for women. The Company's shoes
are sold through SHOO retail stores, department stores, apparel and footwear specialty stores,
and on the Internet. The Company was founded by defendant Madden in 1990. In December
1993, SHOO "went public" in an initial public offering underwritten by Stratton Oakmont, Inc.
("Stratton Oakmont")
24. Stratton Oakmont, a New York-based broker dealer during the period from
1989 to 1996, was, in the words of the SEC, "one of the largest and most notorious illegal boiler
room operations in history." See SEC Complaint at ¶ 11. Daniel Porush ("Porush"), a childhood
friend of Madden, was president and chief executive officer of Stratton Oakmont until it was
closed down in 1996; in that same year he was permanently barred from the securities industry.
Stratton Oakmont's founder, Jordon Belfort ("Belfort"), served as that firm's chairman until
1994, when he was "permanently barred from the securities industry." Id. at ¶¶ 11-13. Stratton
Oakmont closed down in December 1996, and declared bankruptcy in January 1997.
25. In 1993, Belfort helped found an affiliate of Stratton Oakmont, Monroe
Parker Securities, Inc. ("Monroe Parker"), "so that he would have another brokerage firm from
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which to continue defrauding investors in Stratton-style IPO manipulations in the event that
Stratton was forced to go out of business." Id. at ¶ 14. Monroe Parker closed down in December
1997.
26. Prior to the Class Period, defendant Madden participated with Stratton
Oakmont and Monroe Parker in fraudulent activities involving at least 22 initial public offerings
("IPOs"). As it would later be revealed in federal grand jury indictments against Madden filed in
the Southern and Eastern Districts ofNew York, and in a civil complaint against Madden filed by
the SEC in the Eastern District ofNew York, Madden played a "crucial role" in the fraudulent
manipulation of the IPOs. See id. at 111. As the February 26, 2001 edition of New York
Magazine reported in an article entitled "Steve Madden: Crisis of the Sole," Porush recently
testified at the trial of Stratton Oakmont's former auditor that Madden was "deep into the fraud
with us." And, as Belfort put it, Madden was "a'rat hole,' a place to hide stock." Id.
27. Madden' s fraudulent role in the IPO manipulations essentially took the
form of two practices known as "flipping" and the secret unlocking of "lockup agreements."
a. In the "flipping" practice, Madden received substantial allotments
of shares in IPOs and then, pursuant to secret repurchase agreements, sold back the shares to
Stratton Oakmont and Monroe Parker shortly after trading in the aftermarket commenced.
Through this unlawful practice, Madden was able to earn illegal profits and help insure that
Stratton Oakmont and Monroe Parker would control most of the IPO shares even after the
offerings. The boiler room firms, in turn, had a ready source of shares to sell to unsuspecting
aftermarket investors at prices that had been manipulated to artificially high prices.
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b. In the second practice, Madden made loans to issuers in return for
shares of the issuers and other consideration prior to their IPOs. Madden signed a "lockup
agreement" with the companies, which, according to the issuers' prospectuses, prohibited him
from selling his shares for at least one year following the IPOs. However, pursuant to secret,
undisclosed agreements with Stratton Oakmont and Monroe Parker, Madden's purportedly
locked up stock was immediately released following the IPOs and sold back to the underwriter
(Stratton Oakmont or Monroe Parker), thereby enabling the underwriter to control a large amount
of the issuers' shares immediately following the IPOs for sale to unsuspecting investors in the
afteiiuarket at artificially inflated prices.
28. Madden also engaged in fraudulent conduct in connection with the
December 1993 IPO of his own company , SHOO. Madden knew, but failed to disclose, that
SHOO's underwriter, Stratton Oakmont, had secretly agreed that, immediately following the
SHOO IPO, it would unlock selling restrictions on bridge units that had been given to Don Jen,
Inc. and Albert Honigmen even though, according to SHOO's IPO prospectus, those units could
not be sold without Stratton Oakmont's permission for thirteen months following the IPO. See
SEC Complaint at ¶ 29.
29. In addition, SHOO's IPO prospectus contained misrepresentations
concerning the ownership of SHOO stock immediately following the IPO. Prior to the IPO,
Belfort, Porush, and another Stratton Oakmont principal, Kenneth Greene ("Greene''') (sometimes
collectively referred to as the "Belfort Group"), had planned to receive large blocks of SHOO
stock for their investments in SHOO and for their activities in connection with SHOO's IPO.
The National Association of Securities Dealers ("NASD"), however, refused to list SHOO
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common stock on its Automatic Quotation System so long as the Belfort Group owned more than
4.9%, or 251,728 shares of SHOO' s outstanding stock. In order to satisfy NASD, Madden
arranged to have his wholly-owned shell company, BOCAP Corp. ("BOCAP"), purportedly
purchase 1,284,815 shares of SHOO stock from the Belfort Group in return for a promissory note
issued by BOCAP. SHOO' s IPO prospectus identified BOCAP as the owner of the shares, and
the stock was listed for trading on the Automatic Quotation System. Madden and the Belfort
Group, however, "secretly agreed that the BOCAP stock still belonged to Belfort, Porush, and
Greene and that neither BOCAP nor Madden would be obligated to pay off the promissory note."
SEC Complaint at 17 32. Moreover, "Madden never disclosed to investors , in SHOO's prospectus
or elsewhere , the fact that the BOCAP stock still belonged to Belfort, Porush , and Greene, and
that neither BOCAP nor Madden would be obligated to repay the promissory note." Id. at ¶ 33.
30. On the morning of June 20, 2000, defendant Madden was arrested on
charges of securities fraud and money laundering, following his indictments by federal grand
juries in the Eastern and Southern Districts of New York. See Exhs . A and B . On that same
date , the SEC filed its complaint against Madden for violations, inter alia , of Section 10(b) of the
Exchange Act and Rule I Ob-5. See Exh. C. The criminal charges and the SEC's complaint
against Madden arose out of Madden's illegal conduct in connection with the IPOs of numerous
companies -- including his own company, SHOO -- as described above.
31. At 10: 59 a.m. on June 20, 2000 , NASDAQ halted trading in the
Company's stock, after it had dropped to $11 3/16 per share, from the previous day's close of
$13 1/8 per share.
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32. On June 21, 2000, the Company's stock was downgraded by Chase H&Q
and by Wasserstein Perella. The next day, June 22, 2000, the stock was downgraded by Ferris
Baker.
33. After the stock resumed trading on June 22, 2000, it closed at $6 11/16 per
share, plummeting $4 1/2 per share -- i.e., more than 40 percent. The stock's trading volume on
June 22 reached 11.7 million shares, more than 60 times its average daily trading volume. Less
than two months earlier, on April 25, 2000, the Company's stock closed at $22 7/16 per share.
Materially False and Misleading StatementsIssued Before the Class Period , Which Remained"Alive" at the Commencement of the Class Period
34. On or about May 29, 1997, SHOO filed with the SEC a proxy statement
(the "1997 Proxy Statement), which was signed by Madden . The 1997 Proxy Statement ,
purported to set forth a listing of persons "known by the Company to beneficially own five
percent or more of the outstanding shares." The listing identified BOCAP as the beneficial
owner of 2,374,816 shares, or 29.9%, of the Company's outstanding common stock. The 1997
Proxy Statement, however, did not reveal ownership of any of those shares by the Belfort Group,
or any of its members.
35. The foregoing statements in the 1997 Proxy Statement were materially
false and misleading because:
a. they falsely attributed to Madden's wholly owned company,
BOCAP, ownership of 2,374, 816 shares , or approximately 29.9%, of the Company' s outstanding
common stock;
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b. they failed to disclose that the Belfort Group, or its members,
owned 1,284,815, or approximately 16% of the Company's outstanding common stock, thus
making the Belfort Group and its members SHOO's largest stockholders; and
they failed to disclose that Madden had entered into a secret
agreement with the members of the Belfort Group to conceal their ownership interest in the
Company.
36. The 1997 Proxy Statement also stated that BOCAP had delivered to
Belfort a promissory note in the amount of $3,237,737. This statement was materially false and
deceptive because , pursuant to a secret agreement among Madden and the Belfort Group,
Madden had no obligation to pay off the note. See SEC Complaint at ¶ 32.
37. The material misrepresentations described in the 1997 Proxy Statement
were not corrected or updated and remained "alive" as of the commencement of the Class Period.
Materially False and MisleadingStatements Issued During the Class Period
38. On January 5, 1998, NASD Regulation, Inc. announced that it had issued a
complaint on December 23, 1997, charging Monroe Parker and its president (a former Stratton
Oakmont employee) and its head trader with price manipulation and excessive markups in the
trading of SHOO Class A Warrants. The announcement stated that Monroe Parker acquired the
majority of these warrants from Stratton Oakmont. In response to this announcement, on January
5, 1998, SHOO issued a press release "disclaim[ing ] any affiliation of any kind with Monroe
Parker." Defendant Brown was listed as a contact person in the press release.
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39. The January 5, 1998 press release was materially false and misleading
because it disclaimed an affiliation with Monroe Parker, and failed to disclose that Madden had
an affiliation with Monroe Parker and had participated with Monroe Parker and its affiliate,
Stratton Oakmont, in fraudulent activities, including fraudulent activities in connection with the
IPOs of SHOO and numerous other companies.
40. On or about February 17, 1998, the Company filed with the SEC the 1998
Registration Statement (including a prospectus) with respect to the registration of 1,284,816
shares of SHOO common stock and the offering of those shares plus up to 2,235,000 additional
shares to be sold by the Company upon the exercise of various warrants and options. Upon
exercise of the warrants and options, SHOO would receive $12,238,500. The 1998 Registration
Statement was signed by defendants Madden, Brown and Dharia.
41. The 1998 Registration Statement was materially false and misleading in
the following respects:
a. it incorporated by reference the 1997 Proxy Statement and thus,
was materially false and misleading for the reasons set forth in paragraphs 34-36, above;
b. it represented that certain of the options were held by "two (2)
individuals" -- Jordan Belfort and Nancy Porush (Daniel Porush's former wife) -- "that are not
affiliated to the Company," when, in fact, Jordan Belfort and Daniel Porush were affiliated with
the Company;
c. it represented that the offered shares included 1,128,816 shares
owned by BOCAP when, in fact, those shares, or substantially all of those shares, were owned by
the Belfort Group or its members; and
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d. it stated:
The Company is dependent, in particular, upon the services ofSteven Madden, its Chief Executive Officer, President, Chairman of theBoard and chief designer and Rhonda Brown, its Chief Operating Officer.If Mr. Madden or Ms. Brown are unable to provide services to theCompany for whatever reason, the business would be adversely affected.
This statement was materially misleading because it failed to disclose the material risk that
Madden would be unable to continue to provide services to SHOO, in light of his unlawful
conduct in connection with the IPOs underwritten by Stratton Oakmont and Monroe Parker.
42. On or about March 29, 1999, SHOO filed with the SEC its annual report
on Forum 10-K for thefiscal year ending December 31, 1998. The report was signed by Madden,
Brown and Dharia. The report stated, in pertinent part:
DEPENDENCE ON KEY PERSONNEL. The Company isdependent, in particular, upon the services of Steven Madden, itsChief Executive Officer, President, Chairman of the Board andchief designer and Rhonda Brown, its Chief Operating Officer. IfMr. Madden or Ms. Brown are unable to provide services to theCompany for whatever reason, the business would be adverselyaffected.
This statement was materially misleading because it failed to disclose the material risk that
Madden would be unable to continue to provide services to SHOO, in light of his unlawful
conduct in connection with the IPOs underwritten by Stratton Oakmont and Monroe Parker.
43. On December 10, 1999, Madden appeared on the CNBC television
program "Power Lunch," and was questioned by Tyler Mathisen. Madden made the following
statements in response to Mathisen's questions:
MATHISEN:.... There have been persistent concerns,Steve, that your Company and the associations with those twogentleman [Porush and Belfort], that the problems that they have
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had legally might some day come home to roost and become your
problems , and that federal investigations into their activities might
become a federal investigation into you . Any thought, any truth to
those? Do you have reason for the concern?
MADDEN : No, they took us public, but we don't think that
we'll be tainted by that brush.
MATHISEN: But some have said in the investment
community , that there has been a kind of weight over the stock of
Steve Madden, Limited . True or false?
MADDEN: Could be . I don't know . Right now,
everything seems to be going well . And so I don' t know about any
of those things.
44. Madden's statements during the CNBC program were materially false and
misleading because he stated falsely that there was no truth to the concerns and that "we don't
think that we'll be tainted by that brush;" additionally, he knew but failed to disclose that he had
participated with Porush and Belfort in unlawful activities, including fraudulent activities in
connection with the IPOs of numerous companies, including SHOO.
45. On February 18, 2000, the Wall Street Journal reported that, at a recent
trial against former brokers at Monroe Parker for stock fraud, a former Monroe Parker executive
testified that he received a paper bag containing $80,000 from defendant Madden at a private
Long Island golf club. The article quoted Madden's earlier statement of December 10, 1999,
made during a CNBC television program and described in paragraph 43 above, that "we don't
think we'll be tainted by that brush."
46. On February 29, 2000, Prudential Securities issued a report concerning
statements made by defendant Madden during SHOO's year-end 1999 conference call with
analysts. According to the report:
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In response to a recent Wall Street Journal article implying CEOSteven Madden was under investigation for his relationship withindividuals involved in a stock fraud case[,] Madden emphaticallydenied any wrongdoing in the company's fourth quarter conferencecall. While it is possible that further information may come outabout the case, we believe the company should not be furtherimpacted.
47. Madden' s statements during the conference call, in which he denied any
wrongdoing, were materially false and misleading. As described above, Madden was a crucial
participant in fraudulent conduct with Stratton Oakmont and Monroe Parker in connection with
numerous IPOs, including SHOO's IPO.
40. On or about March 28, 2000, SHOO hied with the SEC its annual report
on Form 10-K for the fiscal year ending December 31, 1999. The report was signed by Madden,
Brown and Dharia. The report stated, in pertinent part:
DEPENDENCE ON KEY PERSONNEL. The Company is
dependent, in particular, upon the services of Steven Madden, its
Chief Executive Officer, Chairman of the Board and chief designer
and Rhonda Brown, its President and Chief Operating Officer. IfMr. Madden or Ms. Brown are unable to provide services to the
Company for whatever reason, the business would be adverselyaffected.
This statement was materially misleading because it failed to disclose the material risk that
Madden would be unable to continue to provide services to SHOO, in light of his unlawful
conduct in connection with the IPOs underwritten by Stratton Oakmont and Monroe Parker.
Unraveling of the Fraud
49. As described above, on June 20, 2000, following indictments by two
federal grand juries, Madden was arrested on charges of securities fraud and money laundering.
On that same day , the SEC filed its complaint against Madden; the complaint seeks to "bar[]
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Madden from serving as an officer and director of a public company." See SEC Complaint at
p. 19. Wayne Carlin, associate director of the SEC's New York regional office, was quoted by
Bloomberg on June 20, 2000 as stating: "Anyone who engages in conduct this bad over this
length of time should not be in a position of authority in a public company."
50. On June 21, 2000, Steven Marotta, an analyst at Wasserstein Perella
Securities, was quoted in the Wall Street Journal Interactive Edition as stating:
"[Madden] is the visionary and the leader in so many ways that it's
hard to even quantify it. Something of this magnitude can't beunderstated as it relates to the company."
51. The New York Times , on June 21, 2000, reported that Marotta dropped
SHOO's rating from buy to underperform and quoted him as stating:
"[Madden] is the key visionary .... He has a team of designers whoexecute his orders, but he is the key guy. It is difficult to overstatehis importance."
52. Following the suspension of trading on June 20, 2000, SHOO's common
stock resumed trading on June 22, 2000, and closed at $6 11/16 per share, a dramatic drop from
its June 19 close of $13 1/8 per share.
Undisclosed Adverse Information
53. The market for SHOO' s securities was open, well-developed and efficient
at all relevant times. As a result of these materially false and misleading statements and failures
to disclose, SHOO's common stock traded at artificially inflated prices during the Class Period.
Plaintiffs and other members of the Class purchased SHOO common stock relying upon the
integrity of the market price of the stock and market information relating to SHOO, and have
been damaged thereby.
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54. Prior to and during the Class Period, defendants materially misled the
investing public, thereby inflating the price of SHOO's common stock, by publicly issuing false
and misleading statements and omitting to disclose material facts necessary to make defendants'
statements, as set forth herein, not false and misleading. Said statements and omissions were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about the Company, its business and operations, including the Belfort
Group's ownership of a substantial block of SHOO common stock and Madden's secret
agreement with the Belfort Group concerning that block, and Madden's participation with
Stratton Oakmont and Monroe Parker in fraudulent conduct with respect to numerous
companies' IPOs, including SHOO's IPO.
55. At all relevant times , the material misrepresentations and omissions
particularized in this Complaint directly or proximately caused or were a substantial contributing
cause of the damages sustained by plaintiffs and other members of the Class. These material
misstatements and omissions had the cause and effect of creating in the market an unrealistically
positive assessment of SHOO, thus causing the Company's common stock to be overvalued and
artificially inflated at all relevant times. Defendants' materially false and misleading statements
resulted in plaintiffs and other members of the Class purchasing SHOO common stock at
artificially inflated prices, thus causing the damages complained of herein.
Additional Scienter Allegations
56. As alleged herein, defendants acted with scienter in that defendants knew
that the public documents and statements issued or disseminated, as described herein, were
materially false and misleading; knew that such statements or documents would be issued or
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disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. Defendants , by virtue of their receipt of information reflecting the true
facts regarding SHOO, their control over, and/or receipt and/or modification of SHOO's
allegedly materially misleading misstatements and/or their associations with the Company which
made them privy to confidential proprietary information concerning SHOO, participated in the
fraudulent scheme alleged herein.
57. In making the material misrepresentations and omissions complained
herein, defendants were motivated, among other things, to: (i) inflate the price of SHOO common
stock, in order to maximize the proceeds of stock sales by the Individual Defendants (described
herein), and SHOO' s proceeds in connection with the transactions described in the 1998
Registration Statement and to minimize dilution of the Individual Defendants' shareholdings; (ii)
protect defendant Madden from criminal and civil charges arising out of his unlawful
participation with Stratton Oakmont and Monroe Parker in the unlawful acts with respect to the
IPOs of numerous companies, including SHOO's IPO; (iii) protect Madden's ability to continue
to serve as SHOO's chief executive officer;'(iv) conceal the Belfort Group's ownership of a
substantial block of SHOO common stock ; and (v) protect SHOO's NASDAQ listing.
