Iconix Founder Fits DOJ's New Aggressive Corporate Criminal Enforcement Initiative
DOJ: Former CEO & Founder Of Iconix Brand Group (Retail Brands) Convicted At Trial Of 10 Counts Of Accounting Fraud - Faces 160 Yrs Fed. Prison
United States Attorney for the Southern District of New York, announced earlier today that a federal jury found NEIL COLE, the former Chief Executive Officer of Iconix Brand Group, Inc. (“Iconix”), guilty of participating in a scheme to fraudulently inflate Iconix’s revenue and earnings per share, making false filings with the U.S. Securities and Exchange Commission (“SEC”), and misleading the conduct of audits. The defendant was found guilty following a four-week retrial before U.S. District Judge Edgardo Ramos. Sentencing has not yet been scheduled.

“As a unanimous jury has now found, Neil Cole deceived his company’s investors and auditors in order to make his company appear to be performing better than it was. Cole tried to hide his conduct behind tricks and lies, but the truth is now clear: Cole cooked the books. This verdict sends a message that this Office is committed to holding corporate executives accountable when they resort to fraud, no matter how long it takes. Wall Street should know that we will not be deterred from seeking justice in tough cases.”

Iconix, whose shares traded on the NASDAQ, was in the business of acquiring various brands, including clothing and fashion brands, and then licensing those brands to retailers, wholesalers, and suppliers who, in turn, produced and sold clothing and other products bearing the brand names.

Iconix utilized joint ventures (“JVs”) to profit from its brands in foreign markets. Iconix transferred ownership of a trademark or brand to the JV while maintaining a 50 percent ownership interest in the JV itself. When it entered into a JV, Iconix recognized as revenue the buy-in purchase price paid by the JV partner, less Iconix’s cost basis in the trademarks.

Among the most critical financial metrics disclosed in Iconix’s public filings with the SEC were Iconix’s quarterly and annual revenue and non-GAAP diluted earnings per share (“EPS”). Iconix executives, including COLE, publicly identified revenue and EPS as the principal metrics demonstrating Iconix’s growth. They also touted Iconix’s consistent record of revenue and earnings growth and of meeting or exceeding Wall Street analyst consensus with respect to these metrics.

DOJ: The Accounting Fraud Scheme - A Sophisticated Worldwide Scheme Inflating Stock Price

The DOJ's Corporate Criminal Enforcement Initiative & Possible 160 Year Federal Prison Sentence for Iconix Founder

The Ripple Effect: The Larger Case View of Co-Conspirators/Senior Executives - That Forced the Sale of the Company

Federal Investigations - Founder Fits DOJ's New Historical Fraudster Category

The Iconix Brands - Well known Retail Brands - You've Purchased

The Accounting Fraud Scheme

COLE engaged in a scheme to falsely inflate Iconix’s reported revenue and EPS by orchestrating a series of “round trip” transactions in which COLE and a senior Iconix executive induced a JV partner, a Hong Kong-based international apparel licensing company (“Company-1”), to pay artificially inflated buy-in purchase prices for JV interests, with the understanding that Iconix would then reimburse Company-1 for the overpayments. COLE executed the scheme for the purpose of enabling Iconix to report fraudulently inflated revenue and EPS figures based on the inflated buy-in purchase prices it obtained from Company-1.

COLE arranged for Iconix to enter into at least two JVs with Company-1 that included inflated buy-in purchase prices from Company-1: (1) an amendment to a preexisting Southeast Asia joint venture, which closed on or about June 30, 2014 (“SEA-2”), and (2) a second amendment to the Southeast Asia joint venture, which closed on or about September 17, 2014 (“SEA-3”) (collectively, the “SEA JVs”). SEA-2 and SEA-3 involved a fraudulent “round trip” transaction, lacking in economic substance, in which Company-1 paid an artificially inflated buy-in purchase price for its interest in the JV, in exchange for COLE’s agreement that Iconix would give back the inflated portion of the purchase price to Company-1.

