The indictment alleges that Cole engaged in a scheme to fraudulently inflate Iconix’s revenue and earnings per share and obstruct justice, according to Geoffrey S. Berman, the U.S. Attorney for the Southern District of Manhattan.
“As alleged, Neil Cole entered into illegal secret agreements with joint venture partners to artificially inflate the value to his company. Further, as alleged, Cole lied to outside auditors and to the SEC, and took steps to destroy evidence. Now Neil Cole is in custody and facing serious criminal charges for his alleged conduct,” Berman said.
Seth Horowitz, former chief operating officer, also faces criminal charges, Berman said. Horowitz pled guilty on Monday and is cooperating with the government.
Cole, 62, who was arraigned Thursday afternoon, has pled not guilty. The indictment charges him with one count of conspiracy to commit securities fraud; one count of securities fraud; six counts of making false filings with the SEC; one count of improperly influencing the conduct of audits, and one count of conspiracy to destroy, alter or falsify records in federal investigations. The conspiracy charges carry a maximum prison term of five years, while the other charges each carry a maximum prison term of 20 years.
Any charges in the indictment “are merely allegations, and the defendant is presumed innocent unless and until proven guilty,” the U.S. Attorneys’ Office emphasized in a statement.
“Neil Cole acted lawfully and properly in all respects, and this case should not have been brought. All of the transactions at issue were fully reviewed and approved by Iconix’s legal, finance and accounting professionals, and Mr. Cole reasonably relied on those professionals…. These charges are completely baseless,” Cole’s attorneys, Lorin L. Reisner and Richard C. Tarlowe at Paul, Weiss, Rifkind, Wharton & Garrison LLP, said.
The nation’s top securities watchdog, the Securities and Exchange Commission (SEC) also has also civil charges against Cole, Horowitz, former chief financial officer Warren Clamen and Iconix Brand Group Inc. for accounting fraud in a complaint disclosed Thursday.
Cole and Horowitz are charged with devising a “scheme to create fictitious revenue, allowing Iconix to meet or beat Wall Street analysts’ consensus estimates in the second and third quarters of 2014.”
The pair “realized substantial profits on Iconix stock sales as a result” of scheme and in “order to hide the fraud, as alleged, Cole and Horowitz also deleted emails and caused Iconix to make false and misleading statements in response to an SEC inquiry,” the complaint read.
Iconix was charged with “fraud for recognizing false revenue and manipulating its reported earnings in 2014, entering into transactions to conceal distressed finances at two licensees who could not meet licensing royalty payments owed to Iconix and failing to recognize over $239 million in impairment charges for three brands over a multi-year period,” the SEC said.
In addition, Iconix and former chief financial officer Warren Clamen are alleged to have failed to recognize losses from the failing licensees, among other matters. Because of the alleged accounting improprieties, Iconix overstated net income “by hundreds of millions of dollars between 2013 and the third quarter of 2015,” the SEC said.
Clamen, without admitting or denying the SEC’s findings, has agreed to pay $200,000. Also without admitting or denying the allegations, Iconix has agreed to pay a $5.5 million penalty, an amount that is also in recognition of the company’s cooperation with the SEC investigation, to settle all outstanding claims connected to the matter. Horowitz, who is cooperating with the SEC, agreed to pay a minimum of $147,000.
The settlements are subject to court approval.
“Working alongside our board of directors over the past several years, Iconix has put in place significant, additional measures to ensure that the company’s financial reporting, compliance, and governance practices fully meet legal and good governance standards,” Iconix CEO and president Bob Galvin said.
“In putting this legacy legal matter behind us, the Iconix team members are excited to continue to be able to focus on what we do best–managing and growing iconic brands,” he added.
Separately, Iconix said it will continue to cooperate with both the U.S. Attorney’s Office and the SEC in connection with the legal matters.
Cole resigned as chairman and CEO in August 2015, while Horowitz left the company in April of that same year. Warren left Iconix in March 2014. Subsequent to Cole’s departure, Iconix–also in 2015–restated financial results and said that it was cooperating in a probe by the SEC.
Before Iconix became a brand management firm that focused on licensing, it was a manufacturer operating under the name Candie’s Inc.