58. The Individual Defendants, at times relevant herein, collectively sold
millions of dollars of SHOO stock, thereby directly benefitting from the artificial inflation in
SHOO's stock price. These sales were as follows:
20
Defendant Madden
DATE SHARES SOLD PRICE PROCEEDS
May 31, 2000 100,000 $16.00 $1,600,000
November 5, 1999 100,000 $12.38 $1,238,000
January 29, 1998 350,000 $6.88 $2,408,000
October 22, 1997 23,900 $7.00 $167,300
October 20, 1997 12,300 $7.06 $86,838
October 20, 1997 35,000 $7.00 $245,000
October 20, 1997 67,000 $7.00 $469,000
October 17, 1997 15,000 $7.00 $105,000
October 17, 1997 28,900 $7.19 $207,791
October 15, 1997 6,800 $7.64 $51,952
October 15, 1997 11,100 $7.22 $80,142
TOTAL 750,000 $6,659,023
Defendant Brown
DATES SHARES SOLD PRICE PROCEEDS
May 31, 2000 100,000 $16.00 $1,600,000
June 4, 1998 10,000 $10.00 $100,000
June 3, 1998 12,000 $10.00 $120,000
TOTAL 122,000 $1,820,000
Defendant Dharia
DATE SHARES SOLD PRICE PROCEEDS
November 5, 1999 40,000 $12.38 $495,200
21
DATE SHARES SOLD PRICE PROCEEDS
May 31, 2000 15,000 $16.00 $240,000
April 15, 1998 3,000 $9.68 $29,040
April 15, 1998 3 ,000 $9 .93 $29,790
April 15, 1998 5 ,000 $10.43 $52,150
April 14, 1998 3,000 $9.43 $28,290
April 13 , 1998 3 , 000 $9.18 $27,540
April 9, 1998 3 ,000 $9 .06 $27,180
TOTAL 75,000 $929,190
59. On June 26, 2000, First Call/Thomson Financial Insiders ' Chronicle
reported:
[W]e were as surprised as anyone to hear that Steve Madden,chairman and chief executive of designer shoe company StevenMadden Ltd. (SHOO), had been arrested on charges of securitiesfraud. Neither Steve Madden Ltd. nor any other officers is thus farimplicated. It is curious, however, that four Madden insiders,including Madden and company president Rhonda Brown sold acombined 230,000 shares in May. Talk about a stroke of fortune.
In fact, a great majority of the shares were sold on May 31.... At least now that trading has resumed ordinary investors canfollow suit. But then, what's the use?
60. On June 26, 2000, Crain's New York Business reported that: "Some
investors have raised concerns because senior managers and board members sold or filed to sell
shares a few weeks before Mr. Madden's arrest."
61. Moreover, according to a June 21, 2000 report in the The Wall Street
Journal Interaction Edition , on June 15, 2000, five days before his arrest, defendant Madden
"filed an intention to sell an additional 100,000 shares."
22
Applicability of the Presumption of Reliance:Fraud-On-The-Market Doctrine
62. At all relevant times , the market for SHOO' s securities was an efficient
market for the following reasons , among others:
a. SHOO's stock was listed and actively traded on the NASDAQ, a
highly efficient and automated market;
b. As a regulated issuer, SHOO filed periodic public reports with the
SEC and the NASDAQ;
c. SHOO regularly communicated with public investors via
established market communication mechanisms, including through regular disseminations of
press releases on the national circuits of major newswire services and through other wide-ranging
public disclosures, such as communications with the financial press and other similar reporting
services; and
d. SHOO was followed by several securities analysts employed by
major brokerage firms who wrote reports which were distributed to the sales force and certain
customers of their respective brokerage firms. Each of these reports was publicly available and
entered the public marketplace.
63. As a result of the foregoing, the market for SHOO common stock
promptly digested current information regarding SHOO from all publicly available sources and
reflected such information in SHOO's stock price. Under these circumstances, all class members
suffered similar injury through their purchase of SHOO common stock at artificially inflated
prices and a presumption of reliance applies.
23
No Safe Harbor
64. The statutory safe harbor provided for forward-looking statements under
certain circumstances does not apply to any of the allegedly false statements pleaded in this
complaint, as the statements were not forward-looking, and were not identified as "forward-
looking statements" when made. To the extent there were any forward- looking statements, there
were no meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those in the purportedly forward-looking statements.
Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking
statements pleaded herein, defendants are liable for those false forward-looking statements
because at the time each of those forward-looking statements was made, the particular speaker
knew that the particular forward-looking statement was false, and/or the forward-looking
statement was authorized and/or approved by an executive officer of SHOO who knew that those
statements were false when made.
FIRST CLAIM
(Against All Defendants for Violations of Section 10(b) and Rule 10b-5)
65. Plaintiffs repeat and reallege each and every allegation contained above as
if fully set forth herein.
66. During the Class Period, defendants carried out a plan, scheme and course
of conduct which was intended to and, throughout the Class Period, did: (a) deceive the investing
public, including plaintiffs and other Class members, as alleged herein ; (b) artificially inflate and
maintain the market price of SHOO common stock; and (c) cause plaintiffs and other members
of the Class to purchase SHOO common stock at artificially inflated prices. In furtherance of
24
this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions
set forth herein.
67. Defendants (a) employed devices, schemes, and artifices to defraud;
(b) made untrue statements of material fact and/or omitted to state material facts necessary to
make the statements not misleading; and (c) engaged in acts, practices, and a course of business
which operated as a fraud and deceit upon the purchasers of SHOO common stock in an effort to
maintain artificially high market prices for the stock in violation of Section 10(b) of the
Exchange Act and Rule I Ob-5 promulgated thereunder.
68. Defendants, individually and in concert, directly and indirectly, by the use,
means or instrumentalities of interstate commerce and/or of the mails, engaged and participated
in a continuous course of conduct to conceal adverse material information about SHOO, as
specified herein.
69. Defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of SHOO' s value, which
included the making of, or the participation in the making.of, untrue statements of material facts
and omitting to state material facts necessary in order to make the statements made about SHOO
in the light of the circumstances under which they were made, not misleading, as set forth more
particularly herein, and engaged in transactions, practices and a course of business which
operated as a fraud and deceit upon the purchasers of SHOO common stock during the Class
Period.
25
70. Each of the Individual Defendants' primary liability arises from the
following facts: (a) the Individual Defendants held senior positions at the Company during the
Class Period; (b) each of these defendants, by virtue of his or her responsibilities and activities as
a senior officer and/or director of the Company was privy to and participated in the creation,
development and reporting of the Company's disclosures; (c) each of these defendants enjoyed
significant personal contact and familiaritywith the other defendants and was advised of and had
access to other members of the Company's management team and information about the
Company at all relevant times; and (d) each of these defendants was aware of the Company's
dissemination of information to the investing public which they knew or recklessly disregarded
was materially false and misleading.
71. The defendants had actual knowledge of the misrepresentations and
omissions of material facts set forth herein, or acted with reckless disregard for the truth in that
they failed to ascertain and to disclose such facts, even though such facts were available to them.
Defendants' material misrepresentations and/or omissions were made knowingly or recklessly
and for the purpose or causing or supporting the artificially inflated price of SHOO common
stock . Defendants , if they did not have actual knowledge of the misrepresentations and
omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining
from taking those steps necessary to discover whether those statements were false or misleading.
72. As a result of the dissemination of the materially false and misleading
information and failure to disclose material facts, as set forth above, the market price of SHOO
common stock was artificially inflated during the Class Period. In ignorance of the fact that
market price of SHOO common stock was artificially inflated, and relying directly or indirectly
26
on the false and misleading statements made by defendants, or upon the integrity of the market in
which the stock trades, and/or on the absence of material adverse information that was known to
or recklessly disregarded by defendants but not disclosed in public statements by defendants
during the Class Period, plaintiffs and the other members of the Class purchased SHOO common
stock during the Class Period at artificially high prices and were damaged thereby.
73. At the time of said misrepresentations and omissions, plaintiffs and other
members of the Class were ignorant of their falsity, and believed them to be true. Had plaintiffs
and the other members of the Class and the marketplace known the true facts, which were not
disclosed by defendants, plaintiffs and other members of the Class would not have purchased
SHOO common stock, or, if they had purchased such stock during the Class Period, they would
not have done so at the artificially inflated prices which they paid.
74. By virtue of the foregoing, defendants have violated Section 10(b) of the
Exchange Act and Rule I Ob-5 promulgated thereunder.
75. As a direct and proximate result of defendants' wrongful conduct,
plaintiffs and the other members of the Class suffered damages in connection with their
purchases of SHOO common stock during the Class Period.
SECOND CLAIM
(Against the Individual Defendants for Violations of Section 20(a))
76. Plaintiffs repeat and reallege each and every allegation contained above as
if fully set forth herein.
77. The Individual Defendants acted as controlling persons of SHOO within
the meaning of Section 20(a) of the Exchange Act. By virtue of their high-level positions and
27
stock ownership, the Individual Defendants had the power to influence and control and did
influence and control, directly or indirectly, the decision-making of the Company, including the
content and dissemination of the various statements which Plaintiffs contend are false and
misleading. The Individual Defendants, at the time they occupied their senior positions at the
Company, were provided with or had unlimited access to copies of the Company's reports, press
releases, public filings and other statements alleged by Plaintiffs to be misleading prior to and/or
shortly after these statements were issued and had the ability to prevent the issuance of the
statements or cause the statements to be corrected.
78. in particular, the individual Defendants, at the time they held their
positions at the Company, had direct and supervisory involvement in the day-to-day operations of
the Company and, therefore, are presumed to have had the power to control or influence the
particular transactions giving rise to the securities violations as alleged herein, and exercised the
same.
79. By virtue of their positions as controlling persons . of SHOO, the Individual
Defendants are liable , pursuant to Section 20 (a) of the Exchange Act, for SHOO's violations of
Section 10(b) of the Exchange Act and Rule I Ob-5 promulgated thereunder, as alleged in the
First Claim.
WHEREFORE, plaintiffs pray for judgment, as follows:
a. Determining that the instant action is a proper class action maintainable
under Rule 23 of the Federal Rules of Civil Procedure;
b. Awarding damages in favor of plaintiffs and the Class against all
defendants, in an amount to be proven at trial, including interest thereon;
28
c. Awarding plaintiffs and the Class their reasonable costs and expenses
incurred in this action, including counsel fees and expert fees; and
d. Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
Dated: New York, New YorkFebruary 26, 2001
Respectfully submitted,
MILBERG WEISS BERSHADHYNES & LERACH LLP
By:
Robert A. Wallner (RW-5109)One Pennsylvania PlazaNew York, NY 10119(212) 594-5300
STULL, STULL & BRODY
By: /<, )W AL IfiAl(dMark Levine (ML- 180)
6 East 45th StreetNew York, NY 10017(212) 687-7230
SCHIFFRIN & BARROWAY, LLP
By: r "'r- 4 , 0^4mVA IRA-r t/
Stuart L. Berman (SB-,918)Three Bala Plaza East, Suite 400Bala Cynwyd, PA 19004(610) 667-7706
Plaintiffs' Lead Counsel
29
ABBEY, GARDY & SQUITIERI, LLP212 East 39th StreetNew York, NY 10016(212) 889-3700
BERMAN, DEVALERIO & PEASE LLPOne Liberty SquareBoston, MA 02109(617) 542-8300
CAULEY & GELLEROne Boca Place2255 Glades RoadSuite 421ABoca Raton, FL 33431(561) 750-3000
COHEN, MILSTEIN, HAUSFELD& TOLL
1100 New York Avenue NorthwestWest Tower, Suite 500Washington, DC 20005(202) 408-4600
KAPLAN, KILSHEIMER & FOX LLP805 Third Ave., 22nd FloorNew York, NY 10022(212) 687-1980
LAX & NOLL535 Fifth Ave.New York, NY 10017(212) 818-9150
LAW OFFICE OF WALLACE A.SHOWMAN, P.C.1350 Avenue of the Americas, 29th FloorNew York, NY 10019(212) 333-2322
30
SPECTOR ROSEMAN & KODROFF, P.C.1818 Market Street, 25th FloorPhiladelphia, PA 19103(215)496-0300
WEISS & YOURMAN551 Fifth Avenue, Suite 1600New York, NY 10176(212) 682-3025
Other Plaintiffs' Counsel
F:\MADDEN\raw00494. wpd
31
Exhibit A }
Oct.25. 20 00 9:02AM RIS LEGAL SERVICES NY
EOC:MLA IF.# 1999RO2255
UNITED STATES DISTRICT COURTEASTERN DISTRICT0 NEW YORK
- - X
UNITED STATES OF ANERICA
- against'-
STEVEN MADDEN,
Def^ndant.
- - - - - - - - - - - - - - - X
THE GRAND JURY CHAGES:
j`i ,9UP.
2M eaenks oraic!
U.B. ^'^"""_ ED N.Yi.
PIMT7!ME A.M. _•
I N D I C T M E N T
Cr. No. (00 ' 661(T. 15, U.S.C.,SS '78i (b) and 78ff;T. 18, U.S.C.,§§ 371, 982, 1956(h),1956( a) (1) (B) (i),2 and 3551 et sea .)
At all tijrnes relevant to this Indictment, unless
otherwise.indicate
INTRODUCTION
1. The Defendant
1. The defendant STEVEN MADDEN was the Chairman,
Chief Executive Officer and President of Steven Madden, Ltd.
("Madden Ltd."), a corporation that designed, manufactured and
marketed fashion foitwear for women that was sold at department
and footwear speciaty stores, and through catalogues. Madden
Ltd. was incorporated as a New York, corporation in July 1990 and
reincorporated as aiDelaware corporation in November 1998.
MADDEN also control.ed BOCAP Corporation ("BOCAP") and 360
Central Corporationt both of which were Florida corporations that
were used by MADDEN for his personal investment purposes.
t
No-7190 POct-25. 2000 9:02AM . RIS LEGAL SERVICES NY
2. Unti approximately November 1994, MADDEN
conducted business ctivities at the principal executive office
of Madden Ltd., loc ted at 540 Broadway, New York, New York.
Thereafter, MaddenI1ltd. moved its principal executive office to
52-16 Barnett Avenue, Long Island City, New York, and MADDEN
engaged in his business activities at that location.
II.
A.
3. Untillapproximately December 1996, Stratton
3
Oakmont, Inc. ("Stratton Oakmont") was a broker-dealer registered
with the Securities a nd Exchange Commission ("SEC" ) and the
National Association f Securities Dealers ("NASD" ). Stratton
Oakmont' s principal p ace of business was located in Lake
Success, New York. S
Network, Inc. ("RMS")
individual (the "Stra
RMS, the parent compaij
a director and Chairm+
was a director and Pry
ratton was a wholly owned subsidiary of RMS
Jordan Belfort, Daniel Porush and a third
ton Oakmont Principal") owned 82 percent of
y of Stratton Oakmont. Jordan Belfort was
n of Stratton Oakmont, and Daniel Porush
?sident of Stratton Oakmont. Stratton
Oakmont employed traders who purchased and sold securities on
behalf of Stratton OakLont's own accounts. Stratton Oakmont also
employed brokers who piirchased and sold securities on behalf of
Stratton Oakmont's cli nts.
4. On Marco 17, 1994, Jordan Belfort was barred by
2
Oct-25. 2000 9:02AM RIS LEGAL SERVICES NY No.7190 P. 4
the SEC from any association with Stratton Oakmont, or any other
broker-dealer, inves ment company, investment advisor or
municipal securities dealer based on a finding that Belfort had,
through Stratton Oak ont , engaged in violations of the federal
securities laws and he rules and regulations of the SEC (this
disbarment is hereinafter referred to as the "SEC bar"). As a
result of the SEC ba , Belfort divested his ownership interest inI
RMS, and Daniel Poru Ih became the owner of 81.5 percent of RMS.
5. Strat on Oakmont underwrote initial public
offerings ("IPOs")'a d secondary offerings for the following
companies (the "Issuors"), among others:
Iss uer
Ropak Laboratories
Licon International, Inc.
Healthcare Imaging'Se vices, Inc.
Nutrition Management ervices Company
SMT Health Services, inc.
Aquanatural Company("Aquanatural" )
Computer Marketplace
Master Glazier' s Kara teInternational, Inc.-("Master Glazier's")
M.H. Meyerson & Compay, Inc.(" M. H . Meyerson")
3
Approximate Offering Date
May 1991
August 1991
November 1991
January 1992
March 1992
December 1992
June 1993
October 1993
January 1994
. ^1
1-0
Oct.25. 2000 9:03AM
Issuer
RIS LEGAL SERVICES NY
Octagon, Inc.("Octagon")
IDM Environmental Corp.
("IDM")
Childrobics, Inc.(" Childrobics" )
Select Media Commu ications, Inc.("Select Media")
The Solomon-Page Group, Ltd.
("Solomon-Page")
United Leisure Cori).("United Leisure")
Dualstar Technologies Corp.(" Dualstar")
Czech Industries, nc.
("Czech")
MVSI, Inc.("MVSI"
Paramount Financial(" Paramount")
n-Vision, Inc.
("n-Vision")
international Disp("International Di
6. Aft.
Stratton Oakmont a
securities, holdin
willing and able t
securities in so-c
Corp.
No.7190 P. 5
Approximate Offering Date
February 1994
April 1994
June 1994
August 1994
October 1994
November 1994
February 1995
June 1995
August 1995
January 1996
June 1996
nsing Corp. October 1996pensing")
er underwriting the Issuers' offerings,
:ted as a market maker in the Issuers'
3 itself out to the public as being ready,
D buy and sell shares of the Issuers'
alled aftermarket trading. Stratton Oakmont
4
Oct.25. 2000 9:03AM RIS LEGAL SERVICES NY No-7190 P. 6
also caused other br ker-dealers aggressively to buy and offer
for sale the Issuers' securities to their customers.
7. Strat on Oakmont held itself out as a legitimate
brokerage firm , alth ugh it in fact operated for the primary
purpose of earning m ney through fraudulent means including the
manipulation of the rice's of the Issuers ' securities.
B.
8. From approximately August 1994 through December
1997, Monroe Parker gecurities, Inc. ("Monroe Parker") was a
broker-dealer regist red with the NASD, with its principal place
of business in Purch se, New York. Among its other businesses,
Monroe Parker underwrote IPOs, was a "market maker" in various
securities, and offered a variety of brokerage services to
customers located throughout the United'States. Alan Lipsky was
the President of MonLoe Parker and Bryan Herman was the Vice
President of Monroe Flarker.
9. Monro€ Parker held itself out as a legitimate
brokerage firm, although it in fact operated for the. primary
purpose of earning money through fraudulent means including the
manipulation of the drices of the securities that it underwrote.
