Ex-Iconix CEO charged in accounting fraud

The founder of apparel licenser Iconix Brand Group, which last month settled a high-profile dispute with the rapper Jay-Z, was charged by federal prosecutors with inflating the company’s revenue and earnings.

Neil Cole, 62, Iconix’s founder and former chief executive officer, was named in an indictment made public Thursday in Manhattan federal court. Trading in Iconix was halted. Prosecutors also disclosed that Seth Horowitz, 43, the ex-chief operating officer, pleaded guilty to related charges Dec. 2 and agreed to cooperate with the government.

According to prosecutors, Cole and Horowitz inflated the company’s revenue and earnings per share for all of 2014 and the fourth quarter of 2013, using a series of fraudulent transactions with a joint venture partner in Asia. Both men were also sued by the U.S. Securities and Exchange Commission on Thursday.

Iconix itself agreed to pay a $5.5 million civil penalty to resolve a previously disclosed SEC investigation into allegations it manipulated financial data and failed to properly account for a number of transactions from 2013 to 2015. Under the settlement, the company neither admitted nor denied the allegations.

Cole is charged with 10 criminal counts, including conspiracy, securities fraud, making false filings with the SEC and conspiracy to destroy records. The most serious charges carry a maximum penalty of 20 years in prison, though Cole is likely to get a much lower sentence if convicted.

“As alleged, Neil Cole entered into illegal secret agreements with joint venture partners to artificially inflate the value to his company,” Manhattan U.S. Attorney Geoffrey Berman said in a statement. “Further, as alleged, Cole lied to outside auditors and to the SEC, and took steps to destroy evidence.”

Cole’s lawyers Lorin Reisner and Richard Tarlowe said in a statement their client had done nothing wrong and all the transactions in question had been reviewed and approved by the company’s lawyers and accountants. “Neil Cole acted lawfully and properly in all respects, and this case should not have been brought,” they said.

A spokesman for Wilmer Cutler Pickering Hale & Dorr LLP, the law firm representing Horowitz, declined to comment.

Berman said the case was the third accounting fraud prosecution brought by his office in the last four months. In August, Brixmor Property Group Inc.’s former CEO and ex-CFO were charged with manipulating income at the New York-based shopping-center owner. And last month, prosecutors charged the former CEO and former COO of MiMedx Group Inc., a bio-pharmaceutical company with inflating revenue. The defendants have all denied wrongdoing.

Cole stepped down in August 2015 after leading New York-based Iconix for a decade. Later that year, the company restated financial results and disclosed it was under investigation by the SEC.

“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,” Bob Galvin, CEO and president of the company, said in a statement Thursday. The company will continue to cooperate with the SEC and with federal prosecutors in the matter, he said.

Under Cole, Iconix, formerly Candie’s Inc., transitioned from manufacturing its own apparel lines to licensing clothing brands including Ed Hardy, London Fog, Starter, Fieldcrest and Umbro. Among the brands Iconix acquired was Jay-Z’s Rocaware, which it paid $204 million for in 2007. It also acquired the rapper’s higher-end Roc Nation brand in 2013.

Iconix, which later wrote off most of its Rocawear investment, last month settled a civil suit in which it had accused Jay-Z of infringing the trademarks it had acquired. The rapper had initially responded by claiming he was the victim of a “massive years-long fraud.” Jay-Z was last year ordered to testify in the SEC’s probe of Iconix.

By Bob Ban Voris (Bloomberg)

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