Steve Madden Business Communication Case

His vision to give young, fashion forward men and women a unique way to express their individuality through style resulted in millions of customers worldwide and propelled his designs to the forefront of the fashion industry. It all started in 1990, with a mere $1,100 in his bank account, Madden started crafting shoe designs from his Queens-based factory and the Steve Madden brand was born. With a lot of courage, years of experience in the footwear industry, and unique creative designs, Steve Madden formed his own successful enterprise.

A year later, Madden introduced a redefined version of platform shoes, resulting in one of the most spectacular success stories in the early 1990's. Inspired by his favorite rock and roll stars of the 1970s, the thick, chunky heel became Steve Madden's signature and a phenomenon in women's shoes. Madden's footwear vision is continuously evolving. Steve once said, "What inspires me is what I see people wearing on the streets of the world from New York to London and beyond.

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Today, fashion is dictated by individual style. To me, the fashion of the future is anything that a young guy or girl feels good wearing as long as it's put together in the right way. " (www. stevemadden . com) Today, the Steve Madden brand represents a lifestyle. It is about embracing fashion while still maintaining that funky independence that first defined the brand 20 years ago. Expanding now into apparel and other accessories such as dresses, handbags, belts, sunwear, cold weather, outerwear and hosiery, Steve Madden is always looking toward to the future.

As 2013 begins, more exciting opportunities are on the horizon including re-packaging, new store design rollout and expansion in global markets. The days when the future did not seem so bright In April 2002, Mr. Madden found that neither his investors nor federal judges take too kindly to stock manipulation and securities fraud. Steve Madden's talents as a shoe designer helped him build a 240 million dollar empire in his own name. But by his own admission, that wasn't enough -- he was greedy for more. His greed cost him about eight million dollars and control of the very company that brought him such riches.

Madden was sentenced in 2002 to 41 months in prison for his role in a stock swindle scheme coordinated by the now-closed brokerage, Stratton Oakmont. His wrongdoings include conspiring to manipulate the stock prices of more than 20 companies, including his own. And, he did it at the expense not only of the public but his own investors who lost more than 100 million. Besides paying restitution, Madden had to resign as CEO of Steve Madden Ltd and leave the board of directors. He is also barred from holding a position as officer for seven years.

However, he did retain a creative position until his prison sentence began that fall and will likely fill that capacity upon release later this spring. Meanwhile, those left to keep the company going in his absence quickly started their damage control efforts. A new board of directors was quickly assembled. Among those elected were Madden's brother and a corporate accounting guru. Once their former leader began repaying his debt to society, company heads began cleaning Steve Madden Limited's financial house; making sure stock prices accurately reflected the health of the business.

The company fully cooperated with the SEC's investigation and hired an independent auditing company to keep watch over the process. Those days and even today, the company's financial practices are an open and well-kept book. Anyone could get the latest financial news from the same site by loging on to for the latest shoe designs. After heading off anymore potential legal woes, management began to focus on keeping the business itself walking tall. If the company's sales reports were any indication, not having "Steve" hasn't really hurt Steve Madden Limited.

While the founder has been in a Florida prison, the company's management built on his vision by expanding into other areas. "Steve" by Steve Madden moved the company from the trendy 16 to 24 year old demographic into upscale footwear for a more mature crowd. The company licensed Candie's and Unionbay footwear for men. Rather than try and replace or substitute Madden's design eye, they took what they had and introduced it to new markets. It worked. According to company reports, nearly all of the brands have increased profit margins and inventory levels.

In a press release, management expressed hope that their profits would have increased in 2005 as compared 2004 (which actually happened). 2. Corporate Communication after the Bad Publicity But prison didn't break Steve Madden—or his company. Like so many of today's celebrity convicts, from Martha Stewart to Paris Hilton, Madden says he emerged a changed person. He served out his sentence, doing yardwork, teaching business classes to other inmates, reading four books a week (from "The Devil Wears Prada" to David McCullough's "Truman") and pumping iron obsessively. I used to wear this tank top in prison," he says. "And I'd stare at myself and flex. I never did that before. " He even got married, to a Madden employee who came for regular visits. And when he was released in April 2005, Madden says, he was "stronger physically, mentally, spiritually" than he'd ever been. After the return of Steve Madden from prison, he decided not to shy away from the imminent release of its namesake founder from prison. The company was promoting the return of its creative leader in a series of eye-catching posters and print advertisements, and is having some fun with it in the process.