10. Jordan Belfort and Daniel Porush entered into a
secret, unlawful agreement with Alan Lipsky and Bryan Herman
concerning the formation, operation, and control of Monroe
Parker. As part of this illegal agreement, Belfort and Porush
Oct..25. 2000 9:03AM RIS LEGAL SERVICES NY No.7190 P. 7
assisted and particip ted in Monroe Parker's fraudulent
activities by, among ther things, (i) providing them capital for
Monroe Parker; (ii) d termining the terms and conditions of
Monroe Parker's IPOs; and (iii) having the right secretly-to
share in the net prof'ts of Monroe Parker. Belfort, Porush,
Lipsky and Herman further agreed that Belfort's and Porush's
association with, and control over, Monroe Parker would remain
secret and concealed rom the SEC, the NASD, and the public.
III. MADDEN's Partici ation in the Corrupt
A.
1. MADDEN ' s tions h's Nomink&
11. Beginni ng in approximately 1990, the defendant
STEVEN MADDEN, together with Jordan Belfort, Daniel Porush and
others, entered into secret, unlawful agreement whereby STEVEN
MADDEN agreed to purc ase and sell certain'of the Issuers'
securities as a nomin a for Daniel Porush. Pursuant to this
agreement, Belfort an Porush controlled the power to dispose of
and to direct the dis osition of the Issuers' securities that
were held in MADDEN's name. At the same time, Porush's
beneficial interest i these transactions was concealed from the
SEC, the NASD and the public.
12. In furi'herance of this unlawful agreement, the
defendant STEVEN MADD N opened a brokerage account at Stratton
Oakmont (hereinafter eferred to as the "Madden Account") through
6
Oct..25. 2000 9:03AM RIS LEGAL SERVICES NY
which he could purch
MADDEN , together wit,
thereafter caused th,
Porush , to purchase
securities immediate:
offerings.
No.7190 P. 8
se and sell the Issuers' securities. STEVEN
Jordan Belfort, Daniel Porush and others,
Madden Account, as a nominee for Daniel
ignificant blocks of'certain of the''Issuers'
y after the effective dates of the
13. Following the purchases of the securities, STEVEN
MADDEN, together with Jordan Belfort, Daniel Porush and others,k
caused the Madden Account to sell the Issuers' securities at
prices artificially inflated as a result of Stratton Oakmont's
fraudulent manipulate n of the market. As a result of the
foregoing sales, the
dollars in illicit.pr
14. As par
STEVEN MADDEN was req
illicit profits. MAD
including monetary pa;
illicit profits to pu,
Madden Account amassed over a million
ofits.
t of the fraudulent scheme, the defendant
aired to pay Daniel Porush a portion of his
DEN paid Porush through various means,
jments and permitting Porush to use the
:chase nearly valueless securities from
Stratton Oakmont in o der to assist Stratton Oakmont in its
manipulation of the m rket.
15. It, was further a part of the fraudulent scheme
that the defendant ST VEN MADDEN, together with others, caused
Stratton Oakmont and thers to make materially false and
fraudulent misreprese tations and omissions about, among other
7
Oct..25. 2000 9:04AM RIS LEGAL SERVICES NY No.1190 P. 9
things, Daniel Porush ' s beneficial ownership of the Issuers'
securities purchased and sold through the Madden Account.
2.
16. In addition to the transactions in the Madden
Account that were secretly conducted for the direct benefit of
Daniel Porush, the defendant STEVEN MADDEN, together with Jordan
Belfort, Daniel Porush and others agreed to conduct secretly
prearranged transactions in which the Madden Account would
purchase significant blocks of certain of the Issuers' securities
immediately after th effective dates of the offerings.and sell
these securities to Stratton Oakmont shortly after trading in the
aftermarket commence , at prices substantially below the price
for the securities ttat Stratton Oakmont expected to establish in
the aftermarket. Th
Oakmont were typical
the price paid by th
17. The d
Daniel Porush and of
knowledge and expect
Issuers' securities
Oakmont in its domin
sales from the Madden Account to Stratton
y at prices from 50 cents to one dollar over
Madden Account for each IFO share.
fendant STEVEN MADDEN, Jordan Belfort,
ers engaged in these transactions with the
tion that the Madden Account's resale of the
o Stratton Oakmont would assist Stratton
tion, control and manipulation of the
aftermarket trading inn those securities.
18. It wa a part of the fraudulent scheme that the
defendant STEVEN MAD EN, together with others, caused Stratton
8
0.0-25..2000 9:04AM RIS LEGAL SERVICES NY No .1190 P. 10
Oakmont and others to make mater ially false and fraudulent
misrepresentations nd omissions about, among other things, the
foregoing prearra:ngtd trades conducted through the Madden
Account.
3. MADDN's Participation In I
19. In o. der to assist Jordan Belfort in thwarting the
SEC bar, the defend
unlawful agreement
which STEVEN MADDEN
Issuers underwritte
Belfort so that Jori
profits from the sa:
Oakmont in a manner
nt STEVEN MADDEN entered into a secret and
ith Jordan Belfort and Daniel Porush'under
agreed to make bridge loans to certain
by Stratton Oakmont as a nominee for Jordan
an Belfort could derive substantial illicit
e of securities underwritten by Stratton
concealed from the SEC, the NASD and the
public. The Issuer included Childrobics, Solomon-Page,
Paramount, n-Vision and International Dispensing.
20. Unde the terms of each of these bridge loans,
MADDEN was given the opportunity to receive additional securities
of the Issuer in exchange for his provision of a short-term loan
that was to be repaid by the Issuer with interest from the
proceeds of the off ring. MADDEN received the bridge loan
securities under a o-called "lock-up" agreement, pursuant to
which MADDEN and others represented to the investing public that
MADDEN and the other bridge lenders would not sell the securities
received as part of the bridge loan for a substantial period of
I ' t9
Oct.25.. 2000 9:04AM RIS LEGAL SERVICES NY No.7190 P. II
/time'ime following the of ective date of the offering , unless they
first obtained the cotsent of Stratton Oakmont.
21. In fac , however, prior to each offering MADDEN
knew and agreed that S tratton Oakmont would release MADDEN and
the other bridge lend rs from the terms of the lock- up agreement
within days , if not. h o urs, after each offering was completed, so
long as the bridge le ders agreed to sell their securities to
Stratton Oakmont at p r ices substantially lower than the
prevailing market pri d e.
22. As par of the fraudulent scheme, MADDEN was
required to repay Jordan Belfort a portion of the illicit
proceeds of the fraud lent scheme . MADDEN repaid Belfort through
various means, includi ng monetary payments.
23. It was further a part of the fraudulent scheme
that the defendant ST E VEN MADDEN , together with others , caused
Stratton Oakmont and thers to make materially false and
fraudulent misreprese n tations and omissions about, among other
things, . the prearrange ents relating to the sham lock-up
agreements and Jordan Belfort's beneficial ownership of the
bridge loan Issuers' securities held in MADDEN 's name.
B.
24. In order further to assist Jordan Belfort in
thwarting the SEC bar, the defendant STEVEN MADDEN entered into a
secret and unlawful agreement with Jordan Belfort under which
10
Oct-25. 2000 9:04AV R(S LEGAL SERVICES NY No.7190 P. 12
STEVEN MADDEN agreed o purchase certain securities underwritten
by Monroe Parker (the-Monroe Parker Securities").
25. It was further a part of the defendant STEVEN
MADDEN's secret and u lawful agreement with Jordan Belfort that
MADDEN agreed to pure ase and sell certain of the Monroe Parker
Securities as a nominee for Jordan Belfort. Pursuant to this
agreement, the princi als of Monroe Parker permitted the
defendant STEVEN MAD EN to purchase certain securities issued as
part of certain of t,e initial public offerings and sell them at
prices artificially inflated as a result of Monroe Parker's
fraudulent manipulation of the prices of the Monroe Parker
Securities. At the dame time, Belfort's beneficial interest in
these transactions w4s concealed from the SEC, the NASD and the
public.
26. As pa#t of the fraudulent scheme, the defendant
STEVEN MADDEN was re uired to pay Jordan Belfort a portion of his
illicit profits. MA DEN paid Belfort through various means,
including monetary p4yments.
27. It wa$ further a part of the fraudulent scheme
that the defendant SEVEN MADDEN, together with others, caused
Monroe Parker and of ers to make materially false and fraudulent
misrepresentations a d omissions about, among other things,
Jordan Belfort's ben ficial ownership of certain of the Monroe
Parker Securities pu chased and sold through the accounts
11
Oct•.25. 2030 9:05AM RIS LEGAL SERVICES NY No.7190 P. 13
controlled by STEVEN MADDEN.
C. MADD N' D s wised Pa m n elfort
28. As set forth in paragraphs 19 through 27, above,
the defendant STEVEN MADDEN made payments to Jordan Belfoxt for
Belfort's portion of he illicit
MADDEN as a result of his partic
Monroe Parker's fraud. In order
nature of these payments, STEVEN
through checks that'p rported to
made by Jordan Belfor to STEVEN
no such loans.
profits received by STEVEN
ipation in Stratton Oakmont's and
to conceal and disguise the
MADDEN paid Jordan Belfort
constitute repayments of-loans
MADDEN, when in fact there were
29. In furtherance of the defendant STEVEN MADDEN's
efforts to provide disguised payments to Jordan Belfort, on or
about May 28, 1996, STEVEN MADDEN provided to Jordan Belfort a
check in the amount of $300,000 payable to Jordan Belfort's then-
wife with a notation that it constituted "repayment of loan."
IV. THE FRAUDULENT ,MADDEN LTD. OFFERING
A.
30. Beginni g in approximately 1991, the defendant
STEVEN MADDEN, together with Jordan Belfort, Daniel Porush, the
Stratton Oakmont Princ'pal and others, devised, implemented and
oversaw a fraudulent s heme by which Stratton Oakmont agreed to
underwrite an IPO of M dden Ltd. securities and manipulate the
trading prices of thos securities. An object of the fraudulent
12
Oct-,25,. 2000 9:05A1 RIS LEGAL SERVICES NY No .7190 P. 14
scheme was to permit Stratton Oakmont to dominate, control and
manipulate the marke in Madden Ltd. securities so as to
artificially inflate the prices for Madden Ltd. securities and
thereby ensure substantial illicit profits for the defendant
STEVEN MADDEN, Jorda Belfort, Daniel Porush, the Stratton
Oakmont Principal and others.
31. In furtherance of the fraudulent scheme, on or
about June 12, 1992, Madden Ltd. issued to Madden Acquisition
Network Group, Inc. ("MAGNET"), a shell corporation controlled by
Jordan Belfort, Dan
for consideration o
bearing interest at
"Convertible Debent-
Debenture, the debt
date was extended' t,
the public offering
the public offering
Debenture would be i
common stock. The
Belfort, Porush and
more than half of tt
el Porush and the Stratton Oakmont Principal,
$100,000, a $100,000 convertible debenture
a rate of eight percent per annum (the
re"). Under the terms of the Convertible
was originally due on July 15, 1993. This
December 15, 1993, the anticipated date of
In furtherance of the fraudulent scheme,
was structured so that the Convertible
onverted into 2,040,000 shares in Madden Ltd.
oregoing conversion would have resulted in
the Stratton Oakmont Principal controlling
e outstanding common stock of Madden Ltd.
32. In 14te 1993, Madden Ltd. and Stratton Oakmont
sought approval of i he NASD and the SEC so that it could
underwrite the Maddhn Ltd. IPO. After reviewing the terms of the
13
Oct-.25.. 20 0 0 9:05AM
/ roposed stock iss
RIS LEGAL SERVICES NY No.7190 P. 15
e, the NASD refused to approve the IPO if
Jordan Belfort, Daniell Porush and the Stratton Oakmont Principal
were permitted to recieive 2,040,000 shares in Madden Ltd. common
stock under the Convertible Debenture. Instead, the NASD
conditioned its approval of the Madden Ltd. IPO on Belfort's,
Porush's and the Strattton Oakmont Principal's agreement to reduce
their individual equity ownership interests in Madden Ltd. to no
greater than 4.9 percent of the outstanding common stock.
33. In order to satisfy the terms of the NASD `
condition, the defen
Porush, the Stratton
secret agreement whe
originally intended
Porush and the Strati
he controlled, BOCAP,
the Stratton Oakmont
agreement , MADDEN ag:
made to the NASD -- f
Principal would reta:
ant STEVEN MADDEN, Jordan Belfort, Daniel
Oakmont Principal and others entered into a
eby STEVEN MADDEN agreed to hold the shares
o be allocated to Jordan Belfort, Daniel
on Oakmont Principal in a corporation that
as a secret nominee for Belfort, Porush and
Principal. Pursuant to this secret
eed that -- contrary to the representations
elfort, Porush and the Stratton Oakmont
rn the power to dispose of and to direct the
disposition of the M dden Ltd. securities held by BOCAP and that
when the securities ere sold, MADDEN would pay Belfort, Porush
and the Stratton Oakmont Principal the proceeds of the sale.
34. In.fu therance of this secret agreement, on or
about December 2,.19 3, the date on which the Convertible
I 14
Oc.t.:25. 2000 9:05AM RIS LEGAL SERVICES NY No.7190 P. 16
Debenture was converte into 2,040,000 shares in Madden Ltd.
common stock, Jordan B
Oakmont Principal ente
with BOCAP pursuant 'to
1,284,816 shares of Ma
and the Stratton Oakmo;
the NASD regulators, B,
lfort, Daniel Porush and the Stratton
ed into a sham stock purchase agreement
which BOCAP purportedly purchased ..
den Ltd. common stock from Belfort, Porush
it Principal. In order to further deceive
CAP delivered to Belfort, Porush and the
Stratton Oakmont Princ pal a sham promissory note pursuant to
which BOCAP agreed to ay the principal amounts of $3,237,737,
$1,387,601 and $513,92 to Belfort, Porush and the Stratton
Oakmont Principal, respectively, bearing interest at the rate of
four percent per annum on December 2, 1995. Moreover, the
defendant STEVEN MADDEN , together with others, caused Stratton
Oakmont and others to ake materially false and fraudulent
misrepresentations and omissions in public filings about, among
other things, the beneficial ownership of the Madden Ltd.
securities alleged to ave been controlled by BOCAP under the
NASD mandate.
35. It was further a part of the fraudulent scheme
that at the time of .th§ public offering , 1,097,304 shares of
Madden Ltd. common sto:k owned by individuals identified in
public filings as "Sel ing.Securityholders" were registered.
According to the public filings, the Selling Securityholders, who
included the defendantISTEVEN MADDEN, agreed to refrain from
15
Qct.2,5. 2000 9:06AM RIS LEGAL SERVICES NY No.7190 P. 17
Xselling the Madden L
effective date of th
of Stratton Oakmont.
other Selling Securi
Oakmont would release
Securityholders from
days, if not hours,
Pursuant to this unli
sold 187 , 264 Madden 7
d. shares until 13 months after the
IPO, unless they first obtained the consent
In fact , however , STEVEN MADDEN and the
yholders knew and intended that Stratton
MADDEN and the other Selling
the terms of the lock - up agreement within
fter the Madden Ltd. IPO was completed.
wful, undisclosed agreement , STEVEN MADDEN
td. shares on or about December 20, 1993,
less than one month fter the effective date of the IPO, and
received $674,120.40.
B.
36. In furtherance of the scheme to conceal the true
ownership of the Mad en Ltd. securities held by BOCAP, on or
about August 2, 1995, the defendant STEVEN MADDEN entered into
two separate "amended and restated non-recourse" promissory notes
with Jordan Belfort: (i) a sham amended promissory note that was
disclosed to the SEC, the NASD and the public; and (ii) a secret
and unlawful amended romissory note, which was concealed from
the SEC, the NASD ands the public.
37. The shim " amended and restated non-recourse
promissory note" (hereinafter referred to as the "Sham Amended
Promissory Note") provided that BOCAP agreed to pay the principal
amount of $3,494,700, bearing interest at the rate of ten percent
16
Oct-25. 2000 9:06AM RIS LEGAL SERVICES NY No.7190 P. 18
per annum , on Decembe 2, 1996. The secret "amended and restated
non-recourse promissoLy note" ( hereinafter referred to as the
"Secret Amended Promissory Note") provided, among other things,
that BOCAP agreed to ay an aggregate principal amount equal to
$3,494,700 multiplied by a fraction, the numerator of which was
the average closing bd price of the stock on specified days and
the denominator of which was $4, plus interest at the rate of ten
percent per annum. T e terms of the Secret Amended Promissory
Note reflected the fa t that Jordan Belfort continued to hold a
beneficial interest i the Madden Ltd. shares allegedly sold to
BOCAP and therefore'w s entitled to payment from BCCAP based upon
the market value of the Madden Ltd. stock and not a set sum of
money as would haveb en the case if BOCAP had purchased the
shares from Belfortat the time of the IPO. The Secret Amended
Promissory Note was executed so that Jordan Belfort would have a
document that he could rely upon in the event that STEVEN MADDEN
died or otherwise failed to allow Belfort to control BOCAP's
Madden Ltd. securities. The terms of the Secret Amended
Promissory Note were oncealed from the SEC, the NASD and the
public.
38. On or about August 2, 1995, the defendant STEVEN
MADDEN and Jordan Belort entered into a.security and escrow
agreement pursuant to which a co-conspirator (hereinafter
referred to as the "Escrow Agent") held in escrow the Madden Ltd.
17
Ocf.25.. 2000 9:06AM RIS LEGAL SERVICES NY No-7190 P. 19rshares allegedly sold to SOCAP under the December 2, 1993 stock
purchase agreement. $t was a part of the fraudulent scheme that
the Escrow Agent agreod to hold the Madden Ltd. shares in order
to ensure Jordan Belf rt's control over the shares in the event
that STEVEN MADDEN di d or otherwise failed to allow Belfort to
control BOCAP's Madder Ltd. securities.
C. MADDEN'
39. In or bout December 1996, STEVEN MADDEN and
Jordan Belfort agreed that MADDEN would pay Jordan Selfort!the
sum of $388,000 for B lfort's portion of the illicit proceeds
held by MADDEN as a result of his participation as Belfort's
nominee in _fraudulentl transactions at Stratton Oakmont and Monroe
Parker, as set forth lin paragraphs 19 through 27, above. In
addition, STEVEN MADEEN and Jordan Belfort agreed that the nature
and purpose of this'0,388,000 payment would be disguised and
concealed by MADDEN':
$388,000 payment was
Promissory Note.
and Belfort 's representing that the
payment of interest on the Sham Amended
40. On or about January 23, 1997, the defendant STEVEN
MADDEN gave Jordan-B lfort a check in the amount of $388,000
dated December 30, 1 96. To-conceal the nature and purpose of
the $388,000 payment,1 STEVEN MADDEN sent to Jordan Belfort a sham
"amended and restate non-recourse promissory note" pursuant to
which the term of th Sham Amended Promissory Note was extended
18
1
Oct'.25.. 2000 9:06AM RIS LEGAL SERVICES NY No.7190 P. 20
i^ so that BOCAP was req ired to pay the principal amount of
$3,237,737, bearing i terest at the rate of nine percent per i1
annum, on December 2, 1999.