COLE and a senior Iconix executive hid from Iconix’s lawyers and outside auditors that COLE had reached an understanding with Company-1 to artificially increase the consideration Company-1 paid Iconix in exchange for COLE’s agreement to round-trip the overpayment back to Company-1.

Through the schemes, COLE caused Iconix to report fraudulently inflated revenue and EPS figures to the investing public. COLE did so, in part, to ensure that the reported figures met analyst consensus and to fraudulently convey the impression to the investing public that Iconix was growing quarter after quarter, as COLE had touted to the investing public.

COLE, 65, of New York, New York, was convicted of one count of securities fraud, six counts of making false filings with the SEC, and one count of improperly influencing the conduct of audits. Each count carries a maximum prison term of 20 years. justice.gov

Editor's Note: Guilty on eight counts could result in 160 years with no parole. And as reported in the Daily on Sept. 19, 2022 the DOJ just publicly announced a new aggressive Corporate Criminal Enforcement initiative posted below.

DOJ Evaluating Strength of a Company’s Compliance Program - Compensation Tie In & Self-Disclosure
Your Boards Should Be Aware - As Compliance Programs Go Under Magnifying Glass

Deputy Attorney General Lisa O. Monaco Delivers Remarks on Corporate Criminal Enforcement
New York City, NY ~ Thursday, September 15, 2022 - At NYU

It all comes back to corporate culture.

Last October, I announced immediate steps the Justice Department would take to tackle corporate crime. I also formed the Corporate Crime Advisory Group.

Our meetings sparked discussions on individual accountability and corporate responsibility; on predictability and transparency; and on the ways enforcement policies must square with the realities of the modern economy.

That the Department’s number one priority is individual accountability.
Second, I’ll discuss our approach to companies with a history of misconduct.
Third, highlighting a new Department policy on voluntary self-disclosures, including the concrete and positive consequences that will flow from self-disclosure. We expect good companies to step up and own up to misconduct.

Individual Accountability

Let me start with our top priority for corporate criminal enforcement: going after individuals who commit and profit from corporate crime.

In the last year, the Department of Justice has secured notable trial victories, including convictions of the founder and chief operating officer of Theranos; (who was sentenced to eleven years in federal prison).

Despite those steps forward, we cannot ignore the data showing overall decline in corporate criminal prosecutions over the last decade. We need to do more and move faster. So, starting today, we will take steps to empower our prosecutors, to clear impediments in their way, and to expedite our investigations of individuals.

History of Misconduct

Now, it’s safe to say that no issue garnered more commentary in our discussions than the commitment we made last year to consider the full criminal, civil, and regulatory record of any company when deciding the appropriate resolution.

In response to that feedback, today, we are releasing additional guidance about how such histories will be evaluated.

Today’s announcements are fundamentally about individual accountability and corporate responsibility. But they are also about ownership and choice.

Companies should feel empowered to do the right thing—to invest in compliance and culture, and to step up and own up when misconduct occurs. Companies that do so will welcome the announcements today. For those who don’t, however, our Department prosecutors will be empowered, too—to hold accountable those who don’t follow the law. d-daily.com
 

The World-Wide Fraud That Ultimately Led to it's Sale after Scheming Investors
For Hundreds of Millions

The Iconix International Brand

Iconix International is the world’s premier brand management company and owner of a diversified portfolio of strong global consumer brands across fashion, sports, and home. Iconix specializes in marketing, merchandising and licensing its brand portfolio and has over 1,100 licenses with leading retailers and manufacturers worldwide that sell across various distribution channels from the mass tier to the luxury market, as well as through various media outlets.

Iconix Brand Group is an American brand management company that licenses brands to retailers and manufacturers primarily in the apparel, footwear, and apparel accessory industries. Its brands are available in such stores as Kohl's, Kmart, Sears, Macy's, Nordstrom, Target and JC Penney.