While the ads do not say where Madden has been, one suggests, in a wink-wink kind of way, that Mr. Madden has not been on a sabbatical, a secret mission or up the Amazon collecting snakes: "A new meaning for the word spring time. Steve returns. Spring 2005. " The company had launched a rather interesting press campaign celebrating Steve Madden's upcoming release from prison. One features a girl wearing an ankle bracelet and another features an empty pair of shoes with the words, "There's one pair of shoes that's been impossible to fill. Steve returns Spring 2005. Others allude to Madden getting "sprung" in Spring 2005. Financial Dynamics, the shoe retailer's investor relations agency, says the campaign is a positive way of dealing with the prison sentence. It makes light of the company's troubles, sending a message that the board is over it and customers should feel the same way. It's also a sure fire way to get people talking about the brand. When it comes to sales, the only bad publicity is no publicity. Once upon a time, a company, particularly one that sold products to the public, would shun publicity if it possibly could when a senior executive encountered legal woes.

The idea that a company - especially one like Steve Madden, which sells shoes mostly to teenage girls and women in their 20's - would actually run ads calling attention to its leader's prison past would have flabbergasted experts in fields like brand identity, advertising and public relations. "I love controversy; I love pushing the envelope, but when you have a younger customer you have a responsibility to take the law and authority seriously," said James LaForce, partner at LaForce & Stevens in New York, a marketing communications agency specializing in fashion and entertainment clients.

That was of course before Martha Stewart, whose public image has, by initial measures, seemingly gained in stature after her release from federal prison. A colorful paper flap decorated with a photograph of her cradling a chicken, declaring "Welcome home, Martha," was attached to the cover of April's Martha Stewart Living magazine, published by Martha Stewart Living Omnimedia. Companies like Mr. Madden's and Ms. Stewart's may also be more likely to embrace their convicted executives, since those executives have plenty of influence in the boardroom.

Reticence about an executive's past also predates a world in which rappers can find the sales of their music increasing in seeming lock step with the severity of their scrapes with the law. "It's in now to be out, out of prison, that is," said Paul Cappelli, chief executive at the Ad Store in New York, an advertising agency that creates campaigns for brands like JetBlue. "I could see myself suggesting something like this to a client," Cappelli said, "that instead of ignoring the 5,000-pound elephant in the corner, you might as well bring it out into the open and make hay of it. Robert Passikoff, who has been tracking consumer response to the Martha Stewart brand as president of Brand Keys in New York, a brand and customer-loyalty consultant, said that his index of its value had recently risen. The index has climbed to 96, Mr. Passikoff said, compared with a bottom of 62 - "lower than Enron," he said - before she entered prison. (The peak was 122 in May 2002. ) Is the new badge of honor, I served my time? We are not sure it doesn't ultimately hurt, even if the American public is largely forgiving when people serve their time.

The campaign is trying to make him the face of the brand but who wants the face with numbers under it? " Steve Madden is different from Martha Stewart, because unlike her, he was never the brand. He was the label, so a lot of people don't know who the guy was and didn't know he went to jail. That has worked to Steve Madden's advantage so far,, citing the history of the Madden brand index: It was 110 before Madden went to prison and fell only slightly, to 106. However, it is worth mentioning that consumers seem to be more forgiving about men than women. Brian Russak, a senior editor at Footwear News in New York who covers Madden, said: "It seems like an obvious play to Martha Stewart, but I have to wonder whether that resonates with Madden's consumers. We often say here the target consumer doesn't know there is a Steve Madden. " Trey Laird, president and executive creative director at Laird & Partners in New York, an advertising agency that creates campaigns for fashion and apparel brands like DKNY and Gap, also drew distinctions between Madden and Stewart.

