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Iconix Founder Convicted in ‘Round-Tripping’ Retrial

A federal jury on Monday convicted Neil Cole, founder and former CEO of the Iconix brand management company, on eight charges tied to an accounting fraud scheme known as “round-tripping.”

Cole, who was acquitted on a pair of conspiracy charges a year earlier, was convicted of the remaining charges that the jury deadlocked on in 2021, after a four-week retrial in Manhattan.

“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,” said Damian Williams, the U.S. Attorney for the Southern District of New York. “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.”  

Damian Williams, U.S. Attorney for the Southern District of New York. (Photo by Michael M. Santiago/Getty Images)

But after getting acquittals on the conspiracy charges in 2021 and a hung jury on the rest, Cole’s attorneys are confident they can win on appeal.

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“We will continue to fight and believe there are significant issues for the appeal,” Cole’s attorneys said in a statement.

The 65-year-old Cole, who is the younger brother of well-known fashion designer Kenneth Cole, 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 carrying a maximum sentence of 20 years in prison.

Iconix is a brand management company that came into prominence over the last 20 years, acquiring apparel brands like London Fog, Mudd and Mossimo in 2006, Ocean Pacific and Starter in 2007, and in 2013 the Buffalo David Bitton denim line. Iconix made money by licensing these brands to retailers.

It was around 2013-2014 that federal prosecutors argued Cole used the illegal practice of “round-tripping” to deceive investors as well as his own board of directors.

Cole, prosecutors said, would enter into joint ventures with international partners who would purchase a license for a brand at an inflated rate with the understanding that Iconix would reimburse that partner back the business.

While a tactic such as round-tripping doesn’t immediately enrich the schemer, as a ponzi scheme would, it creates an inflated appearance of success, which attracts more investors and boosts a company’s stock value. Cole would present increasing revenue and earnings per share (EPS) each quarter.

“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,” Williams said.

Cole stepped down as CEO of Iconix in 2015, replaced by Board member Peter Cuneo.

“I am very proud of what we have built and the progress we have made over the past exciting 10 years and wish the company continuing success,” Cole said upon his departure from Iconix. “The intellectual property assets of Iconix are strong and enduring. I look forward to assisting the company as we work to ensure a smooth transition.”

That came less than a year after the federal charges brought against him were allegedly committed. In 2019 he was charged with the counts that would finally lead to his conviction. Iconix COO Seth Horowitz avoided trial and pleaded guilty to fraud and other charges in 2019.

In 2003, when Iconix was known as Candie’s Inc., Cole, as its Chairman and CEO, agreed to pay $75,000 after the SEC accused the company of improperly inflating earnings from 1997 to 1999.

Last year, Williams was able to secure a guilty plea in a “round-tripping”’” case against Jeffery Hastings, CEO and Board Chairman of the seismic data company SAEExploration Holdings, Inc. On Nov. 15, 2021 Hastings was sentenced to three years in federal prison along with a fine of nearly $600,000.