The Securities and Exchange Commission (SEC) has charged brand-management company Iconix Brand Group and three of its former top executives with fraud, after an investigation found they had manipulated the company’s earnings, reports Accountancy Daily.
The US regulator claimed former Iconix CEO Neil Cole and former chief operating officer Seth 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.
As a result, the SEC alleged Cole and Horowitz realised substantial profits on Iconix stock sales. They also deleted emails and caused Iconix to make false and misleading statements in response to an SEC inquiry.
The SEC has separately charged Iconix with fraud for recognising 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 recognise over $239m (£181m) in impairment charges for three brands over a multi-year period.
Additionally, Iconix and its former CFO 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.
Without admitting or denying the allegations, Iconix agreed to pay a $5.5m penalty, an amount that reflects the company’s cooperation and remediation efforts.
Horowitz, who is cooperating with the SEC, has consented to 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.
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 litigation is proceeding against Cole.
Anita Bandy, associate director of the SEC’s division of enforcement, said: ‘As the Commission alleges, Iconix and its top executives deceived investors by manipulating revenue and a key earnings metric, schemed to hide the lacklustre results of its top brands and concealed growing losses.
‘Today’s actions reflect our efforts to hold companies and executives accountable and obtain meaningful relief for investors.’