The Madden ads "are kind of cute and clever, but this is not a Martha Stewart situation, when the whole country is watching because she's a cultural icon. " "I don't feel most consumers know about" Steve Madden's sentence, he added, "or if they knew, they forgot about it. " The Madden campaign can be perceived as a parody of Ms. Stewart's story meant "to get people talking about the brand," Laird said, particularly because "the Madden brand has never been a brand that has taken itself seriously. " For instance, a recent Madden campaign featured caricatures of its customers with comically oversized heads.

A statement by Financial Dynamics read: "Steven Madden Ltd. looks forward to the much anticipated return of the unique talent and creative design expertise of Steve Madden in the spring of 2005. Further, the company believes the current advertising campaign embodies and enhances the Steve Madden brand. " If the rise in Martha Stewart stock is any indication, getting out of prison seems to be "in. " The publicity generated by Madden's return could translate into increased exposure and, in turn, increase sales in the future.

Plus, having him back at the head of the creative team will bring his company something it hasn't had in a while... his ability to give the millions of women who buy his shoes what they want. So, If there's one thing Americans enjoy more than watching the mighty fall, it's granting them forgiveness. "You have to go through a process. You made your mistake, you did your time," Madden says. "You have to be a little contrite to get redemption. " To judge from the recent performance of his company, Madden's been forgiven—at least by that segment of the population that favors shoes with animal prints, polka dots and four-inch heels.

Sales were $475. 2 million in 2006, up from $375. 8 million the year he was released, while net income more than doubled to $46. 3 million. Madden is quick to admit that he's made mistakes. But he says he wouldn't change a thing about his life. "Everything I've done has gotten me to where I am today," he says. His prison experience has clearly had an impact on his designs. The next offering from the prison groom: wedding shoes, called I Do. "It's a huge market," he says. "Marriage is sort of back on track. " And so is Steve Madden. . The Crisis 3. 1. Chain of events In summer 2004, Madden's luck turned when he was indicted for stock fraud and money laundering in both the Eastern and Southern Districts of New York. According to the charges, Madden secretly purchased stock on behalf of the principals of two corrupt penny-stock brokerage firms -- Stratton Oakmont Securities of Lake Success, Long Island, and Monroe Parker, of Purchase, Westchester -- helping them manipulate 29 initial public offerings, including that of his own company.

That same day, the Securities and Exchange Commission came after him with a civil suit alleging Madden had employed "devices, schemes, and artifices to defraud. " If convicted in either of the criminal cases, Madden would face up to more than twenty years in prison and several million dollars in fines. If he were to lose the SEC case, which was put on hold until the criminal cases were completed, he could be forced to pay millions more. Even worse, he ran the risk of being barred from serving as an officer or director of any public company, including his own.

On the day of his arrest, while Madden was busy pleading not guilty to all charges and pledging his East Hampton country house and the Long Island homes of two friends in order to make bail, shares of Steve Madden Limited fell almost 15 percent to $11. 85 before nasdaq halted trading. Two days later, when the stock (which trades under the ticker SHOO) reopened, it fell to $6. 88. Though the stock has traded up as high as $13. 88 due to a recent rally in the footwear sector, it has yet to regain its pre-indictment momentum. "The story's sad. It's a great story. It's a real American story.

My old friends took me public, they turned out to be crooks, and I'm innocent”, Madden has been quoted to say. While the indictment has severely damaged Steve Madden Limited's standing on Wall Street – there was a consolidated class-action shareholder lawsuit pending against the company, and it has hired Bear Stearns to explore "all possible strategic options," including an outright sale -- it hasn't tarnished Steve Madden's reputation as a design and marketing genius. "He has some special knack at figuring out what teen girls want to wear," says Sanford Bernstein analyst Faye Landes.