41. In or bout February -1997, Jordan Belfort demanded
that the defendant ST WEN MADDEN sell all of the Madden Ltd.
shares held by BOCAP and provide Belfort with the proceeds of
those sales. MADDEN refused to abide by Belfort's request.
42. Therea ter, Jordan-Belfort demanded that the
Escrow Agent sell the Madden Ltd. shares, contending that'BOCAP
was in default under he terms'of the Secret Amended Promissory
Note. The defendant ;TEVEN MADDEN sought to preclude the Escrow
Agent from selling th Madden Ltd. shares.
43. On or bout April 3, 1997, Jordan Belfort filed a
complaint in the Supr
County, bringing suit
Madden Ltd. and the E
damages and the sale
the basis that BOCAP
Amended Promissory:No-
dismissed the complai
filed a similar compl
New York, Nassau Coun
Case") .
bme Court of the State of New York, New York
against BOCAP, the defendant STEVEN MADDEN,
scrow Agent seeking, among other things,
of the Madden Ltd. shares held by BOCAP
was in default under the terms of the Secret
tee. Soon thereafter, Belfort voluntarily
-it, and on or about June 4, 1997, Belfort
tint in the Supreme Court of the State
ty (hereinafter referred to as the ""Belfort
44. On February 5, 1998, the parties settled the
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Oct:25.. 2000 9:07AM RIS LEGAL SERVICES NY No-7190 P. 21
/Belfort Case . Under this settlement , the defendant STEVEN MADDEN
provided to Jordan B lfort a total of $4.1 million and agreed to
engage in his best. e; forts to facilitate the registration of
certain underwriters) warrants held by Jordan Belfort as•.a result
of Stratton Oakmont'4 underwriting of the IPO of Madden Ltd., and
Belfort agreed to a ^oluntary dismissal of the Belfort Case.
COUNT ONE
(Conspiracy To Co it Securities Fraud At Stratton Oakmont)
45. The . a. legations contained in paragraphs'1 through
7, 11 through 23 and 28, 29 , 39 and 40 are realleged and
incorporated as if:f'ily set forth herein.
46. In orlabout and between 1990 and November 1996,
both dates being app oximate and inclusive, within the Eastern
District of New York and elsewhere, the defendant STEVEN MADDEN,
together with Jordan
knowingly and willfu
and employ manipulat
contravention of Rul
United States Securi
of Federal Regulatio
defendant, together
Belfort, Daniel Porush and others, did
ly conspire directly and indirectly, to use
ve and deceptive devices and contrivances in
10b-5 of the Rules and Regulations of the
ties and Exchange Commission (Title 17, Code
,s, Section 240.10b-5), in that the
ith others, did knowingly and willfully
conspire directly an indirectly, to (a) employ devices, schemes
and artifices to def aud; (b) make untrue statements of material
facts and omit to stite material facts necessary in order to make
the statements made,lin light of the circumstances under which
Oct.25 2000 9:07AM RIS LEGAL SERVICES NY No.7190 P. 22
they were made, not isleading; and (c) engage in acts, practices
and courses of busi ess which would and did operate as a fraud
and deceit upon members of the investing public, in connection
with purchases and sales of the Issuers' securities and by use of
instruments of communication in interstate commerce and the
mails, in violation of Title 15,-United States Code, Sections
78j (b) and 78ff.
47. In furtherance of the conspiracy and to effect the
objectives thereof, within the Eastern District of New York and
elsewhere, the defendant STEVEN MADDEN, together with others, did
commit and cause to a committed the following overt acts, among
others:
OVERT ACTS
a. On.or
MADDEN caused the-Ma
Computer Marketplace
b. On or
MADDEN caused the Ma
Computer Marketplace
c. On or
MADDEN caused the Ma
Aquanatural at the p
about June 29, 1995, the defendant STEVEN
iden Account to purchase 30,000 shares of
at the price of $4 per share.
about June 29, 1993, the defendant STEVEN
den Account to sell 30,000 shares of
at'the price of $12.25 per share.
about August 23, 1993, the defendant STEVEN
Iden Account to purchase 100,000 shares of
rice of $3 per share.
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Oct'•2.5, 2000 9:07AM RIS LEGAL SERVICES NY No.7190 P. 23
d. On o about September 9, 1993, the defendant
STEVEN MADDEN cause the Madden Account to sell 100, 000 shares of
Aquanatural at the rice of"$6.50 per share.
e. On o about October 25, 1993, the defendant STEVEN
MADDEN caused the.M dden Account to purchase 70,000 shares of
Master Glazier's at the price of $4 per share.
f. On o about October 25, 1993, the defendant STEVEN
MADDEN caused the Madden Account to sell 70,000 shares of Master
Glazier's at the price of $8.375 per share.
g. On-orabout January 26, 1994, the defendant STEVEN
MADDEN caused the Madden Account to purchase 80,000 shares of
M.H. Myerson at the rice of $4 per share.
h. On;or about January 26, 1994, the defendant STEVEN
MADDEN cau'sed the Ma dden Account to sell 80 , 000 shares of M.H.
Meyerson at the pric e of•;$ 4'. 50-per share°.
i. On'or about February 24, 1994, the defendant
STEVEN MADDEN caused the Madden Account to purchase 20,000 shares
of Octagon at the.pr ' ce of $7 per share.
j. On,or about February 24, 1994, the defendant
STEVEN MADDEN caused the Madden Account to sell 20,000 shares of
Octagon at the price of $8.50 per share.
1334, the defendant STEVEN
MADDEN caused the Ma den Account to purchase 60,000 shares of IDM
at the price of $4 p r share.
22
aL
4
Oct•25. 2000 9:07AM RIS LEGAL SERVICES NY No.7190 P. 24
1. On or about April 28 , 1994, the defendant STEVEN
MADDEN caused the Ma den Account to sell 60,000 shares of IDM at
the price of $5 per hare.
M. On or about June 22, 1994,•the defendant••STEVEN
MADDEN caused the Ma den Account to purchase 40,000 shares of
Childrobics at the p ice of $4 per share.
n. On orlabout June 22, 1994, the defendant STEVEN
MADDEN caused the Madden Account to sell 40,000 shares of
Childrobics at the price of $5 per share.
o. In or about April 1994, the defendant STEVEN
MADDEN participated n a bridge financing of Solomon-Page and
caused his account t receive 21,875 units, consisting of stock
and warrants in that company.
p. On or about October 27, 1994, the defendant STEVEN
MADDEN caused the:Maoden Account to purchase 40,000 shares of
Solomon-Page at the price of $4 per share.
q. On or about October 27, 1994, the defendant STEVEN
MADDEN caused the Madden Account to sell 40,000 shares of
Solomon-Page at the rice of $6.375 per share.
r. On or about October 28, 1994, the defendant STEVEN
MADDEN caused the Ma den Account to sell 21,875 units of Solomon-
Page at the price of $2 per share.
s. On or about November 18, 1994, the defendant
STEVEN MADDEN caused the Madden Account to purchase 55,800 shares
23
Oct.25- 2000 9:08AM RES LEGAL SERVICES NY No.7190 P. 25
of United Leisure at
t. On or
STEVEN MADDEN caused
United Leisure at th,
U. On or
MADDEN caused the Mai
Czech at the price o;
v. On or
MADDEN caused the Mac
the price of $3.50 per share.
about November 18, 1994, the defendant
the Madden Account to sell 55,900 shares of
price of $3.875 per,share.
about June 16, 1995, the defendant STEVEN
den Account to purchase 40,000 shares of
$7 per share.
about June 16, 1995, the defendant STEVEN
den Account to sell 40,000 shares of'Czech
at the price of $12 :er share.
w. In or
the defendant STEVEN
Paramount and caused
about and between July 1995 and August 1995,
MADDEN participated in a bridge financing of
his account to receive 131,250 units,
consisting of stock 4nd warrants in that company.
X. On or about January 26, 1996, the defendant STEVEN
MADDEN caused the Maiden Account to sell 131,250 units of
Paramount at the price of $1.25 per share.
Y. In or about March 1996, the defendant STEVEN
MADDEN participated in a bridge financing of n-Vision and caused
his account to recei a 247,500 shares in that company.
Z. On orlabout May 31, 1996, the defendant STEVEN
MADDEN caused the Madden Account to sell 247,500 shares of
n-Vision at the prico of $2 per share.
aa. In or about and between October 1995 and April
.I
24
• .' Oct-25. 2000 9:08A'd RIS LEGAL SERVICES NY No-7190
1996 , the defendant S EVEN MADDEN participated in a bridge
financing of Internat i onal Dispensing and caused his account to
receive 75,000 units , consisting of stock and warrants in that
company.
bb. On or ,
P. 26
about October 28, 1996, the defendant STEVEN
MADDEN caused the Madden Account to sell 75,000 units of
International Dispen ing at the price of $9.50 per share.
(Title 18, lUnited States Code, Sections 311 and 3551 ,gt
sect .)
COUNT TWO(Securitie Fraud: Paramount Bridge Financing)
48. The 4legations contained in paragraphs 1 through
7, 11 through 23 and 28, 29, 39 and 40 are realleged and
incorporated as if f lly set forth herein.
49. In : o about and between July 1995 and January 26,
1996 , both dates being approximate and inclusive , within the
Eastern District of INew York and elsewhere , the defendant STEVEN
MADDEN , together witjh Jordan Belfort, Danie l Porush and others,
did knowingly and w illfully use and employ manipulative and
deceptive devices aid contrivances in violation of Rule lOb-5 of
the Rules and Regul tions of the SEC (Title 17, Code of Federal
Regulations , Sectio 240.10b-5 ), in that the defendant and others
did (a ) employ devi es , schemes and artifices to defraud; (b)
make untrue statemehts of material facts and omit to state
material facts necessary in order to make the statements made, in
25
Oct.25. 2000 9:08AM RIS LEGAL SERVICES NY No-7190 P. 27
i^ light of the circums antes under which they were made, not
misleading; and (c ) ngage in acts , practices and courses of
business which would and did operate as a fraud and deceit upon
members of the . inves ing public, in connection with his
participation i n a b idge financing of Paramount and the receipt
and sale of Paramours units, and by use of means and
instrumentalities of interstate commerce and the mails.
(Title 15, United States Code , Sections 78j(b) and
78ff; Title 18, Unit ad States Code, Sections 2 and 3551 gt sea .)
COUNT THREE(Securitie s Fraud: n-Vision Bridge Financing)
50. The a l legations contained in paragraphs 1 through
7, 11 through 23 and 28, 29 , 39 and 40 are realleged and
incorporated as if f lly set forth herein.
51. In . o about and between March 1996 . and May 31,
1996, both dates being approximate and inclusive , within the
Eastern District of New York and elsewhere , the defendant STEVEN
MADDEN, together wi
did knowingly and w
deceptive devices.a
the Rules and Regul
Regulations, Sectio;
did (a) employ devi,
make untrue statetne;
material facts nece
h Jordan Belfort , Daniel Porush and others,
llfully use and employ manipulative and
d contrivances in violation of Rule 10b-5 of
tions of the SEC ( Title 17, Code of Federal
240.10b-5 ), in that the defendant and others
es, schemes and artifices to defraud; (b)
,ts of material facts and omit to state
sary in order to make the statements made, in
26
. 00.25. 2000 9:08A'A RIS LEGAL SERVICES NY No•]I90 P- 28
light of the circumsta ices under which they were made, not
misleading; and (c) en age in acts, practices and courses of
business which would and did operate as a fraud and deceit upon
members of the investing public, in connection with his
participation in a bridge financing of n-Vision and the receipt
and sale of n-Vision ecurities, and by use of means and
instrumentalities of interstate commerce and the mails.
(Title 15, nited States Code, Sections 78j(b) and
78ff; Title 18, Unite States Code, Sections 2 and 3551 gt. sea .)
COUNT FQUR(Securities Fraud: nternational Dispensing Bridge Financing)
52. The al egations contained in paragraphs 1 through
7, 11 through 23 and 8, 29, 39 and 40 are realleged and
incorporated as if fully set forth herein.
53. In or bout and between October 1995 and October
28, 1996, both dates eing approximate and inclusive, within the
Eastern District of N1w York and elsewhere, the defendant STEVEN
MADDEN, together with
did knowingly and wil
deceptive devices and
the Rules and Regulat
Regulations, Section
did (a) employ device
make untrue statement
Jordan Belfort, Daniel Porush and others,
fully use and employ manipulative and
contrivances in violation of Rule 10b-5 of
ions of the SEC (Title 17, Code of Federal
240.10b-5), in that the defendant and others
s, schemes and artifices to defraud; (b)
s of material facts and omit to state
material facts necesslary in order to make the statements made, in
27
Oct. 2.5. 2000 9:09AM RIS LEGAL SERVICES NY No.7190 P. 29
light of the circum s tances under which they were made, not
misleading ; and (c ) engage in acts, practices and courses of
business which woul and did operate as a fraud and deceit upon
members of the investing public, in connection with his
participation in a ridge financing of International Dispensing
and the receipt an sale of International Dispensing units, and
by use of means andl instrumentalities of interstate commerce and
the mails.
(Title 15, United States Code, Sections 78j(b)s and
78ff; Title 18, United States Code, Sections 2 and 3551 et §ea .)
COUNT FIVE
(Conspiracy To Commit Securities Fraud -- Madden Ltd. IPO)
54. The allegations contained in paragraphs 1 through
7 and 30 through 44 are realleged and incorporated as if fully
set forth herein.
55. In ,
both dates being a]
District of New Yo
together with Jord
Principal and othe
directly and indiri
deceptive devices ;
of the Rules and R,
r about and between 1991 and February 5, 1998,
proximate and inclusive, within the Eastern
k and elsewhere, the defendant STEVEN MADDEN,
n Selfort, Daniel Porush, the Stratton Oakmont
s, did knowingly and willfully conspire
ctly, to use and employ manipulative and
nd contrivances in contravention of Rule lOb-5
gulations of the United States Securities and
Exchange Commissioh (Title 17, Code of Federal Regulations,
Section 240 .10b-5),. in that the defendant , together with others,
29
1
Oct.25. 2000 9:09AV RIS LEGAL SERVICES NY No.7190 P. 30
did knowingly and wil
(a) employ devices, s
untrue statements of
facts necessary in or
the circumstances and
(c) engage in acts, - p
and did operate as a
investing public, in
securities issued by
communication in inter
of Title 15, United S,
56. In fur'
objectives thereof, w
elsewhere, the defend
commit and cause to b
others:
llfully conspire directly and indirectly, to
^hemes and artifices to defraud; (b) make
aterial facts and omit to state material
er to make the statements made, in light of
r which they were made, not misleading; and
actices and courses of business which would
raud and deceit upon members of the
onnection with purchases and sales of
adden Ltd. and by use of instruments of
state commerce and the mails, in violation
hates Code, Sections 76j(b) and 7Bff.
herance of the conspiracy and to effect the
thin the Eastern District of New York and
nt STEVEN MADDEN, together with others, did
committed the following'vvert acts, among
OVERT ACTS
a. On or bout December 2, 1993, the defendant STEVEN
MADDEN executed a doc ment captioned "Stock Purchase Agreement"
on behalf of BOCAP.
b. On or about December 2, 1993, the defendant STEVEN
MADDEN executed a do ument captioned "Non-Recourse Promissory
Note" on behalf of B CAP.
C. On or about August 2, 1995, the defendant STEVEN
29
Qct,.25. 2000 9:09AM RIS LEGAL SERVICES NY No-7190 P. 31
MADDEN executed th Sham Amended Promissory Note on behalf of
BOCAP.
d. On or about August 2, 1995, the defendant STEVEN
MADDEN executed th Secret Amended Promissory Note on behalf of
BOCAP.
e. On or about August 2, 1995, the defendant STEVEN
MADDEN executed a document captioned "Security and Escrow
Agreement" on behalf of BOCAP.
f. In r about January 1997, the defendant STEVEN
MADDEN executed a check dated December 31, 1996 drawn on the
account of BOCAP at First Union Bank in the amount of $388,000
payable to Jordan Belfort.
g. In o about January 1997, the defendant STEVEN
MADDEN executed a document captioned as a promissory note
"Amended and Restated as of December 2, 1996."
h_ On or about October 17, 1997, the defendant STEVEN
MADDEN. executed and caused to be filed a perjurious affidavit in
the Belfort Case.
i. On o about February 3, 1998, the defendant STEVEN
MADDEN obtained from Capital Factors Northeast a Union Planters
Bank check in-the amount of $2.5 million payable to Jordan
Belfort.
I
30
Oct.25.. 2000 9:09A.'A RIS LEGAL SERVICES NY No-7190 P. 32
j. On or bout February 5, 1998, the defendant STEVEN
MADDEN executed a the k.drawn at his account at•Atlantic Bank in
the amount of $1.6 mi lion payable to Jordan Belfort.
(Title 18, nited States Code, Sections 371 and 3551 .
sea.
COUNT SIX(Money Laundering Conspiracy)
57. The allegations contained in paragraphs 1 through
44 are realleged and incorporated as if fully set forth herein.
58. In or out and between 1990 and February 5, 1998,
both dates being approximate and inclusive, within the Eastern
District of New York and elsewhere, the defendant STEVEN MADDEN,
together with Jordan Belfort, Daniel Porush and others, knowing
that the property iniolved in financial transactions represented
the proceeds of some
intentionally conspi
affecting interstate
fact involved the pr
wit: securities fraui
of certain of the Is,
form of unlawful activity, did knowingly and
e to conduct such financial transactions
and foreign commerce, which transactions in
ceeds of a specified unlawful activity, to
in connection with the purchases and sales
uers' securities and the Monroe Parker
Securities, in viola ion of Title 15, United States Code,
Sections 78j(b) and 18ff, knowing that the transactions were
designed in whole an in part to conceal and disguise the nature,
location, source, ownership and control of the proceeds of said
31
Oct.25.• 2000 9:l0A'V RIS LEGAL SERVICES NY Nc.1190 P. 33
specified unlawful activity in violation of Title 18, United
States Code, section 1J956(a) ('_) (B) (i) .
(Title 18, united States Code, Sections 1956(h) and
3551 et ^eg• )
59. The all
COUNT SEVEN(Money Laundering)
.egations contained in paragraphs 1 through
10 and 19 through 29 are realleged and incorporated as if fully
set forth herein.
