Complaint Against Neil Cole. Document Filed by Iconix International Inc...(Levitt, Jamie)
INTRODUCTION
1Defendant Neil Cole is a former CEO of Iconix who took advantage of his position to deceive the Company’s auditors, regulators, and shareholders about Iconix’s financial condition by engaging in an overpayments-for-givebacks scheme to falsely inflate Iconix’s financial condition. Cole’s conduct led to an indictment, a federal jury finding Cole guilty of securities fraud and making false filings to the Securities and Exchange Commission (“SEC”), an SEC investigation, and the filing of multiple derivative and class actions. It also allowed Cole to reap tens of millions of dollars through stock sales made while he was concealing his scheme.
2Despite the serious financial and reputational harm and business disruption Cole caused the Company, his defense was primarily funded by Iconix, which acted in good faith throughout Cole’s legal troubles to advance more than $26 million to pay for his many lawyers and advisors. As is the usual course, that advancement was made subject to Company By-Laws and undertakings Cole signed that expressly prohibit him from keeping such funds if a final
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adjudication or judgment establishes he acted in bad faith and/or with active and deliberate dishonesty.
3Although Cole’s conviction ultimately was vacated on procedural grounds, his bad faith is unquestionable, and he should be required to repay the millions Iconix advanced to fund his defense. The mountain of facts that led a jury to determine Cole’s guilt beyond a reasonable doubt did not disappear when his conviction was vacated on double jeopardy grounds, and that voluminous record supports a finding of Cole’s bad faith, especially under the preponderance of the evidence standard applicable here.
4The facts that led to Cole’s conviction, including sworn testimony and an extensive documentary record, show that Cole entered an agreement with a business partner pursuant to which that partner overpaid for Iconix’s licenses. Cole and that business partner then arranged for a secret side-agreement in which Iconix would subsequently give a portion of the payment back to the partner. The overpayment was intended to fraudulently inflate the revenue and earnings per share numbers reported to the SEC and Iconix’s investors.
5Cole signed and approved quarterly filings with the SEC that he knew did not disclose the improper planned givebacks. Indeed, as the federal judge who presided over Cole’s criminal trials opined: “I believe that you [Cole] knew that the two transactions involved had no economic substance. I believe that you entered into those transactions knowing that you would be paying back the $5 million and $6 million. I believe that you did that because of your desire to have the Company meet its revenue market consensus—consensus revenue targets, as it had for so many quarters before, and you did it for that reason.” United States v. Cole, No. 19-cr-869 (S.D.N.Y.), ECF No. 316 at 34–35.
6Cole’s wrongful actions—made in bad faith and with active and deliberate dishonesty—have imposed extensive costs on Iconix. In fact, recovery of funds advanced to Cole for his defense will barely begin to compensate the Company for the harm Cole caused. Not only did Iconix advance tens of millions to Cole for the defense of his own misconduct, but the Company was forced to spend thousands of hours and expend many more millions of dollars in attorneys’ fees to investigate the nature and scope of Cole’s fraudulent scheme, defend itself in the SEC’s and DOJ’s years-long investigations of Cole’s scheme, as well as in related shareholder class actions and derivative actions (leading to considerable settlement payments), incur audit expenses and restate its earnings for 2013, 2014, and the first two quarters of 2015— all of which were reported when Cole was responsible as President and CEO—and suffer irreparable harm to the Company’s reputation, its share value, and the value of its brands.
7Cole refuses to reimburse the Company for the amounts advanced. In fact, in a transparent hope that the best defense is a good offense, Cole is suing Iconix for even more money in a case that is doomed to fail for reasons including his own misconduct. See Cole v. Iconix Int’l Inc. et al., Case No. 1:25-cv-09357-MKV (S.D.N.Y.). Cole should not be permitted to add insult to injury by keeping the tens of millions of dollars Iconix advanced him for legal fees and costs spent to defend the very misconduct that harmed the Company, nor should he be permitted to claim additional fees.
8Cole’s refusal presents an actual controversy requiring judicial resolution. Accordingly, Iconix brings these claims to recover the millions advanced to Cole, as the Company By-Laws, undertakings, and other relevant agreements require. Specifically, Iconix seeks (1) a declaratory judgment that Cole acted in bad faith and/or with active and deliberate dishonesty, and is therefore not eligible under Iconix’s By-Laws for indemnification of his legal fees and associated costs, and (2) an order requiring Cole to repay the over $26 million in legal fees and related defense costs Iconix advanced pursuant to its contractual obligations. Iconix brings these claims seeking a determination that a preponderance of the evidence shows Cole acted in bad faith and/or with active and deliberate dishonesty, requiring the return of the tens of millions of dollars advanced to him by Iconix, and precluding further indemnification to Cole.
PARTIES
9Iconix is a Delaware corporation with its principal place of business in Florida.
10Cole is, on information and belief, a resident of New York.
JURISDICTION AND VENUE
11This Court has subject matter jurisdiction over these claims pursuant to 28 U.S.C. § 1332(a)(1), as this action involves citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs.
12The Court has personal jurisdiction over Defendant Cole because, on information and belief, he resides in and transacts substantial business within the state of New York and this district, and because a substantial part of the events giving rise to the claims occurred in New York.
13Venue is proper in the Southern District of New York pursuant to 28 U.S.C. § 1391 because there is already a pending action between the Parties in this Court, and because Defendant is subject to personal jurisdiction in this District. Venue is also proper because a substantial part of the events giving rise to the claims occurred in this District.
FACTUAL ALLEGATIONS
14Iconix (f/k/a Candie’s, Inc.) is a premier brand management company that owns and licenses a diversified portfolio of global consumer brands across the fashion, sports, and home goods sectors.1 Iconix specializes in marketing, merchandising, and licensing its brand portfolio, and has over 500 licensees with leading manufacturers and retailers worldwide that sell across various distribution channels from the mass market to the luxury market, as well as through various online outlets.
15Neil Cole served as President, CEO, and Chairman of the Board of Directors of Iconix from 1993 through 2015. His tenure as CEO was characterized by a costly litany of government investigations into misconduct under his stewardship of the Company. He ultimately was ousted from his leadership roles at Iconix when his fraudulent inflation of the Company’s revenue numbers and submission of false statements to the SEC came to light and resulted in restatement of historical financial disclosures made under his leadership. I.
Cole’s Long History of Misconduct
16The misconduct that ultimately spelled the end of Cole’s career with Iconix was not his first foray into the unscrupulous. Cole is a serial scofflaw. Since the early years of his leadership of the Company, regulators and the courts have repeatedly found that Cole violated federal law while serving as CEO of Iconix.
17For instance, the SEC determined that Cole oversaw accounting fraud at Iconix between 1997 and 1999, designed to improve the Company’s publicly reported financial condition. The SEC found that Cole was provided with indications that Iconix was improperly recognizing revenue through the use of improper bill-and-holds but failed to investigate or stop the practice. The SEC further found that Cole signed documents filed with the SEC that improperly recorded the Company’s revenue and income generated by these schemes. The SEC determined that, even after auditors raised questions with Cole about these issues and indicated
Until 2005, Iconix’s predecessor company operated under the name “Candie’s, Inc.” Candie’s, Inc. is referred to as Iconix or the Company in this pleading.
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Public U.S. federal court record (district court docket 73108239, document 1). Source via the RECAP Archive (Free Law Project). The same record is available from PACER. Informational only — not legal advice.