Genius of capitalism: Steve Madden.

Genius of capitalism: Steve Madden.

Genius of capitalism: Steve Madden.

Moneybox
Commentary about business and finance.
April 10 2002 12:43 PM

Genius of Capitalism: Steve Madden

Some gals just love a bad boy, or at least that theory may be relevant to the tale of designer Steve Madden, Genius of Capitalism. My own shoe tastes are rather pedestrian (HA!), but there was a time when certain stylish lady friends used to talk up Madden shoes with some regularity. (Others, I should report, were and are skeptical—"cheap crap" was the formulation used by my most trusted source on these matters.) Whatever the case, late last week Madden became possibly the only trendy footwear designer to get hit with a 41-month prison sentence.

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But hey, any idiot can plead guilty of conspiring to commit money laundering and securities fraud. What has Madden done to earn a coveted Moneybox Genius of Capitalism Award? (Recent winners have included Global Crossing's Gary Winnick and LTV's William Bricker.)

Well, the story begins in 1990, when the University of Miami dropout, who had been selling shoes on Long Island and starting to dabble in design, started his own company. Over the course of a decade, he built up his firm into a publicly traded company with revenue for 2001 at nearly $250 million. Teen-age girls were among his most fanatic customers, and an odd cult of personality developed. The Steve Madden strategy was all about now-ness, and in 1999 Forbes noted that at times the firm was introducing 10 to 15 new designs aweek. New ones could come to market in as little as 40 days.

In the past, Madden apparently also battled alcohol and drug problems. And as his firm took off, he found a new extracurricular activity that reunited him with a childhood friend who founded Stratton Oakmont, the penny-stock firm. (Stratton's story, with a Madden cameo, is well-told in Susan Harrigan's Newsday coverage, included in Best Business Stories of the Year: 2002.) Madden ignored the cloud of SEC suspicion around Stratton in 1992 and hired the firm to help his own enterprise raise money and ultimately go public, under the ticker SHOO.

Stratton Oakmont was hounded into bankruptcy in 1997. In the course of investigating the firm, government prosecutors came to believe that among those flipping chunks of manipulated stock (including SHOO) for illicit gain was Madden himself. (More details can be found in this lengthy New York Magazine story from last year.) Madden was indicted in the summer of 2000 and has since pleaded guilty to both money laundering and securities fraud charges brought in Manhattan and Brooklyn federal courts. The 41-month prison term, along with an order to pay $3.1 million in restitution, is for the Manhattan violations; he'll be sentenced toward the end of the month for the Brooklyn ones, reportedly to a concurrent 41-month sentence reached as part of a plea deal. Prosecutors say the 20-plus manipulated IPOs racked up investor losses of about $100 million. A recent Forbes piece reported that Madden himself made about $7 million on the schemes. In court last week, the contrite shoemaker said: "I am guilty of stupidity, arrogance, and greed. I deeply regret all the things I've done."

But of course, that's not the end of the story. The genius part is that while Madden has been barred from serving as director or officer of a public company for seven years, he actually plans to stay on the payroll anyway. Last year his firm signed him to a 10-year contract as "creative and design chief," and he will continue to draw $700,000 annually. While he's in prison. (That's the reported base figure—a shareholder suit says the deal also includes potential bonuses and, amusingly, an expense allowance. Lawyers for Madden have said the suit to scuttle the deal is "without merit.")

You have to do more than just rip off shareholders to be a Genius of Capitalism—but fessing up and then landing a lucrative contract that will keep fattening your bank account while you're behind bars, that qualifies. If you'd like to congratulate the troubled fashionista on this honor, perhaps you'll have some luck using the "Dear Steve" feature on the company Web site. I'm sure he'll get the message.