60. In orfabout and between May 1, 1996 and July 1,
1996, both dates bei g approximate and inclusive, within the
Eastern District of ew York and elsewhere, the defendant STEVEN
MADDEN, together witli Jordan Belfort and others, knowing that the
property involved in financial transactions represented the
proceeds of some for of unlawful activity, did knowingly and
intentionally conduc and attempt to conduct such financial
transactions , to witj: transactions relating to the defendant
STEVEN MADDEN's payrent to Jordan Belfort of $300,000 as set
forth in paragraphs 128 and 29, above, in and affecting interstate
and foreign comrnerc , which in fact involved the proceeds of a
specified unlawful ctivity, to wit: securities fraud in
connection with the purchases and sales of certain of the
Issuers' securities and the Monroe Parker Securities, in
violation of Title 5, United States Code, Sections 78j(b) and
78ff, knowing that the transactions were designed in whole or in
32
UCt•LU. LUUU y:IUAM t(1 LtUAL btKVILtb NY NO-119U P.
part to conceal and isguise the nature, location, source,
ownership and contro of the proceeds of said specified unlawful
activity.
(Title 18,
1956 ( a) (1) (B) (i) , 2
61. The a
10, 19 through 27 an
if fully set forth h
United States Code, Sections
and 3551 et fig .)
COUNT EIGHT(Money Laundering)
llegations contained in paragraphs 1 through
i 39 and 40 are realleged and incorporated as
arein.
62. In or about and between December 1, 1996 and
February 1, 1997, both dates being approximate and inclusive,
within the Eastern District of New York and elsewhere, the
defendant STEVEN MADDEN, together with Jordan Belfort and others,
knowing that the property involved in financial transactions
represented the proceeds of some form of unlawful activity, did
knowingly and intentionally conduct and attempt to conduct such
financial transactions, to wit: transactions relating to the
defendant STEVEN MAdDEN's payment to Jordan Belfort of $388,000
as set forth in paragraphs 39 and 40, above, in and affecting
interstate and foreign commerce, which in fact involved the
proceeds of a specified unlawful activity, to wit: securities
fraud in connection with the purchases and sales of certain of
the Issuers' securities and the Monroe Parker Securities, in
violation of Title 5, United States Code, Sections 78j(b) and
33
UCi•L3. LUUU y:IUAl1 KIJ LtbAL StKVLLtS NY No./IH P. 3b
78ff, knowing that the transactions were designed in whole or in
part to conceal and isguise the nature, location, source,
ownership and control of the proceeds of said specified unlawful
activity.
(Title 18, United States Code, Sections
1956(a) (1) (B) (i), 2 nd 3551 a sea .
FORFEITURE FOR COUNTSSIX,-SEVEN-AND EIGHT
63. The'a legations in Counts Six, Seven and Eight are
realleged and inco.rp rated as if fully set forth herein for the
purpose of alleging orfeiture pursuant to Title 18, United
States Code, Section 982.
64. Pursu nt to Title 18, United States Code, Section
9982(a)(1), if the :de endant STEVEN MADDEN is convicted of the
offense set forth in Count Six of this Indictment, he shall
forfeit to the Unite States the following property; All right,
title and interest i any and all property, real and personal,
involved in the mone laundering conspiracy offense described in
Count Six for which he defendant has been convicted, in
violation of Title 1 .United States Code, Section 1956(h), and
all property traceab e to such property, including, but not
limited to, the fell wing: 1) all money and other property that
was the subject of each.financial transaction that the defendant
conducted in violation of Title 18, United States Code, Section
1956(h); 2) all co fissions, fees and other property obtained as
34
V U L - L J • L U U U J I U MIN I 1 I J L L'Jr L R V I ') IN I IN U - I I ZI U r
a result of those vii1ations; and 3) all property used in any
manner or part to co^mit or facilitate the commission of those
violaticns. The pro erty subject to forfeiture under this
allegation includes, but is not limited to, an amount not less
than $688,000.
65. Pursuant to Title 18, United States Code , Section
982(a )(1), if the defendant STEVEN MADDEN is convicted of the
offense set forth:inlCount Seven of this Indictment, he shall
forfeit to the Unite States the following property : All right,
title and interest i any and all property , real and personal,
involved in the mone laundering offense described in Count Seven
for which the defend nt has been convicted , in violation of Title
18, United States Co l e, Section 1956 (a)(1)(B)(i ), and all
property traceable t such property , including , but not limited
to, the following : 1) all money and other property that was the
subject of each fina ncial transaction that the defendant
conducted in violation of Title 1.8, United States Code , Section
1956 ( a)(1)(B)(1 ); 2) all commissions , fees and other property
obtained as a resul t of those violations ; and 3 ) all property
used in any manner o r part to commit or facilitate the commission
of those violations. The property subject to forfeiture under
this allegation inc udes , but is not limited to , an amount not
less than $300,000.
35
uei. J. LUUU ZI • I I&VI RIO LCUML JCFVII,CJ I\Tr IVU.!Iyu r. JI
66. Pursuat to Title 18, United States Code, Section
982(a)(1), if the def ndant STEVEN MADDEN is convicted of the
offense set forth in ount Eight of this Indictment, he shall
forfeit to the United States the following property: All right,
title and interest in any and all property, real and personal,
involved in the money laundering offense described in Count Eight
for which the defends t has been convicted, in violation of Title
18, United States Code, Section 1956(a)(1)(B)(i), and all
property traceable t such property, including, but not limited
to, the following: 1) all.money and other property that was the
subject of each fina cial transaction that the defendant
conducted in violati n of Title 18, United States Code, Section
1956(a)(1)(B)(i); 2) all commissions, fees and other property
obtained as a result of those violations; and 3) all property
used in any manner o part to commit or facilitate the commission
of those violations. The property subject to forfeiture under
this allegation incl des, but is not limited to, an amount not
less than $388,000.
67. If,. b any act or omission of the defendant,. the
property described i paragraphs 64, 65 and 66, or any portion
thereof:
a. no be located upon the exercise of duediligence;
b. has b en transferred , sold to, or deposited with athird party;
36
vl.l•c,J• cuuu J- I IN I f\IJ LCUML JC\ VI %,LJ _11 1 11 U• I I Ju r • Jo
c. has b e en placed beyond the jurisdiction of the
Court;
d. has b e en substantially diminished in value; or
e. has b en commingled with other property which
canno t be divided without difficulty;
the.defendant shall orfeit substitute property , up to the value
of the property .desc ibed in subparagraphs ( a) through ( e) above,
pursuant to Title 21, United States Code, Section 853(p), as
incorporated by Title 18, United States Code , Section 982(b).
(Title 18, United States Code , Section 982)
A TRUE BILL
-A-4'r -EPERSON
N
L\ORETTA'E. LYNCHUNITED STATES ATTORNEYEASTERN DISTRICT OF NEW YORK
37
"I
UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK- - - - - - - - - - - - - - - - OOCxRIM. O5lUNITED STATES OF AMERICA
INDICTMENTv-
00 Cr.STEVEN MADDEN,
Defendant ./G QOS.
x F^L^^T
The Grand Jury charges :S __of
COUNT ONE
(Conspiracy To Commit Securities Fraud)
BACKGROUND
1. At all times relevant to this Indictment , Steven
Madden, Ltd. ("Madden Ltd.") was a Delaware corporation engaged
in the manufacturing and retail sale of women's shoes. At all
times relevant to this Indictment, common stock and warrants
issued by Madden Ltd. were publicly traded on the NASDAQ National.0-
Market System.
' 2. At all t imes relevant to this indictment, STEVEN
MADDEN, the defendant, was the Chairman and Chief Executive
o officer of Madden Ltd.o0
3. From in or about August 1994u through in or about
December 1997, Monroe Parker Securities, Inc . ("Monroe Parker")-7 .
was a broker-dealer of securities registered with the United
States Securities and Exchange Commission ("SEC .") and the
National Association of Securities Dealers (" NASD "). At all
£0'd %86 £t':9i 0002-VZ-100
times relevant to this Indictment, Monroe Parker's business and
affairs were principally controlled by its majority shareholders,
Alan Lipsky and Bryan Herman, co-conspirators'not named as
defendants herein. Monroe Parker's principal off ices were
located in Purchase ,•New York.
4. From in or about January 1993 wp until the time
when Monroe Parker began operations in or about August 1994, Alan
Lipsky and Bryan Herman operated a branch office of Biltmore
Securities, Inc. ("Biltmore"), located in Purchase, New York
("Biltmore' s New York Branch"). At all times relevant to this
Indictment, Biltmore was a broker-dealer of securities registered
with the SEC and the NASD
5. At certain times relevant to this Indictment,
Stratton Oakmont, Inc. ("Stratton Oakmont") was a broker-dealer
registered with the SEC and the NASD, with its principal place of
business in Lake Success, New York. At all times relevant to
this Indictment, Stratton Oakmont was controlled by Jordan
Belfort and Daniel Porush, co-conspirators not named as
defendants herein.
6. During the time that each firm• was in operation,
Monroe Parker's and Stratton Oakmont' s businesses included, among
others, underwriting initial public offerings,of securities
(°1POs°), acting as a "market maker" of certain securities, and
providing retail brokerage services to clients throughout the
2
b0 x86 £b:9t 0002-bZ-100
United States. From time to time, Stratton Oakmont and Monroe
Parker participated together in bringing certain IPOs to market.
THE SCHEME TO MANIPULATE INITIAL PUBLIC OFEERINGS
7. Prior to operating Biltmore's'New York Branch,
Herman and Lipsky were employed as stock bro}cers at Stratton
Oakmont where they worked for Belfort and Porush from in or about
July 1989 through in or about September 1993.
8. In or about March 1994, the SEC barred-Jordan
Belfort from association with any broker, dealer, investment
company, investment adviser, or municipal securities dealer based
on a finding that Belfort had violated the federal securities
laws and the rules and regulations of the SEC.
9. Prior to and during the investigation leading to
the imposition of Belfort's bar, Belfort and Porush took steps to
ensure that they could maintain control of a.securities broker-
dealer and derive substantial net profits therefrom
notwithstanding any sanctions imposed by the SEC. For example,
in or about July 1992, Belfort and Porush entered into a secret,
unlawful agreement with Alan Lipsky and Bryan Herman concerning
the formation, operation, and control of Monroe Parker. As part
of this illegal agreement, from time to time.thereafter, Belfort
and Porush agreed to assist Lipsky and Herman by,. among other
things: (i) allowing Herman, Lipsky and Monroe Parker to
participate in fraudulent securities transactions designed to
3
so *;I 166 £b:91 0002-bz-100
provide capital for Monroe Parker and (ii) al-lowing Monroe-Parker
to participate in IPOs underwritten by Stratton Oakmont. In
return, Lipsky and Herman agreed, among other; things, to allow:
(i) Belfort.and Porush to influence secretly Monroe Parker's
conduct in connection with certain IPOs; and .(ii) Belfort to
share secretly in the net profits of Monroe Parker. Belfort,
Porush, Lipsky, and Herman further agreed that Belfort's and
Porush's association with, and influence over; Monroe Parker
would remain secret and concealed from the SEC, NASD, and the
public.
10. From in or about January 1994 through in or about
December 1997, Biltmore 's New York Branch, Monroe Parker and/or
Stratton Oakmont participated in the following'IPOs ("the Subject
IPOs"), among others, as lead underwriter or a`s members of the
underwriters' selling group:
S SUER IPO DATE
M.H. Myerson,.Inc.Octagon, Inc.Select Media Communications,Solomon PageUnited LeisureDualStar Technologies Corp.Czech Industries, Inc.MVSI, Inc.Hemispherx Biopharma, Inc.CSI ComputerSonics & Materials, Inc.Big City BagelsNetsmart Technologies, Inc.Chem International, Inc.
January 19, 1994February 16, 1994
Inc. August 18,.1994October 20, 1994November 11, 1994February 14, 1995June 9, 1995August 15, 1995November 2,- 1995July 20, 1995February 27, 1996May 8, 1996August 14, 1996October 30, 1996.
4
90'd Z86 bb:91 0002-bZ-100
ISSUER IPO DATE
Thermacell Technologies, Inc. March 14, 1997All Communications Corp. April 30, 1997Isonics Corporation , September 23, 1997Flemington Pharmaceutical Corp. November 20, 1997
Following each of the Subject IPOs, the securities began publicly
trading on either the NASDAQ National Market System or on the
NASD's Over-the-Counter Bulletin Board market. Public trading
immediately following an IPO is generally referred to in the
securities industry as "aftermarket" trading. In addition to
participating in the Subject IPOs, Monroe Parker and Stratton
Oakmont often served as "market makers" in those securities in
aftermarket trading.
11. In connection with nearly all. of the Subject IPOs,
Bryan Herman, Alan Lipsky, Jordan Belfort, Daniel Porush and
others agreed in advance artificially to manipulate upward the
market price of the securities involved in the IPOs as soon as
aftermarket trading in chose securities began. Among other
manipulative means, Herman, Lipsky, Belfort,.Porush and others:
(i) caused brokers employed by Monroe Parker and Stratton Oakmont
to make false and fraudulent representations,to retail customers.
in order to induce those customers to purchase securities in the
aftermarket; (ii) paid brokers excessive, undisclosed commissions
and sales credits to sell shares in the aftermarket; (iii)
unlawfully required retail customers to purchase securities in
aftermarket trading as a condition to receiving allocations of
5
LO'd %86 bb: 9t 0002-bZ-130
IPO sharps; (iv) refused to execute, or failed to execute in a
timely fashion, customer sell orders during aftermarket trading;
and (v) retained undisclosed control over substantial numbers of
securities involved in the Subject IPOs held'in the names of
nominees or otherwise held subject to undisclosed prearrangements
concerning the sale or disposition of those ^ecuritips. As a
result of this and other deceptive and manipulative conduct, the
market price of the securities involved in the Subject IPOs
generally increased dramatically on the day of the IPO. In many
instances the closing price in aftermarket trading on the day of
the IPO was more than twice the IPO offering' price.
MADDEN'S PARTICIPATION IN THE PCHEME
TO MANXPULATE INITIAL PUBLIC OFFERINGS
12. In order to effect the upward manipulation of the
prices of the securities involved in the subject IPOs, and in
order to benefit therefrom, STEVEN MADDEN, the defendant, Bryan
Herman, Alan Lipsky, Monroe Parker, Jordan Belfort, Daniel
Porush, and others engaged in a number of schemes designed to
allow them to profit from aftermarket sales of securities
involved in the Subject IPOs while concealing their beneficial
ownership and control over substantial quantities of such
securities. Two of the schemes, the "Nominee Scheme" and "Bridge
Loan" scheme, are set forth below.
6
80'd %86 bb:91 0002-VZ-100
The Nominee Scheme
13. From in or about January 1994 through in or about
March 1997, STEVEN MADDEN, the defendant, participated in an
unlawful scheme with Bryan Herman, Alan Lipsky, Monroe Parker,
and others, to manipulate the public market for securities sold
in connection with certain of the Subject IPOp, and to defraud
purchasers of those securities. In furtherance of this scheme,
MADDEN and others (collectively the "Flippers.") entered into a
secret and unlawful agreement to act as undisclosed nominees for
Herman, Lipsky, Monroe Parker, and others in 'connection with
certain of the Subject IPOs.
14. Pursuant to this unlawful arrangement, Bryan
Herman and Alan Lipksy agreed to allow the Flippers to purchase a
substantial number of the securities offered'in each IPO and
agreed to allow the Flippers to sell those securities in the*
aftermarket under circumstances which would allow the Flippers to
earn net profits'of between fifty cents and two dollars per
security. The Flippers, in turn, agreed to sell those shares
whenever directed by Herman and Lipsky and to share with Herman
and Lipsky any profits in excess of between fifty cents and two
dollars per security. As a result, Herman and Lipsky.were able
to exercise undisclosed control over the substantial number of
IPO shares held by the Flippers once aftermarket trading began.
As a further result, the Flippers, Herman, Lipsky and Monroe
7
60. d i86bt':9t 0002-bZ-. 0
Parker, were able to earn substantial profits^by selling the IPO
securities once the market price was manipulated upward in
aftermarket trading.
15. In furtherance of this scheme and pursuant to
their secret agreement , Alan Lipsky and Bryan Herman allocated
substantial quantities of the securities in dertain of the
::ub j t c t IPOs to STEVEN MADDEN, the defendant,, and to" other
entities that MADDEN controlled, including 340 Central
Corporation ("360 Central") and Bocap Corporation ("Bocap"), two
Florida corporations controlled by MADDEN and used by MADDEN as
vehicles for personal investments. As part'of this secret
arrangement, MADDEN agreed in advance to resell those'securities
shortly after trading in the aftermarket commenced or.at such
other times as Herman or Lipsky directed. MADDEN also agreed in
advance to share a portion of the profits from those sales with
Herman, Lipsky and Monroe Parker.
16. In furtherance of this scheme', STEVEN MADDEN, the
defendant, maintained brokerage accounts in his own name and in
the names of 360 Central and Bocap (collectively the "MADDEN
Accounts") at Biltmore' s New York Branch and Monroe Parker. From
time to time thereafter, MADDEN used the MADDEN Accounts to
purchase securities sold in the Subject IPOs and to later sell
those securities under circumstances agreed*to between MADDEN,
Bryan Herman, and others.
8
0t'd x86 Sb:9t 0902-OZ-100
17. From time*to time, STEVEN MADDEN, the defendant,.
and Bryan Herman caused securities purchased in the MADDEN
Accounts during the Subject IPOs to be sold back to Monroe Parker
shortly after aftermarket trading began. In dome instances, the
prices at which the securities were sold back1to Monroe. Parker
were between twenty-five cents and two dollarq per share higher
than the IPO offering price. In those instances, MADDEN
generally kept all the profits from the sales., Bryan Herman and
Alan Lipsky then caused Monroe Parker to hold,the shares
purchased from MADDEN in inventory for later dale to retail
customers at even higher prices.
18. In certain other instances, STEVEN MADDEN, the
defendant, sold securities from the Subject IBOs shortly after
aftermarket trading began at prices substantially more than two
dollars per share higher than the IP.O offering price. In those
instances, MADDEN agreed to and did convey a portion of the
profits back to Bryan Herman, Alan Lipsky and Monroe Parker
through two means designed to hide their secret arrangement and
conceal the fact that MADDEN.was sharing profits from his trading
with Herman, Lipsky and Monroe Parker. First,* MADDEN conveyed
the profits by delivering large 'sums of cash to Herman. Second,
MADDEN and Herman entered into prearranged "losing trades"
pursuant to which MADDEN would purchase certain securities from
Monroe Parker in the MADDEN Accounts and later, sell those
9
TI d %86 Sb:9T e00Z-bZ-130
securities back to Monroe Parker at prices that guaranteed a loss
to MADDEN and a corresponding gain to Monroe Parker.
