SEC Charges Iconix Brand Group and Former Top Executives with Accounting Fraud
https://www.sec.gov/litigation/litreleases/2019/lr24682.htm
https://www.sec.gov/litigation/complaints/2019/comp-pr2019-251-iconix.pdf
Litigation Release No. 24682 / December 5, 2019
Securities and Exchange Commission v. Neil R. Cole and Seth Horowitz, No. 19-CV-11148 (S.D.N.Y., filed December 5, 2019)
The Securities and Exchange Commission today charged brand-management company Iconix Brand Group, Inc. and three of its former top executives with fraud. Iconix and two of its former executives 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 that Cole and Horowitz 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. According to the complaint, Cole and Horowitz realized substantial profits on Iconix stock sales as a result of the alleged fraud. In order to hide the fraud, as alleged, Cole and Horowitz also 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, Iconix and its former Chief Financial Officer Warren Clamen failed to recognize losses from Iconix'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.
In parallel actions, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Cole and Horowitz. Horowitz has pleaded guilty to those charges.
The two SEC complaints, filed in the U.S. District Court for the Southern District of New York, charge: (1) Iconix with violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15(a) thereunder, as well as Section 17(a) of the Securities Act of 1933 ("Securities Act"); (2) Cole with violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14(a), 13b2-1, and 13b2-2 thereunder, Section 17(a) of the Securities Act, and Section 304(a) of the Sarbanes-Oxley Act of 2002, and aiding and abetting Iconix's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13; and (3) Horowitz with violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5(a) and (c), 13b2-1, and 13b2-2 thereunder, Section 17(a) of the Securities Act, and aiding and abetting Iconix's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. The SEC's administrative order against Clamen finds that he willfully violated Securities Act Sections 17(a)(2) and (3) and Exchange Act Rules 13b2-1 and 13b2-2, and caused Iconix's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13.
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.
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.
The SEC's investigation was conducted by Danette R. Edwards and Kristen Dieter, and was supervised by Gregory G. Faragasso and Ms. Bandy. The litigation against Cole will be led by Thomas A. Bednar, Sarah H. Concannon, and Fernando Campoamor Sanchez. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the SEC's Office of the Inspector General.
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