Damian Williams, the United States Attorney for the Southern District of New York, declared before right now that a federal jury discovered NEIL COLE, the former Chief Executive Officer of Iconix Brand Team, Inc. (“Iconix”), guilty of taking part in a plan to fraudulently inflate Iconix’s profits and earnings for every share, earning wrong filings with the U.S. Securities and Trade Commission (“SEC”), and deceptive the carry out of audits. The defendant was observed responsible next a 4-week retrial prior to U.S. District Judge Edgardo Ramos. Sentencing has not nonetheless been scheduled.
U.S. Lawyer Damian Williams reported: “As a unanimous jury has now identified, Neil Cole deceived his company’s traders and auditors in get to make his corporation show up to be undertaking improved than it was. Cole tried to cover his perform guiding tips and lies, but the truth is now obvious: Cole cooked the textbooks. This verdict sends a concept that this Office is dedicated to holding corporate executives accountable when they vacation resort to fraud, no issue how extended it normally takes. Wall Road really should know that we will not be deterred from seeking justice in hard conditions.”
In accordance to the allegations contained in the Indictment, the evidence presented at demo, and matters involved in public filings:
Iconix, whose shares traded on the NASDAQ, was in the small business of getting numerous brands, such as garments and fashion models, and then licensing all those brand names to suppliers, wholesalers, and suppliers who, in switch, developed and offered clothes and other products bearing the brand names.
Iconix utilized joint ventures (“JVs”) to revenue from its manufacturers in foreign markets. With regard to these JVs, Iconix transferred ownership of a trademark or model to the JV even though keeping a 50 % ownership interest in the JV itself. The other occasion concerned in the JV ordered a 50 percent desire in the JV from Iconix. As portion of the JV agreements, each and every JV husband or wife was frequently entitled to 50 per cent of the JV’s licensing earnings. When it entered into a JV, Iconix identified as earnings the obtain-in buy rate paid out by the JV lover, less Iconix’s cost foundation in the emblems.
Amongst the most vital economical metrics disclosed in Iconix’s public filings with the SEC have been Iconix’s quarterly and yearly earnings and non-GAAP diluted earnings for every share (“EPS”). Iconix executives, like COLE, publicly discovered profits and EPS as the principal metrics demonstrating Iconix’s expansion. They also touted Iconix’s constant report of revenue and earnings development and of conference or exceeding Wall Street analyst consensus with regard to these metrics.
The Accounting Fraud Scheme
COLE engaged in a scheme to falsely inflate Iconix’s documented profits and EPS by orchestrating a collection of “round trip” transactions in which COLE and a senior Iconix executive induced a JV spouse, a Hong Kong-centered global apparel licensing firm (“Company-1”), to spend artificially inflated purchase-in purchase selling prices for JV passions, with the comprehending that Iconix would then reimburse Organization-1 for the overpayments. COLE executed the scheme for the objective of enabling Iconix to report fraudulently inflated earnings and EPS figures based on the inflated buy-in obtain price ranges it obtained from Organization-1.
COLE organized for Iconix to enter into at minimum two JVs with Enterprise-1 that integrated inflated get-in purchase costs from Enterprise-1: (1) an amendment to a preexisting Southeast Asia joint enterprise, which shut on or about June 30, 2014 (“SEA-2”), and (2) a 2nd modification to the Southeast Asia joint undertaking, which closed on or about September 17, 2014 (“SEA-3”) (collectively, the “SEA JVs”). SEA-2 and SEA-3 associated a fraudulent “round trip” transaction, missing in economic material, in which Firm-1 compensated an artificially inflated obtain-in buy price for its fascination in the JV, in exchange for COLE’s arrangement that Iconix would give back the inflated part of the order cost to Company-1. COLE and a senior Iconix govt hid from Iconix’s attorneys and exterior auditors that COLE experienced achieved an comprehension with Company-1 to artificially increase the consideration Firm-1 paid out Iconix in trade for COLE’s settlement to spherical-vacation the overpayment again to Business-1.
By way of the plan, COLE triggered Iconix to report fraudulently inflated income and EPS figures to the investing community. COLE did so, in aspect, to make certain that the claimed figures achieved analyst consensus and to fraudulently convey the impact to the investing community that Iconix was rising quarter just after quarter, as COLE experienced touted to the investing public.
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COLE, 65, of New York, New York, was convicted of one depend of securities fraud, six counts of generating phony filings with the SEC, and one depend of improperly influencing the carry out of audits. Each depend carries a utmost prison phrase of 20 a long time.
The greatest possible sentences in this circumstance are recommended by Congress and are delivered right here for informational functions only, as any sentence will be established by the decide.
Mr. Williams praised the exceptional perform of the Federal Bureau of Investigation and the SEC Business of the Inspector General. Mr. Williams also thanked the SEC Division of Enforcement, which earlier brought a different civil motion.
This situation is currently being managed by the Office’s Securities and Commodities Fraud Job Force. Assistant U.S. Lawyers Jared Lenow, Justin V. Rodriguez, and Andrew Thomas are in demand of the prosecution.