19. At various times relevant to the Indictment, and
in furtherance of this scheme, STEVEN MADDEN,'the defendant, in
addition to acting illegally as a nominee for'Bryan Herman, Alan
Lipsky and Monroe Parker, entered into a secrgt and unlawful
agreement with Lipsky, Herman, and Jordan Beliort to Iact as a
nominee for Belfort in connection with certain of the Subject
IPOB through transactions effected through Monroe Parker. As
part of this arrangement, STEVEN MADDEN, the defendant, agreed to
and did use the MADDEN Accounts to purchase and sell securities
in connection with certain of the Subject IPOs, including the
IPOs for Big City Bagels, Inc. ("Big City Bagpls"), as an
undisclosed nominee for Jordan Belfort.
20. As a result of the nominee trading on behalf of
Bryan Herman, Alan Lipksy, Monroe Parker and Uordan Belfort,
conducted by STEVEN MADDEN, the defendant, the MADDEN Accounts
earned gross profits of more than approximately $4.4 million
through purchases and sales of securities acquired in connection
with certain of the Subject IPOs.
21. At various times relevant to this indictment, in
furtherance of this nominee scheme, STEVEN MADDEN, the defendant,
Alan Lipsky , Bryan Herman, Monroe Parker , Jordan Belfort and
others, unlawfully failed to make complete and accurate
10
Zt,d i86 Sv:9t 0002-VZ-100
disclosure, as required by federal law and applicable rules and
regulations, of the existence and the terms of, among other
material matters: (i) MADDEN's conduct as a Nominee for the
underwriters and control persons of the underidriters.in
connection with certain of the Subject IPOs; i(ii) MADDEN's
agreement in advance to sell securities acquired in connection
with certain of.the Subject IPOs at times and, prices determined
by the underwriters and control persons of the underwriters; and
(iii) Alan Lipsky, Bryan Herman, Monroe Parker, and Jordan
Belfort' s beneficial interest in securities held in the MADDEN'-
Accounts and the profits from sales of those 'securities.
The Bridge Loan Scheme
22. As a further means of benefitting from the
manipulation of certain of the Subject IPOs, STEVEN MADDEN, the
defendant, Bryan Herman, Alan Lipsky, Monroe 'Parker, and others
engaged in a scheme involving bridge loan financing arrangements
and sham "lock-up" agreements with respect to securities issued
by Big City Bagels, among others.
23. In furtherance of this scheme,' prior to the
anticipated date of the IPO for Big City Bagels, Alan Lipsky,
Bryan Herman, and others induced the officers and directors of
Big City Bagels to enter into certain "Bridge Loan" financing
arrangements with certain "Bridge Lenders." Pursuant to the
terms of the arrangements, the Bridge Lenders loaned funds to Big
11
EZ'd i66 9b:91 0002-bZ-100
city Bagels in advance of the anticipated IPO. The company, in
turn, promised to repay the loans from the proceeds of the
anticipated IPO. in addition, Big City Bage.s agreed to convey
to the Bridge Lenders one share of common stock, one "Class All
warrant (together "the Bridge Units"), and two "Class B" warrants
for each two dollars loaned to the company. 'Big City Bagels also
promised to register the Bridge Units and the common stock
underlying the Class A and Class B Warrants for public sale in
connection with the anticipated IPOs.
24. In furtherance of this scheme,, Alan Lipsky, Bryan
Herman, and others exercised discretion and'control in selecting
the persons who became Bridge Lenders for the companies, and Big
City Bagels in particular.
25. In or about January 1996, several months prior to
the Big City Bagels IPO, STEVEN MADDEN, the,defendant', entered
into a secret agreement with Bryan Herman, Alan Lipsky, Monroe
Parker and others in connection with the Bij City Bagels Bridge
Financing. Pursuant to the terms of that agreement, Herman
agreed to arrange for MADDEN to participate^as a Bridge Lender.
MADDEN agreed to sell any Bridge Units he received at such times
and prices as Herman directed following the anticipated IPO. It
was a further part of this secret understanding that MADDEN would
enter into a sham "lock-up" agreement, pursuant to which MADDEN
would purportedly agree not to sell the Bridge Units for a period
12
VT•^ %66 9V. 9T 6002-bZ-i30
of thirteen months following the date of the-anticipated IPO,
without the written consent of Monroe Parker'as the underwriter.
In truth and in fact, as MADDEN, Herman, Lipbky and others agreed
in advance of the IPO, Herman and Lipsky would cause Monroe
Parker to consent to a release'of the sham ")ock-up" agreement
shortly after the IPO became effective and repurchase MADDEN's
Bridge Units.
26. In or about January 1996, STEVEN MADDEN, the
defendant, became a Bridge Lender for Big City Bagels by loaning
approximately $200,000 to the company. In return, Big City
Bagels promised to
annual interest of
promised to convey
those securities f4
anticipated IPO.
repay the principal sum of,$200,000_plus
eight percent. In addicioi, Big City Bagels
to MADDEN 100,000 Bridge Units and to register
Dr public sale at the time of Big City Bagels'
27. Thereafter, pursuant to their secret agreement, on
or about May 8, 1996, within hours after the Big City Bagels IPO
was declared effective, STEVEN MADDEN, the defendant, at Bryan
Herman's request, caused 100,000 Bridge Units-to be sold from one
of the MADDEN Accounts to Monroe Parker at a price of $2 per
Unit.
28. At all times relevant to this indictment, the
terms of the "lock-up" agreements with the Bridge Lenders were
13
SZ'd %86 9t' :91 0002-VZ-130
material to investors because, among other things, unless Monroe
Parker released the Bridge Lenders from the "Lock-up" agreements:
(a) for a substantial period of time, thesupply of freely tradeable stock of, Big CityBagels in the marketplace would not includethe securities owned by the Bridge Lenders,thereby reducing the supply of thosesecurities in the market; and
(b) for a substantial period of.time, the iselling Bridge Lenders would be expLcted toremain investors in Big City Bagels, andtherefore maintain a continued interest inthe financial performance, and stock price,of the company.
29. In furtherance of this agreement and in order to
conceal it from the SEC, the NASD and investors, STEVEN MADDEN,
the defendant, Alan Lipsky, Bryan Herman and others, caused Big
City Bagels to include in the prospectus for the Big City Bagels
IPO, false and fraudulent misrepresentations and omissions
concerning the "lock-up" agreement. For example, the prospectus
falsely stated that "the Selling Securityholders may not sell the
Registered Bridge Securities prior to 13 months from the date of
this Prospectus without the prior consent of the underwriter."
As MADDEN, Herman, Lipsky and others well knew, in truth and in
fact, the "lock-up" agreements were a sham anti the prospectus
falsely and fraudulently omitted to disclose the secret
prearrangement that Monroe Parker would release the "lock-up" and
repurchase MADDEN's Bridge Units shortly after the IPO became
effective.
14
9S'd %66
i
9b:9T 0002-bZ-100
THE CONSPIRACY :
30. From in or about January 1994; through in or about
December 1997, in the Southern District of Npw York and
elsewhere; STEVEN MADDEN, the defendant, Jordan Belfort, Daniel
Porush, Alan Lipsky, and Bryan Herman, togetier with others known
and unknown, unlawfully, willfully, and knowingly did. combine,
conspire, confederate, and agree together and with 'each other to
commit offenses against the United States, to wit, to commit
securities fraud, in violation of Sections 7$j(b) and 78ff of
Title 15, United States Code, and Section 24b.10b-5 of Title 17,
Code of Federal Regulations.
OBJECTS OF THE CONSPIRACY
Securities Fraud
31. It was a part and object of the conspiracy that
STEVEN MADDEN, the defendant, Jordan Belfort{ Daniel Porush, Alan
Lipsky, and Bryan Herman, and their co-consp.rators known and
unknown, unlawfully, willfully, and knowingly, by the.use of the
means and instrumentalities of interstate commerce and of the
mails, directly and indirectly, would and did use and employ
manipulative and deceptive devices and contrivances in violation
of Title 17, Code of Federal Regulations, Section 240:1Ob-5, by
(a) employing devices, schemes, and artifices to defraud; (b)
making untrue statements of material facts and omitting to state
material facts necessary in order to make the statements made, in
15
Lt d Z86 L': 9i 0002-bZ-io0
the light of the circumstances under which they were-made, not
misleading; and (c) engaging in acts, practicbs, and courses of
business which operated and would operate as a fraud and deceit
upon a person in connection with the purchase: and sale of
securities, all in violation of Title 15, United States Code,
Sections 78j (b) and 78ff.
MEANS AND METHODS OF THE CONSPIRACX
32. Among the means and methods by'which STEVEN
MADDEN, the defendant , Alan Lipsky , Bryan Herman , Jordan Belfort,
Daniel Porush , and their co-conspirators , known and unknown,
would and did carry out the conspiracy were the following:
a. Alan Lipsky, Bryan Hermany and their co-
conspirators caused Monroe Parker to allocate large quantities of
securities offered in the Subject IPOs to MADbEN and other
Flippers subject to an illegal, undisclosed prearrangement
pursuant to which MADDEN and the other Flippers would sell their
IPO shares back to Monroe Parker shortly after trading in the
aftermarket began, thereby enabling Monroe Packer to earn large
profits when it resold the shares to other retail customers after
the price of the IPOs increased substantiallyduring the first
day of aftermarket trading.
b. MADDEN provided bridge financing to Big City
Bagels, and received Bridge Units from Big City Bagels subject to
certain "lock-up" restrictions, in connection :with a secret,
16
ST d %86 L': 91 0002-bZ-100
undisclosed arrangement with Alan Lipsky , .Bryan Herman, and
others, pursuant to which Monroe Parker.would and did waive the
"lock- up" restrictions and purchase MADDEN's Bridge Units shortly
after the IPO became effective.
c. MADDEN agreed to and did use the MADDEN
Accounts to purchase and sell securities in connections with an
IPO as a nominee for Jordan Belfort in furtherance of a secret
arrangement pursuant to which Jordan Belfort;receiveli undisclosed
compensation for assisting Alan Lipsky and Bryan Herman's
acquisition and financing of Monroe Parker.
OVERT ACTS
33. In furtherance of said conspiracy and to effect
the objects thereof, the following overt' acts , among others, were
committed in the Southern District of New York and elsewhere:
a. In or about January 1994; STEVEN MADDEN, the
defendant, caused a brokerage. account in the, name of Bocap to be
opened at Biltmore's New York Branch in Purchase, New York.
b. On or about January 19, 2.994, MADDEN sold
approximately 35,050 IPO units issued by M.H-. Myerson, Inc.,
through the Bocap account at Biltmore's New York Branch.
c. On or about February 16,,1994, MADDEN sold
approximately 30,000 IPO units issued by Octagon, Inc., through
the Bocap account at Biltmore ' s New York' Branch.
17
6^'d 266 0:9T 0002-VZ-100
d. On or about August 18,'1994, MADDEN opened a
brokerage account in his own name at Monroe Parker.
e. On or about August 18, 1994, MADDEN sold
approximately 60,000 IPO units issued by Select Media
Communications, Inc., through an account in his name at Monroe
Parker.
f. On or about February 14, ,.995, MADDEN sold
approximately 123,400 shares of common stock and 123,400 warrants
issued by Dualstar Technologies Corporation through an account in
his name at Monroe Parker.
g. On or about June 9, 1995,' MADDEN sold
approximately 204,200 shares of common stock :and 204,2:00 warrants
issued by Czech Industries, Inc., through an,account in his name
at Monroe Parker.
h. On or
approximately 115,700 IPO
account in his name at MO:
i. On or
approximately 241,700 IPO
through an account*in his
j. In or
subscription agreement in
about August 15, 1996, MADDEN sold
units issued by MVSI, Inc., through an
roe Parker.
about November 2, ;995, MADDEN sold
units issued by Hemispherx Biopharma,
name at Monroe Parker.
about. January 1996, MADDEN signed a
connection with bridge financing
provided to Big City Bagels.
18
ez•d %66 Gb:9T 0002-bZ-130.
k. On or about February 27, 11996, MADDEN sold
approximately 61,500 shares of.common stock And 300,000 warrants
issued by Sonics and Materials, Inc., through an account in his
name at Monroe Parker.
1. On or before May 8, 1996, Alan Lipsky and
Bryan Herman allocated 181,350 IPO units issued by Big City
Bagels to MADDEN.
M. On or about May 8, 1996,,Alan Lipsky and
Bryan Herman caused Monroe Parker to underwrite an IPO of the
securities of Big City Bagels. '
n. On or about May 8, 1996,'MADDEN sold
approximately 150,000 IPO units issued by Bid City Bagels through
an account in his name at Monroe Parker, at price of
approximately $8.63 per unit.
o. On or about May 8, 1996,,MADDEN sold
approximately 31,450 IPO units issued by Big,City Bagels through
an account in his name at Monroe Parker, at a price of
approximately $13.00 per unit.
p. On or about May 8, 1996,, MADDEN caused 360
Central to sell approximately 100,000 Bridge:Uni-ts issued by Big
City Bagels to Monroe Parker.,
19
Zz*d X668P:91 0002-b8-lam
q. On or about March 14, 1997, MADDEN sold
approximately 74,000 IPO units issued by The±macell Technologies,
Inc., through an account in his name,at Monroe Parker.
(Title 18, United States Code, Section 371.)
COUNTS TWO THROUGH EIGR
(Securities Fraud In Connection With
Certain IPO's)
The Grand Jury further charges:
34. The allegations contained in paragraphs 1 through
30 and 34 of this Indictment are repeated and, realleged as if
fully set forth herein.
THE CHARGE,
35. From in or about June 1995 up'to and including
March 1997, in the Southern District of New York and elsewhere,
STEVEN MADDEN', the defendant, unlawfully, willfully, and
knowingly, directly and indirectly, by the yse of means and
instrumentalities ofinterstate commerce and the mails, did use
and employ manipulative and deceptive devices and contrivances in
violation of Title 17, Code of Federal Regulations, Section
240.10b-5 by: (a) employing devices, schemes, and artifices to
defraud; (b) making untrue statements of material facts and
omitting to state material facts necessary in order to make the
statements made, in light of the circumstances under.which they
were made, not misleading; and (c) engaging'in acts,'practices,
and courses of business which operated and would operate as a
20
zz d ,668b:9T @@@z-bz_j.yj
fraud and deceit upon a person, in connectiontwith the purchases
and sales of the securities listed below:
Count IPO Issuer Date Purchas ed mom Sold Amount
TWO Czech Indus - 06/09 / 95 Units 102,10¢ Common 204,200
tries-Inc.Warrants 204,200
THREE MVSI , Inc. 08 / 15/95 Units 115,70b Units 115,700
FOUR Hemispherx 11/02/ 95 Units 241 , 700 Units 241,700
Biopharma, Inc.
FIVE Sonics and 02 /27/96 Common 61,500 Common 61,500Materials, Inc.
Warrants 300,000 Warrants 300,000
six Big city 05/08/96 Bridge 100,000 Bridge 100,000Bagels, Inc. Units Units
SEVEN Big City 05 / 08/96 Units 161,350 Units- 181,350Bagels, Inc.
EIGHT Thermacell Tech 03 /14/97 Units 74,000 Units - 74,000
Inc.
(Title 15, United States Code, Sections 7Bj,(b) and 78ff ; Title
17, Code of Federal Regulations , Section 240.10b-5; and
Title 18, United States Code , Section 2.)
CO Th NINE
(Conspiracy to Launder Money)
The Grand Jury further charges:
36. The allegations set forth in paragraphs 1 to 29,
32, 33, and 35 are repeated and realleged as-if set forth fully
herein.
37. At all times relevant to this Indictment, Monroe
Parker was a "financial institution," within the meaning of Title
21
£z d i868V':9T 0002-bZ-1^0
31, United States Code, Section 5312(a)(2)(0), engaged in
interstate commerce in connection. with, among other activities,
the underwriting-of securities sold-to retail customers
throughout the United States.
38. From in or about August 1994 'through in or about
March 1997, STEVEN MADDEN, the defendant, earned gross profits of
approximately $4.4 million in the MADDEN Accounts at Biltmore's
New York Branch and Monroe Parker that constituted the proceeds
of the securities fraud schemes alleged in paragraphs 1 to 29,
32, 33, and 35, above. As part of those fraudulent schemes,
MADDEN agreed to and did share with Bryan Herman, Alan Lipsky,
Monroe Parker, and others, a substantial portion of the proceeds
of those schemes.
39. In order to promote the continued successful
operation of those schemes and in order to conceal the true
beneficial ownership and control of a substantial portion of
those proceeds, STEVEN MADDEN, the defendant, together with Bryan
Herman, Alan Lipsky, Monroe Parker, and others, agreed to and did
engage in certain financial transactions.
40. In furtherance of this agreement, from time to
time from in or about January 1994 through-in or about December
1995, MADDEN delivered large sums of cash,:representing proceeds
of securities fraud, to Bryan Herman at locations in the Southern
District of New York and elsewhere. The amount of cash delivered
22
bZ'd i666b:9t 0002-bZ-1JQ
on each occasion ranged from approximately $10,000 to $ 80,000..
The proceeds were distributed in cash so as to conceal the
sources and recipients of the funds.
41. In addition to cash deliveries, on numerous
occasions from in or about March 1996 through in or about March
1997, STEVEN MADDEN, the.defendant, used the ' proceeds. and profits
generated in the MADDEN Accounts from the securities fraud
schemes set forth above to engage in other prearranged securities
transactions designed to shift a substantial:po,rtion of those
proceeds and profits from the MADDEN Accounts to Monroe Parker's
proprietary trading accounts. To effect such transactions,
MADDEN used profits and proceeds held in the MADDEN Accounts to
purchase other securities from Monroe Parker,s proprietary
trading accounts. Later, MADDEN resold those same securities to
Monroe Parker at lower prices, thereby generating losses for the
MADDEN Accounts totaling approximately $1.2 trillion and
corresponding profits of approximately the same amount for Monroe
Parker. Bryan Herman and Alan Lipsky, from time to time, then
used portions of the profits from these prearranged losing trades
with MADDEN for, among other purposes, funding Monroe, Parker's
continuing operations, including payment of:commissions and other
compensation to brokers involved in furthering the continuing
securities fraud schemes alleged above.
23
Sz•d X666b:9t 0002-bz-10O
STATUTORY ALLEGATIONS
42. From in or about January 1994 through in or about
March 1997, in the Southern District of New York and elsewhere,
STEVEN MADDEN, the defendant, together with Btyan Herman, Alan
Lipsky, and Monroe Parker, co-conspirators not named as
defendants herein, and others known and unknown to the Grand
Jury, unlawfully, wilfully, and knowingly did, combine, conspire,
confederate and agree together and with each other to commit
offenses against the United States, to wit, violations of
Sections 1956 (a) (1) (A) (i) and 1956(a) (1) (B) (i) of Title 18,
United States Code.
