Dive Brief:
- The U.S. Securities and Exchange Commission (SEC) charged brand-management company Iconix Brand Group Inc. and three of its former top executives, including CFO Warren Clamen, with fraud.
- Iconix, Clamen and the former COO have agreed to settle. The SEC’s litigation is proceeding against Iconix’s former CEO.
- The SEC’s complaint against former Iconix CEO Neil Cole and former Chief Operating Officer Seth Horowitz alleges they devised a fraudulent scheme to create fictitious revenue, allowing Iconix to meet or beat Wall Street analysts’ consensus estimates in the second and third quarters of 2014.
Dive Insight:
According to the SEC, Cole and Horowitz realized substantial profits on Iconix stock sales as a result of the alleged fraud. To hide their actions, as alleged, Cole and Horowitz deleted emails and caused Iconix to make false and misleading statements in response to an SEC inquiry.
The SEC separately charged Iconix with fraud for recognizing false revenue and manipulating its reported earnings in 2014, entering into transactions to conceal distressed finances at two licensees who could not meet licensing royalty payments owed to Iconix, and failing to recognize over $239 million in impairment charges for three brands over a multi-year period.
Additionally, former CFO Clamen failed to recognize losses from the company's failing licensees, disclose that Iconix entered into transactions to secretly and temporarily bolster its licensees’ finances, and properly test for impairment. As a result of these accounting improprieties, Iconix overstated net income by hundreds of millions of dollars between 2013 and the third quarter of 2015.
"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," said Anita Bandy, associate director of the SEC’s Division of Enforcement. "Today’s actions reflect our efforts to hold companies and executives accountable and obtain meaningful relief for investors."
Separately, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Cole and Horowitz. Horowitz has pleaded guilty to those charges.
Clamen, without admitting or denying the SEC’s findings, has agreed to cease and desist from future violations of the securities laws and pay disgorgement and prejudgment interest of nearly $50,000 and a $150,000 penalty. The order suspends Clamen from appearing and practicing before the Commission as an accountant and provides Clamen the right to apply for reinstatement after three years.
Without admitting or denying the allegations, Iconix agreed to injunctive relief and to pay a $5.5 million penalty, an amount that reflects the company’s cooperation and remediation efforts. Horowitz, who is cooperating with the SEC, has consented to injunctive relief and a permanent officer and director bar, and has agreed to disgorgement and prejudgment interest of over $147,000, and a penalty in an amount to be determined at a later date. The settlements are subject to court approval.
In its litigation against Cole, the SEC is seeking monetary and injunctive relief, including a permanent officer and director bar, and reimbursement to Iconix of certain incentive-based compensation pursuant to Section 304(a) of the Sarbanes-Oxley Act.
Lorin L. Reisner and Richard C. Tarlowe, counsel for Neil Cole, provided the following statement:
“Neil Cole acted lawfully and properly in all respects, and this case should not have been brought. 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. Mr. Cole has had a distinguished career as a brand management innovator and pioneer, and he acted in the best interests of Iconix and its shareholders at all times. Good faith business conduct by a senior business executive should not be criminalized. These charges are completely baseless.”
