Steve Madden was in jail because he pleaded guilty in 2001 to federal securities fraud and money laundering. The charges stemmed from his role in a long-running stock manipulation scheme with the brokerage firm Stratton Oakmont, and from a separate episode of insider trading in shares of his own company. A federal judge sentenced him to 41 months in prison in April 2002.
The Stratton Oakmont IPO Scheme
Between 1991 and 1997, Madden took part in twenty-two manipulated initial public offerings run by Stratton Oakmont and its offshoot Monroe Parker Securities, both high-pressure brokerages based on Long Island.1Securities and Exchange Commission. Securities and Exchange Commission v. Steve Madden The pattern repeated each time. Before an IPO went live, the firms allocated shares to insiders called “flippers,” who bought at the offering price and sold straight back to the brokerage at a slightly higher pre-arranged price.2U.S. Securities and Exchange Commission. Securities and Exchange Commission v. Steven Madden – Complaint That recycling kept the real supply of stock scarce.
With few shares actually trading, Stratton’s brokers used aggressive sales calls to push the price up on retail buyers. Once the stock hit the target, insiders dumped their holdings and ordinary investors were left with shares that quickly collapsed. Madden collected an agreed profit on every one of the twenty-two offerings.1Securities and Exchange Commission. Securities and Exchange Commission v. Steve Madden
The Hidden Belfort Stake in Steve Madden Ltd
The December 1993 IPO of Steve Madden Ltd was one of the manipulated offerings, and the most personal to him. Stratton Oakmont underwrote the deal and ran the same flipper playbook on SHOO stock.2U.S. Securities and Exchange Commission. Securities and Exchange Commission v. Steven Madden – Complaint
There was a second layer of deception around that offering. Stratton Oakmont president Jordan Belfort held a large stake in the company, but the National Association of Securities Dealers would not approve the listing if he owned more than 4.9 percent. Madden and Belfort staged a sham sale, with Belfort pretending to transfer his shares to a Madden-controlled entity called BOCAP Corporation while the two secretly agreed Belfort still owned them. The prospectus given to investors described the transaction as a real sale.3Securities and Exchange Commission. Securities and Exchange Commission v. Steve Madden
Insider Trading in His Own Company
In December 1999, Madden met with federal prosecutors from the Eastern and Southern Districts of New York and with the FBI. At that meeting he learned he was a target and would be indicted for securities fraud.4Securities and Exchange Commission. Securities and Exchange Commission v. Steve Madden
He did not disclose any of that. On May 31, 2000, he sold 100,000 SHOO shares at $16. He was arrested on June 20. When trading resumed on June 22, SHOO fell from $13.13 to as low as $5.50 and closed at $6.69. Selling ahead of the news let Madden avoid roughly $784,000 in losses.4Securities and Exchange Commission. Securities and Exchange Commission v. Steve Madden
The Guilty Plea and Sentence
Prosecutors charged Madden under the Securities Exchange Act of 1934, which bars deceptive schemes in connection with the purchase or sale of securities,5Office of the Law Revision Counsel. 15 U.S. Code 78j – Manipulative and Deceptive Devices and under the federal money laundering statute for routing the proceeds through accounts that disguised their source.6Office of the Law Revision Counsel. 18 U.S. Code 1956 – Laundering of Monetary Instruments
Madden pleaded guilty in 2001 to both counts. On April 4, 2002, Judge Kimba M. Wood sentenced him to 41 months in federal prison, ordered $3.1 million in restitution to victims, and imposed an $80,000 fine. He had resigned as chief executive of his company weeks before the plea.
SEC Civil Penalties and the Officer Bar
In parallel civil cases, Madden settled with the SEC without admitting or denying the allegations. His total civil liability came to $7,820,465, covering disgorgement and penalties for both the IPO manipulation and the insider trading.7U.S. Securities and Exchange Commission. SEC Press Release – Footwear Designer Steve Madden Settles SEC Fraud Charges The SEC also barred him from serving as an officer or director of any public company for seven years and permanently enjoined him from future violations of the antifraud provisions.1Securities and Exchange Commission. Securities and Exchange Commission v. Steve Madden That bar is why he never returned as an executive of the publicly traded company that carries his name, taking a creative and design role instead.
Time Served
Madden reported to the federal prison camp at Eglin Air Force Base in Florida in September 2002 and was later transferred to the Coleman Federal Correctional Complex, a harsher facility. He was released in April 2005 after about 31 months, spent roughly 60 days at a New York City halfway house, and finished out a period of home confinement before fully reentering public life.