43. It was a part and an object of, the conspiracy that
STEVEN MADDEN, the defendant,.Bryan Herman, Alan Lipsky, Monroe
Parker and others, in an offense involving and affecting
interstate and foreign commerce, knowing that the property
involved in certain financial transactions represented the
proceeds of some form of unlawful activity, ynlawfully, wilfully,
and knowingly would and did conduct and attempt to conduct such
financial transactions, namely (i) the delivery of United. States
currency to Bryan Herman and (ii) purchases and sales of
securities through the MADDEN Accounts, which in fact involved
the proceeds of specified unlawful activity,`to wit, the proceeds
of fraud in the sale of securities set'forth'in Counts One
through Eight of this Indictment, with the iitent to promote the
24
9Z'd X66 6b :9i 0002-bZ-100
• 1
carrying on of specified unlawful activity, ip violation of Title
18, United States Code, Section 1956(a) (1) (A) :(i) .
44. It was a further part sand an object of the
conspiracy that STEVEN MADDEN, the defendant,'Bryan Herman, Alan
Lipsky, Monroe Parker and others, in an offen'ee involving and
affecting interstate and foreign commerce, knowing that the
property involved in certain financial transactions represented
the proceeds of some form of unlawful activity, unlawfully,
wilfully , and knowingly would and did conduct, and attempt to
conduct such financial transactions , namely ('i).the delivery of
United States currency to Bryan Herman and (i'i) purchases and
sales of securities through the MADDEN Accounts , which. in fact
involved the proceeds of specified unlawful activity, to wit, the
proceeds of fraud in the sale of securities set forth in Counts
One through Eight of this indictment, knowing that the
transactions were designed in whole and in part to conceal and
disguise the nature , the location, the source , the ownership,
the control of the proceeds of the specified ,unlawful activity
violation of Title 18, United States Code, Section
1956 (a) (1) (B) (i) .
OVERT ACTS
and
in
45. In furtherance of the conspiracy and to effect its
unlawful objects, STEVEN MADDEN, the defendant , Bryan Herman,
Alan Lipsky, Monroe Parker and others , committed the following
25
Lz'd X66 6P:9T 0002-b2-1X
x ........ _....... - -. ...._.^..- ^..r-...- ............. ... ter..
overt acts, among others, in the Southern District of New York
and elsewhere:
a. In or about 1994, MADDEN delivered more than
approximately $10,000 in United States currency to Bryan Herman
at a restaurant in New York, New York.
b. On or about November 25, 1,995, MADDEN
delivered more than approximately $10,000 in United States
currency to Bryan Herman at a hotel in Miami, 'Florida.
c. On or about March 11, 1996, MADDEN purchased
approximately 250,000 warrants issued by Terrace Holdings, Inc.,
from Monroe Parker at a price of approximately $ 2.00 per warrant.
d. On or about March 12, 1996;, MADDEN sold
approximately 250,000 warrants issued by Terrace Holdings, Inc.,
to Monroe Parker at a price of approximately $:1.50 per warrant.
e.. On or about May 14, 1996, MADDEN purchased
approximately 150,000 shares of United Leisure'Corp. from Monroe
Parker at a price of approximately $2.00 per siare.
f.. On or about May 20, 1996, MADDEN sold
approximately 150,000 shares of United Leisure Corp. to Monroe
Parker at a price of approximately $1.44 per share.
g. On or about March 19,.1996:, MADDEN purchased
approximately 100,000 warrants issued by Sonics.& Materials,
Inc., from Monroe Parker at a price of approximately $2.75 per
warrant.
26
8Z'd %86 OS:91 000Z-tVZ-100
h. On or about March 24, 196, MADDEN sold
approximately 100,000 warrants issued by SonJcs & Materials,
Inc., to Monroe Parker at a price of•approximately $1.50 per
warrant.
(Title 18, United States Code, Sectibn 1956(h).)
Forfeiture Allegation
46. The allegations contained in count Nine of this
Indictment are hereby realleged and, incorporated by reference for
the purpose of alleging forfeiture pursuant to the provisions of
Title 18, United States Code, Section 982.
47. As a result of the aforesaid iiolations of Title
18,.United States Code, Section 1956, STEVEN:MADDEN, the
defendant, shall forfeit to the United States pursuant to Title
18, United States Code, Section 982(a)(1)(A),. all right, title
and interest in any property, real and personal, involved in the
aforesaid offenses, and any and all property' traceable to such
property, including but not limited to:
48. The sum of approximately $1,228,943.75, and all
interest and proceeds traceable thereto, in that such sum in the
in violation of Title 18, United States Code, Section 1956, or is
property traceable to such property;
49. If any of the property described above as being
subject to forfeiture, as a result of any act or omission of
27
6z'd Z66 0S:9Y 0^0^-b^-1^0
STEVEN MADDEN, the defendant, (a) cannot bd located upon the
exercise of due diligence; (b) has been transferred or sold to,
or deposited with, a third party; (c) has been placed beyond the
jurisdiction of the court; (d) has been substantially diminished
in value; or (e) has been commingled with othir property which
cannot be divided without difficulty, it is t4'e intention of the
United States, pursuant to Title 18, United States Code, Section
982(b), to seek forfeiture of any other property of MADDEN, up to
the value of the forfeitable property.
fOREPERSON MARY J HITEUnited States Attorney
r V 1
Exhibit C
J
Edwin I1. Nordlinger (EN-6258)Deputy Regional Director
Attorney for PlaintiffSECURITIES AND EXCHANGE COMMISSIONNortheast Regional Office7 World Trade Center
C VNew York, New York 10048
Telephone No.: (212) 748-8038
UNITED STATES DISTRICT COURTEASTERN DISTRICT OF NEW YORK
_ 'p ST
• r 3632
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,0 Civ. ( )
v. ,
STEVE MADDEN, C MPLAINT
Defendant.
Plaintiff Securities and Exchange Commission ("Commission'!
against defendant Steve Madden ("Madden"), alleges as follows:
INTRODUCTION
). for its Complaint
1. Madden played a crucial role in the fraudulent manipulation of several initial
public offerings ("the IPOs") underwritten by Stratton Oakmont, Inc. (`Stratton") and
Monroe Parker Securities, Inc. ("Monroe") between May 1991 and Ma ch 1997. Stratton
and Monroe were notorious boiler room operations that manipulated at least twenty-two
1POs. which they would not have been able to do without the participation ofa few
carefully screened "flippers." Flippers arc individuals who pu
quickly sold it back to Stratton or Monroe, thereby hiding the fact
retained control over almost all of the outstanding shares for each
Madden was considered a reliable flipper by both Stratton and
participated in the manipulation of at least twenty-two IPOs.
the IPO stock, then
t Stratton or Monroe
they brought public.
and, as such,
2. Madden' s role in the Stratton and Monroe manipulations took two forms. In
the majority of the IPOs, Madden acted as a flipper . Pursuant to undisclosed repurchase
agreements , he received substantial allotmen ts of shares in the IPOs. Then, shortly after
trading in the aftermarket commenced, Madden sold the shares back to Stratton or Monroe
at pre-arranged prices (usually slightly above Madden's purchase pries). These secret
arrangements earned Madden a stream of illegal profits and helped Stratton and Monroe
control most of the IPO shares. Once in control of the "float," Stratton and Monroe were
able to manipulate the IPO stocks' prices higher before selling the sh res to unsuspecting
investors at inflated prices.
3. In at least five of the IPO manipulations. Madden play d a second, similar
role. In these IPOs. Madden received "bridge" units as part of his coripensation for
making bridge loans to the issuers . Although Madden signed "lock-up' agreements
precluding him from selling his shares in these issuers for at least one gear after an IPO, he
entered into secret agreements with Stratton and Monroe by which theyf would release him
from the lock-up agreements in order to sell his shares back to Stratton Or Monroe as soon
as trading began in the aftermarket .. Thus, Madden earned a quick prof$ on the bridge units
while helping Stratton and Monroe to control the outstanding float of th^ IPOs. Also, by
2
immediately putting the bridge units back into the hands of Stratton and Monroe, Madden
gave the firms more IPO stock to later resell to their customers at a ificially inflated prices.
4. Madden also participated in the fraudulent manipula ion of the stock of his
own company, Steve Madden Ltd. ("SHOO"), during its December 1993 IPO. -
Furthermore, Madden made material false statements and omissionj in the prospectuses
that SF100 supplied to investors in connection with the IPO and a s bsequcnt sale of
SHOO securities.
VIOLATIONS 1
5. Madden , directly or indirectly , singly or in concert , knowingly or recklessly,
engaged in transactions , acts, practices , and courses of business that constitute violations of
Section 17(a) of the Securities Act of 1933 (" Securities Act"), 15 U. C. § 77q(a), Section
10(b) of the Exchange Act of 1934 (" Exchange Act"). 15 U.S.C. § 8j(b), and Rule IOb-5,
17 C.F.R. 240.10b- 5 thereunder . Unless Madden is enjoined, he wi I again engage in
transactions , acts, practices , and courses of business of similar purp rt and object.
JURISDICTION AND VENUE
6. The Commission brings this action pursuant to the a thority conferred upon
it by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Sc tion 21 (d) of the
Exchange Act. 15 U.S.C. § 78u(d), to obtain a final judgment permanently enjoining
Madden from future violations of the federal securities laws and ordering Madden to
account for and to disgorge his ill-gotten gains , plus prejudgment interest. The
Commission also brings this action pursuant to Section 20(d) of the Securities Act, 15
U.S.C. § 77t( d). and Section 21(d)(3) of the Exchange Act, 15 U. S. . § 78u(d)(3), for a
- ,._.-
. . ..... _ ...... . ... ....
final judgment ordering Madden to pay civil money penalties. F pally. the Commission
brings this action pursuant to Sections 20( c) of the Securities Act 15 U.S.C. § 77t(e), and
21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2), to obtain a order barring Madden
from serving as an officer or director of a public company.
7. This Court has jurisdiction over this action , and ve ue is proper, pursuant to
Sections 20 (d) and 22 (a) of the Securities Act, 15 U.S.C. §§ 77t(d and 77v(a), and
Sections 21 (d), 21(e), and 27 of the Exchange Act, 15 U.S.C. § § 7 u(d), 78u (e), and 78aa.
8. Madden, directly or indirectly, singly or in concert . made use of the means
or instruments of transportation or communication in, and the mea s or instrumentalities of,
interstate commerce, or of the mails , in connection with the transa tions, acts , practices,
and courses of business alleged herein . Certain of the transactions , acts, practices, and
courses of business alleged herein took place in the Eastern District of New York,
including. but not limited to , purchasing the IPO securities , and usi g the telephone to
communicate with the principals of Stratton and Monroe while they were located in this
District.
DEFENDANT
9. Madden , age 42 , ofNew York, New York, is the,
SF100. As described below, Madden maintained brokerage ace
and CEO of
at Stratton and
Monroe, and used these accounts to execute manipulative purchases $nd sales of securities.
10. 1S 100 is a New York corporation headquartered in L ng Island City, NY.
SH00 securities are registered with the Commission pursuant .to Sec ion 12(g) of the
Exchange Act. 15 U.S.C. §§ 781(g), and are traded on the National A sociation of
4
Securities Dealers' (the "NASD's") Automated Quotation System ("NASDAQ"). The
company, whose current market capitalization is approximately $180 million, designs,
sources, and sells fashion footwear under the Steve Madden, Lci, and David Aaron brands.
11. Stratton was, from 1989 to 1996, a broker-dealer I Gated in Lake Success,
New York, and was registered with the Commission pursuant to ection 15(b) of the
Exchange Act, 15 U.S.C. §§ 78o(b). Stratton was one of the larg st and most notorious
illegal boiler room operations in history. Stratton underwrote dozens of IPOs, including
SHOO's IPO. virtually all of which were illegal market manipulations designed to defraud
unsuspecting investors. After numerous lawsuits filed by the Co mission, Stratton was
closed down in. December 1996. and declared bankruptcy in Janua 1997.
12. Jordan Belfort ("Belfort"), age 37, of New York, N w York, was Stratton's
founder and chairman until he was permanently barred from the se urities industry in 1994.
13. Daniel Porush , age 43. of Boca Raton. Florida. was President and CEO of.
Str.1ttont until it was shut down in 1996. l-Ic was permanently barr d.lrom the securities
industry in 1996. Porush has known Madden since childhood.
14. Monroe was , from 1994 to 1997, a broker-dealer to ated in Purchase, New
York. and was registered with the Commission pursuant to Section 15 (b) of the Exchange
Act. 15 U.S.C. §ti 78o(b). Monroe was founded by two former Stratton brokers, Bryan
Herman ("Herman") and Alan Lipsky , in 1993 under the supervise n of Belfort . Belfort
formed Monroe so that he would have another brokerage firm from which to continue
defrauding investors in Stratton-style IPO manipulations in the ever
forced to go out of business. Monroe was a boiler room operation
that Stratton was
ihich participated in
5
several Stratton IPOs and underwrote three 1POs of its own. Mo
December 1997
15. Bryan Herman ("Herman"), age 34, of New York, N
registered representative of and equity-holder in Stratton before he
1993.
FACTS
adden to Partici
voluntarily closed in
York, was a
to start Monroe in
16. In the spring of 1991, Madden was recruited by his childhood friend Potush
to assist him in manipulating Stratton IPOs. With the understandin, that he would incur no
risk, Madden agreed to buy stock in Stratton IPOs, and then sell tha stock back to Stratton.
Madden understood that the Stratton IPOs were rigged, and he afire d to follow the
instructions of Porush and Belfort.
17. Madden understood that Stratton would make illegal profits by manipulating
the prices of Stratton IPO stocks. In particular, Madden understood that, once Stratton
bought the IPO stock back from Madden and other "flippers," Stratt n would control
almost all of the IPO company's outstanding stock (the "float"). St atton would then be
able to drive the stock's price up by directing other confederates to continuously buy small
lots of the stock "at the market." Once the price rose to a certain le 1. the stock would be
sold to Stratton's customers. Madden understood how the Stratton oiler room operation
worked, and knew that unsuspecting Stratton customers were, convi
salesmen to buy the Stratton IPO stocks at the artificially high pric(
18. Porush also explained that Madden would be allowe
by aggressive
to earn a
predetermined profit on each transaction . If Madden sold a stock ba:k to Stratton at a price
6
higher than the predetermined price (because. for example,. trading it1 the aftermarket had
moved the price of the stock up too quickly), Madden agreed to retu n the excess profits to
Stratton by allowing Porush to execute "losing" transactions betwee Madden's brokerage
accounts and Stratton's proprietary trading accounts.
Madden Acts as aflipper for Stratton
19. Madden first participated in the manipulation of a Str tton IPO by buying
2.000 units (packages of shares and warrants) of Ropak Laboratories, a Stratton IPO, on or
about May 23, 1991. Madden made the purchase with money lent to him by Porush.
T3ctvvccn May 1991 and August 1995. Madden acted as a flipper in at least fifteen Stratton
manipulations. The following trades were made by Madden while ac ing as a Stratton
flipper:
IPO Stock Name Date of Units Purchase Amount of Date o Sale Proceeds Madden'sPurchase Purchased Price Investment Sale
Ropak Laboratories 5/23/81 2.000 4 1/2 $9,000.00 5/23/91(Units)
Licon International, Inc. 8/21/91 2,000 3 3/4 $7,500.00 8/21/91(Units)
Healthcare Imaging 11/19/91 1,000 10 $10,000.00 11/19191Services (Units)
Nutrition Management 2/5/92 5,000 5 $25,000.00 215/92Services (Units)
SMT Health Services 3111/92 3.000 5 $15,000.00 3111/92(Units)
Computer Marketplace, 6/29/93 30,000 4 $120,000.00 6129/93Inc. (Units)
Master Glazier's 10/25/93 70,000 4 $280,000. 00 10/25/9Karate International,Inc. (Units)
M.H. Meyerson & Co., 1/26/94 80,000 4 $320,000.00 1/26/94Inc. (Units)
Price from Sale Profit
7 1/2 $15,000 .00 $6,000.00
4 3/4 $9 ,500.00 $2,000.00
13 1/2 $13.500.00 $3,50Q.00
6 $30,000.00 $5,000.00'
6 $18,000.00 $3,000.00
12 114 $367.500.00 $247,500.00
1 8 3!8 $588 ,250.00 $308,250.00
1 4 1 /2 $360.000.00 $40,000.00
7
octagon Inc. (Units) 2/24/94
iDM Environmental 4/28/94Corp. (Units)
Chlldrob'cs, Inc. (Units) 6/22/94
Solomon Page Group, .10/27/94Ltd. (Units)
United Leisure Corp. 11/18/94(Units)
Czech Industries, Inc. 6/16/95(Units)
MVSI. Inc. (Units) 8/22/95
20,000
60,000
45,550
50.000
55,800
7 $140,000.00
4 5240,000.00
4 $182,200.00 I
4 $200,000.00 1
3 112 $195,300.00 11
40.000 7 $280,000.00 6/1
20,000 7 $140,000.00
8 1/2 $170.000.00 $30,000.00
5 $300 ,000.00 $80,000.00
5 $227,750.00 $45,550.00
6 3/8 $318 ,750.00 $11 ,750.00
3 7/8 $216 ,225.00 S20,925.00
12 $480 ,000.00 $200 ,000A
9' 1/2 $190 ,000.00 $50.000.00
20. Madden was not allowed to keep all of the profits described in paragraph 19.
Per his agreement with Porush, Madden returned profits in excess f the predetermined
profits by allowing Porush to execute "losing" transactions betwee Madden's brokerage
accounts and Stratton's proprietary trading accounts. For example, Madden was supposed
to earn a profit of $1.00 per share when he "flipped" his SOLP IPO -stock back to Stratton
on October 27, 1994. However, Madden actually earned $2.375 pe share. To return the
excess profits to Stratton, Madden allowed Porush to cause Madden s brokerage account to
purchase 700,000 shares of Childrobics stock from Stratton's trading account at a price of
$0.4375 per share on October 27, 1994, and then to sell the stock ba k to Stratton's trading
account on October 28. 1994 at a price of 50.34375 per share. Thro gh these transactions,
Madden suffered an intentional loss of $65,625, which offset the $6 ,750 of excess profits
that he had made on the SOLP "flip."
8
ion of the Units'
21. At the time of the SOLP IPO. Madden received 21 875 "bridge" units in
return for making a bridge loan to SOLP. As part of this transaction, Madden's bridge
units were subject to a "lock-up" restriction which prevented Mad en from selling his
shares in the aftermarket for thirteen months without Stratton's co sent. This lock-up
restriction was described in SOLP's prospectus. In fact, contrary to the prospectus. Porush
and Madden had a secret agreement to release Madden from the lock-up restriction as soon
as trading commenced in the aftermarkct. Pursuant to this secret a =rcen;ent, Madden
consented to sell the 21.875 bridge units back to Stratton at a price below the IPO offering
price. Madden sold his 21,875 SOLP bridge units back to Stratton for $2.00 per unit, or
$43,750. on or about October 27. 1994. By selling his bridge units back to Stratton as soon
as trading commenced in the aftermarket, Madden enabled Stratton to earn illegal profits
through its subsequent sale of the 21,875 SOLP units to unsuspecti g Stratton customers
after Stratton had manipulated the units up to an artificially inflated price.
