NEW YORK — Apparel executive Elliot M. Lavigne on Monday was sentenced to 37 months jail time for his role in a stock fraud scheme, but his future earnings potential garnered much of the debate during the hearing at Brooklyn Federal Court.
In addition to the prison term that includes 500 hours of participation in a residential drug treatment program, Lavigne was given 36 months supervision following incarceration, which includes a separate substance-abuse treatment provision, mandatory financial disclosure and compliance with $8.6 million in restitution payments.
As reported, Lavigne in July 2001 pled guilty to conspiracy to launder $8 million in illicit gains from his participation in schemes to manipulate 25 initial public offerings underwritten by the now-defunct Stratton Oakmont Inc. He was indicted in November 2000. While Lavigne made no decisions on the individual trades, he did allow rogue brokers free use of his account for their IPO maneuverings.
Because of the failing health of elderly parents, Lavigne, who was ordered to surrender to authorities on Aug. 5, is seeking to serve his term at Eglin Air Force Base, close to Valparaiso, Fla. Eglin is the same locale requested by Steven Madden, who was sentenced earlier this year in separate cases in Brooklyn and Manhattan. Madden, who wanted to be close to his mom, is set to surrender on Aug. 15. The cases arose from federal investigations into Stratton Oakmont.
In an emotional statement to U.S. District Court Judge John Gleeson, Lavigne told the court, “It’s been an extremely humiliating, embarrassing timeI take full responsibility for my role in the scheme to launder proceeds in the securities fraud.”
Lavigne attributed his downfall to “drugs and the addictive nature of my personality.” He pointed out that in the last year, he had been “successful in changing direction after seeing what I did and need to do to get to where I needed to go. I did not hesitate to liquidate assets to move forward.”
He was referring to the millions owed in taxes to the Internal Revenue Service, which Lavigne neglected for several years.
According to court testimony, the family home in Saddle River, N. J., has been sold for $781,268, and a summer home in Westhampton, N.Y., for $316,110. Half the proceeds in both sales go to his wife, representing her share in the homes, with the balance applied to related legal costs and taxes. The couple has two teenage children.
It was the $8.6 million in restitution, however, that prompted the debate over Lavigne’s future earnings potential. Lavigne already has paid about $1 million in forfeitures since the plea. Judge Gleeson determined that Lavigne should pay $12,000 a month upon his release from prison.
Eric A. Tirschwell, assistant U.S. attorney in Brooklyn, told Judge Gleeson that Lavigne is “someone we all agree has the potential to earn a lot of money when he finishes his time” in prison. He referred to Lavigne’s filing for Chapter 11 not too long ago and his ability to bounce back and earn $1 million annually after the event. Sources said that the personal bankruptcy filing was in New Jersey. No other information was immediately available.
Judge Gleeson noted that the apparel executive averaged an annual salary of $320,000 in the last few years, but Benjamin Brafman, Lavigne’s counsel, noted that it was unlikely he would be able to earn in that range immediately after his incarceration is over.
“He has done everything humanly possible in my opinion to straighten his life out,” Brafman said. He noted that Lavigne “gambled away a fortune,” but noted that the apparel executive has “not gambled in several years.”
As for future earnings potential, Brafman said that it will be “very difficult for Mr. Lavigne to ever get back to where he is now.” While the attorney disclosed that Lavigne’s wife will handle certain parts of the business, he was quick to refer to Lavigne’s future employment outlook as “guarded.” Lavigne’s company, O.O.C., currently holds the Sean John license for men’s underwear and loungewear.
According to Brafman, Lavigne would face censure from potential licensing partners who might not want to associate with someone with a felony conviction, as well as difficulty lining up credit from banking sources if he had the overhang of restitution payments.
Judge Gleeson was unpersuaded, concluding that Lavigne’s “past success instills confidence in me.” The jurist, who noted that if the case had gone to trial Lavigne would likely have gotten a lengthier prison term, said, “You had this fall from significant financial success because of drugs and gambling. It is a tragedy.”
The judge called Lavigne’s participation in the scheme “incomprehensible,” telling Lavigne “You were at the apex of a legitimate, successful career when you got involved in a massive fraud” of which he didn’t need to be a part.
Judge Gleeson pointed out that, while Brafman was correct in noting that Lavigne was not a “danger to society,” a prison sentence “serves a purpose [because there is a] segment of society that would take notice,” and that imprisonment would have some deterrent effect.
Lavigne could have faced up to 20 years in prison. Early in the case, the government won court approval to have him subjected to periodic drug testing as a condition of release, even though Lavigne had already posted a $900,000 bond. Separately, in a partial settlement with the Securities and Exchange Commission, the SEC obtained an order barring Lavigne from serving as an officer or director of a public company, and assessing civil money penalties.
During the time period covered by the indictment, from 1991 to 1995, Lavigne was executive vice president for marketing of Salant Corp., and chairman of its Perry Ellis Menswear Division. His career also included stints at Designer Holdings, Jordache Enterprises and Fubu Ladies.””