According to teen-market consultant Irma Zandl, who ranks Madden with Nike and Adidas in the top five brands that girls favor, his shoes are popular because they are fabulously over-the-top. "Steve Maddens are not for the conservative girl," she says. "If he's going to add leopard skin, he'll do it ten times more outrageously than anybody else. It's for people who think less is less. " Every week following his indictment, Madden used to get more than a thousand e-mails from his customers, only a handful of which referred to his legal predicament. In fact, the company not only refused to retrench, instead it was aggressively expanding.

At that year’s Grammy Awards, the company made a bid for high-profile customers by giving out fluffy leopard-print slippers to special guests. Three days later, at the Western Shoe Association show in Las Vegas, Madden introduced his newest product line at the time: Steve Madden Mens. 3. 2. The players While Madden was working his way up in the shoe industry, his best friend, Danny Porush, was stuck in a rut. After five years at Boston University, he left without getting a degree and bounced from job to job, working for, and starting up, a variety of small businesses, including an ambulance company called SureRide Ambulette.

In 1988, while watching his son in the playground of his Bayside, Queens, apartment complex, he met an unlikely mentor: a dental-school dropout and former door-to-door meat and seafood salesman named Jordan Belfort. A short, brash, young Jewish guy, Belfort boasted he was making $50,000 a month selling penny stocks out of a boiler room in Great Neck. As Porush would later testify, Belfort confided the business was "half a scam," but the chance to increase his income tenfold was a siren call Porush couldn't resist. Two days after they met, he closed down SureRide and joined the firm.

Using fanciful scripts, the brokers -- Belfort's childhood friends from Queens, Porush's golf buddies, money-crazed kids recruited from Long Island college campuses -- sold and manipulated tiny, high-risk IPOs, according to testimony, by grossly exaggerating their prospects, boasting that they had inside information, and generally saying whatever was necessary to make a sale. Their underwritings encompassed a vast array of low-rent businesses and all had the same trading pattern -- the stocks would soar when they touted them but then come crashing down when the brokers unloaded their stakes.

In 1992, Steve Madden made a decision that at the time seemed natural enough: He hired his best friend's firm to be his banker. While Madden knew that the SEC had already accused Stratton of engaging in price manipulation and employing high-pressure sales tactics, he considered it a legitimate company. "They cleared through Bear Stearns," Madden recalls, pointing out that Stratton's link to the giant firm gave it an aura of respectability. Besides, Stratton was not only willing to raise capital for Steve Madden Limited in the private markets, it wanted to take the tiny, unproven company public.

Like his friend Porush, Madden was going to enter the big leagues. On December 13, 1993, only seven months after the first (and, at that time, only) Steve Madden shoe store had opened on Broadway in SoHo, Stratton Oakmont took the company public at $4 a share. The most active stock on the nasdaq on the day of its offering, SHOO closed at $8 a share, a huge gain in the pre-Internet era. Just a few months later, it sunk to $3. With only $5. 3 million in sales, a net loss of $900,000, and a boom-bust trading history, the company simply seemed to be nother one of Stratton's overhyped IPOs. But it wasn't. In 1994, Madden surprised his critics. With hardly any advertising, Madden increased sales by almost 40 percent. The next year, sales tripled to $39 million, prompting Madden to hire Rhonda Brown, the former merchandise president of Macy's East, to become his chief of operations. Soon, Madden had celebrity customers -- Carmen Electra, Sarah Michelle Gellar, Neve Campbell, Alyssa Milano, Mary J. Blige.

By 1997, the company was generating $59 million in total sales, operating seventeen stores, and introducing a clothing line designed for "a customer who doesn't break the law -- but does break the rules. " That spring, in a lengthy profile in Footwear News, Madden compared his company to "an underground rock-and-roll band that gets its first hit single. " Meanwhile, over in lake success, Porush and Belfort were struggling to stave off failure. While they were still raking in tens of millions a year from stock manipulations, regulators were working to put Stratton out of business.