22. Madden also participated in the manipulation of Stu :ton's IPO for
Paramount Financial Corp. ("Paramount"). At the time of the Para ount IPO, Madden
received 131.250 bridge units in return for making a bridge loan to aramount. As part of
this transaction. Madden's bridge units were subject to a lock-up res riction which
prevented Madden from selling his shares in the aftermarket for thi ccn months without
Stratton's consent. This lock-up restriction was described in Param unt's prospectus. In
fact. contrary to the prospectus, Porush and Madden had a secret agr ement to release
Madden from the lock-up restriction as soon as trading commenced in the aftermarket.
9
Pursuant to this secret agreement, Madden consented to sell the 131.250 bridge units back
to Stratton at a price below the IPO offering price. Madden sold has 131,250 Paramount
bridge units back to Stratton for $1.25 per unit, or $164.062.50. o or about January 26,
1996. By selling his bridge units back to Stratton as soon as tradi g commenced in the
aftermarket. Madden enabled Stratton to earn illegal profits throug its subsequent sale of
the 131 .250 Paramount units to unsuspecting Stratton customers a er Stratton had
manipulated the units up to an artificially inflated price.
23. Madden also participated in the manipulation of Str tton's IPO for N-
Vision. Inc. ("NVSN"). At the time of the NVSN IPO, Madden re c eived 247,500 bridge
units in return for making a bridge loan to NVSN. As part of this t ansaction , Madden's
bridge units were subject to a lock-up restriction which prevented Madden from selling his
shares in the aftermarkct for thirteen months without Stratton ' s consent. This lock-up
restriction was described in NVSN' s prospectus . In fact, contrary t the prospectus , Porush
and Madden had a . secret agreement to release Madden from the loc -up restriction as soon
as trading commenced in the aftermarket. Pursuant to this secret ag eement, Madden
consented to sell the 247.500 bridge units back to Stratton at a price below the IPO offering
price. Madden sold his 247.500 NVSN bridge units back to Stratton for $2.00 per unit, or
$495,000. on or about May 31, 1996. By selling his bridge units ba k to Stratton as soon
as trading commenced in the aftermarket, Madden enabled Stratton t earn illegal profits
through its subsequent sale of the 247,500 NVSN units to unsuspecting Stratton customers
after Stratton had manipulated the units up to an artificially inflated rice.
24. Madden also participated in the manipulation of Strat on's IPO for
International Dispensing Corp. ("IDC"). At the time of the IDC IPO Madden received
10
75.000 bridge units in return for making a bridge loan to IDC. As art of this transaction,
selling his shares in the aftermarket for thirteen months•without Stratton's consent. This
lock-up restriction was described in IDC's prospectus. In fact, contrary to the prospectus,
Porush and Madden had a secret agreement to release Madden from the lock-up restriction
as soon as trading commenced in the aftermarket. Pursuant to this ecret agreement,
Madden consented to sell the 75,000 bridge units back to Stratton a a price below the IPO
offering price. Madden sold his 75,000 IDC bridge units back to St atton for $9.50 per
unit, or $712.500, on or about October 16. 1996. By selling his bri ge units back to
Stratton as soon as trading commenced in the aftermarket, Madden enabled Stratton to cam
illegal profits through its subsequent sale of the 75,000 IDC units to unsuspecting Stratton
customers after Stratton had manipulated the units up to an artificial y inflated price.
Mani ulation and Fraud in the SHOO IP O
25. In 1993, Madden's shoe business consisted mainly o Madden creating
prototype women's shoes, which he would bring to shoe stores and thcr retailers in an
attempt to solicit orders. If the stores or retailers agreed to buy Mad en's shoes, Madden
contracted out the manufacturing of the shoes, and then delivered th m to the stores or
retailers.
26. Early in 1993. Madden began planning with Belfort a d Porush to bring
Madden's shoe business public in a Stratton IPO. Belfort, Porush, a d Madden agreed that
the IPO of Madden's shoe business would be a manipulation similar to previous Stratton
IPO manipulations, such as the Computer Marketplace, Inc. and Ma ter Glazier's Karate
International. Inc. manipulations, in which Madden had participated. Madden agreed to
follow Belfort's and Porush's instructions in return for their promise that, even if SHOO
(the public company created by the IPO of Madden's shoe busin ss) went bankrupt,
Madden would make money on the SHOO IPO.
27. As Chairman and CEO of SHOO, Madden was ultimately responsible for
the contents of SHOO's prospectus, and he signed SHOO's regis ration statement. Madden
never disclosed to investors, in SHOO's prospectus or elsewhere, that the SHOO IPO was
to be a fraudulent manipulation in which Stratton would control t e float of SHOO's stock.
This information would have been material to SHOO's investors.
28. Specifically , SHOO 's prospectus failed to disclose that Stratton had given
SHOO IPO shares to flippers who had agreed to sell their shares back to Stratton as soon as
trading, commenced in the aftermarket . This information would 11 ., been material to
SHOO' s investors.
29. SHOO's prospectus contained a description conce ing bridge units issued
to Don Jen, Inc. ("DJI") and Albert Honigman ("Honigman"). Th principal of DJI was
Elliot Lavigne. whom Madden knew to be a Stratton flipper. The rospectus stated that
100.000 bridge units were given to DJI. and that 50,000 bridge unit were given to
I-Ionigman. which units could not be sold without Stratton's permis ion for a period of
thirteen months. Madden knew that Stratton intended to, and did, r lease DJI and
l ionigman from their lock-up agreements as soon as trading comm ced in the aftermarket.
Accordingly. the description in SHOO's prospectus concerning the ridge units issued to
DJ1 and Honiszman was materially false and misleading.
30. The SHOO prospectus failed to disclose that, as a res It of the flipper
arrangements described in paragraphs 28 and 29, Stratton would and did control the
12
outstanding float for SHOO shares, or that as a result Stratton inten led to and did
manipulate the price of SHOO stock up to an artificially high level. The prospectus failed
to disclose that Stratton would and did earn substantial profits by s
1(ling to Stratton
customers the shares it had purchased from the flippers and bridge l .enders.
31. Prior to the SHOO IPO, Belfort, Porush, and Kennet Greene ("Greene"),
another Stratton principal, had planned to receive large blocks of S 00 stock in return for
their initial investments in SHOO and for bringing SHOO public. 1- owever, the NASD
refused to list SHOO's stock on the NASDAQ so long as Belfort, P rush, or Greene owned
more than 4.9%, or 251.728 shares, of SHOO's outstanding stock. On December 2, 1993,
the NASD agreed to list SHOO's stock on the. NASDAQ on the con dition that BOCAP, a
shell corporation controlled by Madden, purchase 1,284,815 shares of SHOO stock ("the
BOCAP stock") from Belfort. Porush. and Greene in return for BO AP's promissory note
in the amount of $3,237,737.
32. On December 2, 1993. BOCAP issued a promissory ote in the amount of
S3.237.737 to Belfort. Porush, and Greene, and purchased the BOC P stock from Belfort,
Porush. and Greene. However, Madden and Belfort, Porush, and G ene secretly agreed
that the BOCAP stock still belonged to Belfort, Porush, and Greene, and that neither
13OCA1' nor Madden would be obligated to pay off the promissory r ote.
33. The SHOO prospectus listed BOCAP as the owner o the BOCAP stock.
Madden never disclosed to investors, in SHOO's prospectus or else here, the fact that the.
130CAP stock still belonged to Belfort. Porush. and Greene, and tha neither BOCAP nor
Madden would be obligated to repay the promissory note. Because he NASD's listing of
S1100 on the NASDAQ was conditioned on Belfort's. Porush's, an Greene's non-
13
ownership of the BOCAP stock, the fact that the BOCAP transacti n was a sham would
/ have been material to investors . Accordingly, the statement in SH O' s prospectus was
materially false and misleading.
34. On August 2, 1995, to reassure Belfort that his right to his share ofthe
BOCAP stock were secure , Madden executed a second , secret prooissory note that defined
the amount of money that Madden owed Belfort as equal to the mar •et value of Belfort's
BOCAP stock. I
35. In December 1995, SHOO issued a second prospectu',s in connection with
the offer of common stock and warrants. The December 1995 prospectus falsely
represented that Belfort had sold his stock to BOCAP, and failed to isclose the existence
of the second promissory note between Belfort and Madden. For re sons described in
paragraph 33, the December 1995 prospectus was materially false and misleading.
n ate in monroe
36. Monroe began participating in Stratton IPO manipula ions in January 1994.
As a member of the syndicate, Monroe was given an allotment of St tton IPO stock to sell
to its customers at the IPO price. Rather than sell the stock directly t its customers,
Monroe sold the stock to "flippers," who then sold it back to Monroe at prices slightly
above the IPO price , immediately after the commencement of afterm
Stratton had manipulated the-stock up to predetermined artificially in
resold the flippers ' stock to unsuspecting Monroe customers . Althou
lead underwriter in these IPOs, Monroe's participation in these IPO n
referred to herein as "Monroe IPO manipulations."
trading. Once
prices, Monroe
Stratton was the
pulations are
14
j` 37. Because Monroe had recently begun its operations I krtnatl needed flippers
he could trust so that he could execute the Monroe IPO manipulat Ions. Porush
recommended that Herman approach Madden, who had been a tru tworthy Stratton flipper,
to be a Monroe flipper.
38. In January 1994, Herman and Madden met and neg tiated the terms-of their
agreement whereby Madden would participate in the Monroe IPO anipulations as a.
flipper. Madden was familiar with the way the manipulations wor ed because he had
already participated in several Stratton IPO manipulations as a Stra ton flipper. Madden
understood his role in the Monroe IPO manipulations, and that the ^urpose of the Monroe
IPO manipulations was to defraud unsuspecting Monroe customers.
39. Madden first participated in a Monroe IPO manipula ion by buying 35.050
units of M.H. Meyerson & Co., Inc. on or about January 26, 1994. etween January 1994
and May 1996. Madden acted as a flipper in at least eleven Monroe ; anipulations. The
following trades were made by Madden while acting as a Monroe fli per:
IPO Stock Name Date of Ut/Sh/Wt Purchase Amount of Date of Sale Proceeds from Madden'sPurchase Purchased Price Investment Sale Price Sale Profit
M.H. Meyerson & 1/19/94 10.000 4 $40,000.00 1/19/94 6 7/1 $64,375. 00 $24 . 375.00
Co.. Inc. (Units) 1/19/94 25 .050 4 $100 , 200.00 1/19194 7 5/8 $191,008.25 $90.806.25
Octagon Inc. (Units) 2116/94 30,000 7 $210.000 .00 2/16/94 18 $540 ,000.00 $ 330,000.00
Select MediaCommun- 8/25/94 60,000 7 $420,000. 00 8/25/94 11 718 $712,500. 00 $292,500.00ications . Inc. (Units)
Solomon Page 10127/94 80,000Group . Ltd. (Units)
United LeIsure 11/17/94 60.000
Corp. ( Units) 11/18/94 150,000
4 $240.000.00 10/27/94 6 1
4 114 $255,000 . 00 1.1/18 /94 4 1/2
3 1 /2 $525 , 000.00 11118194 3 13/16
$395,625.00 $155,625.00
$270,000 .00 $15 , 000.00
$571,875 .00 $-0 , 875.00
15
,... Technologies 2114195 61,700 7 $431,900.00 2114/95i2 $740,400.00 $308,500.00
,!units)
C:ech Industries, Inc. 6116/95 102,100 7 5714,700.00 6/16195 12 3/16 $1,244,343.75 $529,643.75r (Units)
MVSI, Inc. (Units) 8/22195 115,200 7 $806,400.00 -8/22/95 9 $1,038,800.00 5230,400.00
Hemispherx 11/2195 241,700 3 112 $845,950.00 1112195 6 116 51,495,518.75 $849.508.75Blopharma, Inc. (Units)
Sonics & Materials, Inc.(Shares) 311/96 61,500 5 $307,500.00 3/1/96 6 3/4 $415,125.00 $107,625.00(Warrants) 3/1/98 300,000 3/20 $45,000.00 3/1196 /4 $225,000.00 $180,000.00
Big City 5113/96 150,000 4 $600,000.00 5113196 518 51.293,750.00 $893,750.00Bagels, Inc. 5/13/96 900 4 $3,600.00 5/13/96 1 1/2 $12,150.00 $8,550.00
(Units) 5/13/96 30,450 4 $121,800.00 -5113/96 - 13 $395,850.00 $274,050.00
40. At the time of the Big City Bagels, Inc. ("BCB'•) PO. Madden received
100.000 bridge units in return for making a bridge loan to BCB. As part of this transaction.
Madden's bridge units were subject to a lock-up restriction which prevented Madden from
selling his shares in the aftermarket for thirteen months without onroe's consent. This
lock-up restriction was described in BCB's prospectus. In fact, ontrary to the prospectus,
Herman and Madden had a secret agreement to release Maddenjfrom the lock-up restriction
as soon as trading commenced in the aftermarket. Pursuant to this secret agreement,
Madden consented to sell the 100,000 bridge units back to Mo roe at a price below the IPO
offering price. Madden sold his 100,000 BCB bridge units bac to Monroe for $2.00 per
unit, or $200,00, on or about May 13, 1996. By selling his bri ge units back to Monroe as
soon as trading commenced in the aftermarket, Madden enabled Monroe to earn illegal
profits through its subsequent sale of the 100,000 BCB units t unsuspecting Monroe
customers after Monroe had manipulated the units up to an art ticially inflated price.
16
CLAIM FOR RELIEF
Violations of Section 17(a)
of the Securities Act, Section 10(b) ofthe Exchange Act, and Rule 10b-5 thercund
41. The Commission realleges and incorporates by re erence the allegations
contained in Paragraphs I through 40 above.
42. From May 1991 through March 1997. Madden, di cctly or indirectly, singly
or in concert, by use of the means or instruments of transportatio or communication in, or
the means or instrumentalities of, interstate commerce, or of the ails, in the offer or sale
and in connection with the urchase or sale of securities. knowin +II or re
.
cklessl has:p y y, (1)
employed devices, schemes, and artifices to defraud; (2) obtained money or property by
means of or otherwise made, untrue statements of material fact, o has omitted to state
material facts necessary in order to make the statements made, in l ght of the circumstances
under which they were made, not misleading; and (3) engaged in ts, transactions,
practices. and courses of business which have operated as a fraud r deceit upon purchasers
of securities and other persons.
43. Madden knowingly or recklessly made the misleadi g statements and
omissions, and engaged in the deceptive conduct described in para raphs I through 40
above, and Madden knew, or was reckless in not knowing, that the epresentations were
false and misleading. Specifically. Madden played a crucial role in the fraudulent
manipulation of at least twenty-two Stratton and Monroe IPOs bet een May 1991 and
March 1997. Madden did so by acting as a flipper, purchasing IPO rtook, and then quickly
selling it back to Stratton or Monroe, thereby hiding the fact that St Batton or Monroe
17
retained control over almost all of the outstanding shares for each i' sue they brought public.
Madden also participated in the Stratton and Monroe manipulation by selling bridge units,
which investors were led to believe would not be sold ffr at least t irtccn months , back to
Stratton or Monroe as soon as trading in the aftermarket commenc d.
44. In addition , Madden knowingly or recklessly made aterial misleading
statements and omissions in connection with the sale of SHOO securities . Madden never
disclosed to investors , in SHOO's prospectus or elsewhere , that the SHOO IPO was to be a
fraudulent manipulation in which Stratton would control the float of SHOO's stock. The
ST 100 prospectus failed to disclose that Stratton would and did ca substantial profits by
selling to Stratton customers the SHOO shares it had purchased fro its flippers and bridge
lenders. Finally, the SHOO prospectus falsely stated that BOCAP 4as the true owner of
1.284..815 shares of SHOO stock. Madden never disclosed to investors, in SHOO's
prospectus or elsewhere, that the stock still belonged to Belfort, Po sh, and Greene.
45. The misrepresentations and omissions described in p ragraphs I through 40,
above, were material.
46. By reason of the foregoing. Madden has, directly or i directly, singly or in
concert, violated Section 17(a) of the Securities Act, Section 10(b) f the Exchange Act,
and Rule lOb-5.
18
PRAYER FOR RELIEF
WHEREFORE, Plaintiff respectfully requests that this C
I.
Find that Madden committed the violations alleged herein.
if.
Enter a Final Judgment permanently enjoining Madden and h s agents, servants,
employees, attorneys-in-fact, and all persons in active concert or participation with him
who received actual notice of the Final Judgment by personal service or otherwise, and
each of them. from violating, directly or indirectly, Section 17(a) of the Securities Act,
Section 10(b) of the Exchange Act, and Rule 1 Ob-5 thereunder.
III.
Enter an order, pursuant to Sections 20(e) of the Securities
Exchange Act, barring Madden from serving as an officer and dire
connpany.
IV.
Enter a Final Judgment directing Madden to disgorge the unju
obtained as a result of the violations alleged herein, plus prejudgment
V.
Enter a Final Judgment, pursuant to Section 20(d) of the Secur;
21 1 of the Exchange Act, assessing and directing payment of penaltii
and 21(d)(2) of the
of a public
^t enrichment he
ties Act and Section
:s against Madden.
19
VI.
Grant such other and further relief as the Court may deem just and equitable.
Dated: New York, New YorkJune 20, 2000
Respectfully Subi
EDWIN H. NORDLIINGER (EN-6258)Deputy Regional Director
ATTORNEY FOR PLAINTIFFSECURITIES AND XCHANGECOMMISSION
7 World Trade Cente , 13th FloorNew York, New Yor 10048Telephone No.: (212) 748-8038
Of Counsel:
Carmen J. LawrenceWayne M. CarlinCaren N . PenningtonDoria G. Stetch
Ronald L. Rubin
20
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this date , I caused a true and correct copy of the foregoing
Consolidated Amended Class Action Complaint to be served by hand upon the following:
Jonathon J. Lerner, Esq.
SKADDEN ARPS SLATEMEAGHER & FLOM LLP
4 Times SquareNew York, NY 10036
Attorneys for Defendant Steven Madden
Joseph S. Allerhand, Esq.WEIL, GOTSHAL & MANGES LLP767 Fifth AvenueNew York, NY 10153
Attorneys for Defendants Steven Madden Ltd.,Rhonda J. Brown and Arvind Dharia
Dated : New York, NYFebruary 26, 2001
Matthew P. Siben
F:\MADDEN\raw00506.wpd
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