Meaghan Martin, Neil Cole (Iconix Brand Group - Chairman), Beth Ostrosky Stern, Kelly BensimonBadgley Mischka Show Spring 2011, Mercedes-Benz Fashion Week, New York, America - 14 Sep 2010

Federal prosecutors have charged Neil Cole, the founder and former chief executive officer of Iconix Brand Group Inc., with juicing the brand licensing company’s earnings numbers through transactions involving its joint venture agreements with overseas partners. 

In an indictment unsealed Thursday in Manhattan, prosecutors at the Southern District of New York detailed an alleged accounting fraud scheme in which foreign partners would overpay to own interest in joint ventures with Iconix that would hold its trademarks and earn licensing revenue. 

Iconix would later make up for the overpayments, in the tune of millions of dollars, but in the meantime, the buy-in on the joint venture would count toward Iconix’s revenues, according to prosecutors’ description of the alleged scheme. The joint venture-related arrangements took place in 2013 and 2014, according to court filings. 

“As alleged, Neil Cole entered into illegal secret agreements with joint venture partners to artificially inflate the value to his company,” SDNY U.S. Attorney Geoffrey Berman said in a statement. 

Prosecutors have also charged former Iconix chief operating officer Seth Horowitz, who pled guilty on Monday, the SDNY said. Cole, who was arraigned on Thursday, is pleading not guilty. 

Cole’s attorneys denied the government’s accusations, saying in a statement Thursday that he “acted lawfully and properly in all respects.” 

“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,” Cole’s attorneys Lorin Reisner and Richard Tarlowe, who are criminal defense partners at the white shoe firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, said in the statement. 

“Good-faith business conduct by a senior business executive should not be criminalized,” they said. “These charges are completely baseless.” 

According to the indictment, Cole and Horowitz helped facilitate such joint venture arrangements with an unidentified Hong Kong-based apparel licensing company. Prosecutors claimed that Cole had agreed to repay the overpayments by disguising them as payments for “consulting” or “marketing” work. 

Separately, Iconix also agreed to pay a $5.5 million penalty to resolve a concurrent inquiry by the U.S. Securities and Exchange commission, which brought its own separate complaint Thursday against Iconix, Cole, Horowitz and former chief financial officer Warren Clamen. The SEC’s complaint also touched on the joint venture scheme, and alleged that it amounted to manipulating the company’s earnings in 2014. 

The SEC said when it started to look into Iconix’s accounting practices in December 2014, Cole and Horowitz deleted relevant e-mails. The DOJ also highlighted the alleged document destruction in its own charges. 

“Further, as alleged, Cole lied to outside auditors and to the SEC, and took steps to destroy evidence,” U.S. Attorney Berman said in his statement.   

Besides Iconix, Clamen and Horowitz have also reached agreements with the SEC, according to the agency, though Iconix and the former executives neither admit nor deny the charges. Clamen agreed to pay roughly $200,000, while Horowitz has agreed so far to pay some $147,000, and be subjected to further potential penalties. The settlements will require court approval. 

“As the Commission alleges, Iconix and its top executives deceived investors by manipulating revenue and a key earnings metric, schemed to hide the lackluster results of its top brands and concealed growing losses,” Anita Bandy, associate director of the SEC’s Division of Enforcement, said in a statement. “Today’s actions reflect our efforts to hold companies and executives accountable and obtain meaningful relief for investors.” 

In his own statement Thursday about the settlement, Iconix ceo Bob Galvin said: “I am pleased that we were able to resolve this legacy matter that arose under previous management over four years ago.”

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