In March 1994, they nearly did: As part of a settlement with the SEC, Belfort was barred from the securities industry for life. But Porush managed to garner a lighter sanction, barred for just one year from supervising other brokers. In the wake of the ruling, Belfort continued to control the firm through Porush. Inevitably, though, the relationship between the partners soured. In January 1997, the company eventually filed for bankruptcy. By that time, Gregory Coleman, an agent in the FBI's securities-fraud squad at 26 Federal Plaza, had been investigating Stratton for several years.

In 1995, under instructions from federal prosecutors, Coleman sent out a flurry of subpoenas to some of Stratton's clients, including Madden, in an effort to create a panic that would culminate in a race to the government's door. One year later, U. S. Customs officers in Miami arrested a young French private banker who worked for Union Banquaire Privee in Switzerland. The arrest was made as part of an unrelated money-laundering sting operation, but hoping to win a lighter sentence, the banker began to talk. By sheer coincidence, he had two clients who were of particular interest to the government: Jordan Belfort and Danny Porush.

On September 2, 1998, just a few minutes after pulling out of the driveway of his Old Brookville mansion to take his 5-year-old daughter to the video store, 36-year-old Jordan Ross Belfort was arrested for conspiracy to commit money laundering and securities fraud. The next day, 41-year-old Daniel Mark Porush was nabbed down in Boca Raton. Faced with maximum sentences of twenty years in prison, both men came to the same conclusion: After only a week in jail, they decided to flip. "It was like taking down the heads of a major crime family," says former assistant U. S. ttorney Joel Cohen, the prosecutor in the indictment. "But in this case, the organized crime was the brokerage business. " Porush and Belfort secretly wore wires to record their friends and dragged down dozens in their wake: lawyers and accountants, bankers and brokers. 3. 3. Effects For the government, Steve Madden was one of the biggest catches in the dragnet. The shoe mogul had been a focus of the investigation for some time; the SEC had cited his company's IPO as one of those that had been manipulated, and believed that Madden was routinely getting, and flipping, stock in other Stratton deals.

Although some of Stratton's IPOs had grown into profitable businesses, only Madden's company had become a significant success. But according to Belfort, the celebrity CEO was also a "rat hole," a place to hide stock. Porush, his P. S. 1 buddy, didn't hesitate to give him up either. Madden, as he recently testified at the trial of Stratton's former auditor, was "deep into the fraud with us. " According to the Madden indictments, the designer's personal connection to Stratton began in 1991, when Madden agreed to secretly buy and sell stock in Stratton deals on Porush's behalf with "the understanding that he would incur no risk. (Porush, as a principal of the firm, was restricted in his ability to trade stock in these companies. ) The deal was that Madden would earn a "predetermined profit on each transaction," then kick back to Porush a significant portion of the proceeds, either in cash or by purchasing stock from Stratton that was deliberately overpriced. Once Belfort was barred from the securities industry in 1994, Madden allegedly entered a similar agreement with him regarding the Stratton spinoff Monroe Parker. But according to the SEC, Madden wasn't only ripping off the general investing public, he was ripping off his own shareholders as well.

In early 1993, the SEC alleges, Madden agreed that the IPO of his company would "be a manipulation similar to previous Stratton IPO manipulations . . . such as Master Glazier's Karate International. " In exchange for his agreement to "follow Porush and Belfort's instructions," they allegedly promised "that even if SHOO . . . went bankrupt, Madden would make money on the SHOO IPO. " In addition, as Belfort recently testified at the Stratton auditor's trial, Belfort "had a secret deal with Steve Madden to maintain control of his company after it went public. Because Belfort and his partners had financed Steve Madden Limited's early development, they owned a majority stake in the company before it went public. But the National Association of Securities Dealers refused to list SHOO unless Belfort -- then under investigation for securities fraud -- dramatically reduced his stake. As Belfort testified, he agreed to sell his shares to a corporation controlled by Madden to placate the NASD, but it was a bogus transaction. "Under the secret deal which we had written down and legally signed," says Belfort, he was the true owner.

Belfort exerted an extraordinary influence over the company. Stratton's auditor, who was a friend of Belfort's, also became Madden's auditor. In 1994, after Belfort was kicked out of the securities industry, he even joined SHOO as a consultant. In addition, according to Porush's testimony, key Madden employees were given stock in Stratton IPOs as part of their compensation. (A Madden spokesperson denies such an arrangement existed. ) As Porush explained, "Part of the package when we recruited people for Steve Madden was . . . because you're in with us, you'll make money on every new issue. In 1997, the Belfort-Madden friendship ended abruptly around the time Belfort asked Madden to sell some of the SHOO stock he secretly owned. Madden refused, and the dispute quickly turned into a bitter lawsuit, during which Belfort produced the deal they had signed.

Madden admitted the signature was his but insisted he had been "manipulated" and "tricked" into signing by someone he had "trusted as my friend, business associate, underwriter, and confidant. " According to Madden, the demise of the friendship actually preceded the lawsuit, "when Belfort started showing up stoned for work. "I have no intention of allowing Jordan Belfort to ruin SML's bright future by threatening me or by tarnishing the company's reputation," Madden vowed at the time. Ultimately, he settled the suit for $4. 3 million in cash, an outcome that favored his adversary. In the fall of 1999, around the time the government went public with the news that Porush and Belfort had been secretly cooperating, the U. S. Attorney's Office approached Madden's personal attorney, Joel Winograd, to discuss its case against his client. Soon, rumors that Madden might be indicted began wending their way around Wall Street. . Assessment As many people saw it, the fact that Madden had an account at Stratton doesn't mean he knew what Porush and Belfort were doing, let alone that he was in any way involved. Madden "was buying stock and making money, buying stock and losing money. He made more than he lost, but he didn't know what improprieties they were involved in. " As Madden himself put it in the course of his lawsuit with Jordan Belfort: "My strengths as a businessman lie in the design and sale of women's shoes, and I have never been comfortable with complicated or technical legal or business documents . . .

I have always relied on the people around me. " When asked why Madden employed Belfort as a consultant at Steve Madden Limited in 1994, after he was barred from the securities industry, his lawyer replies, "Steve Madden is a loyal friend and a devoted human being. He didn't turn his back on Jordan Belfort in his time of need. " And what about the $80,000 cash kickback Madden allegedly gave to a Stratton golf buddy in the locker room of the Engineers Country Club in Roslyn, Long Island? "It's totally ridiculous," says Winograd. "Cash? The government can explain from here to kingdom come.

There is no way Steve would have had that amount of cash, and he wouldn't have had that in a bag walking around a country club. I think these fellows have watched too many spy thrillers. "Let's say Steve was fooled," Mr. Madden’s lawyer summarizes. "You can be savvy in business, but you may not be savvy in love and friendship. " In any case, "Steve will overcome," he vows. "His company will continue to have record quarters of sales and earnings, and this will have a fairy-tale ending. " Perhaps. But even if Madden was acquitted in both of his criminal trials, he still lost the civil case and, control of his company.

For Steve Madden Limited, such an outcome might be manageable. "Mr. Madden is extremely talented and a tremendous business partner, and he's wonderful," says the company's president, Rhonda Brown. "But we could continue to grow our business profitably . . . whether he's on the golf course, or whatever. " For Steve Madden the man, it could be devastating. "My life," he says, "is my company. " 5. Conclusions Throughout the paper, we have researched and debated both sides of the issue and conversely presented both approaches by those involved or ever taking interest in the matter.

Some say that the fashion mogul got what he deserved, bashing him for being a fraud under a publicly endearing persona, while others, close friends and devoted customers alike, stood behind him and helped if not the man, the company itself from disaster. Should a great visionary not content himself with being the image upfront and the genius behind the empire he built and instead take charge of other key areas that make a business successful rather than trusting others, trusted friends or proven experts with managing them?

That may be true and perhaps this was where Mr. Madden made the biggest mistake of all. While the case was and still is controversial, the company succeeded in overcoming the crisis and continues to be among the most profitable and booming shoe fashion business in the States.