NEW YORK, Dec 5 (Reuters) - Iconix Brand Group Inc founder and former Chief Executive Officer Neil Cole has been charged with accounting fraud, while the former chief operating officer has pleaded guilty to related charges and is cooperating with authorities, federal prosecutors announced Thursday.
The former executives inflated the apparel licensing company's revenue by convincing a Hong Kong-based company to overpay for stakes in joint ventures with Iconix, according to an indictment unsealed in federal court in Manhattan.
The Hong Kong company, which was not named, agreed to the overpayments on the condition that it would be reimbursed through sham consulting or marketing fees, according to the indictment.
Through the scheme, Iconix's revenue was inflated by a total of about $13 million over three separate joint venture agreements in 2013 and 2014, the indictment said.
The company's shares tumbled 11% in after-market trading after being temporarily halted.
Iconix will pay a civil penalty of $5.5 million to fully resolve all outstanding SEC claims related to the matter, the company said. It did not admit or deny the SEC's allegations.
Cole, 62, is charged with 10 criminal counts, including securities fraud, conspiracy and making false statements to the U.S. Securities and Exchange Commission.
Former Chief Operating Officer Seth Horowitz, 43, pleaded guilty on Dec. 2 to five counts, also including securities fraud, conspiracy and false SEC filings, under an agreement with prosecutors.
The SEC also brought civil lawsuits against both men. Horowitz has agreed to settle, while the agency's lawsuit is proceeding against Cole.
Lorin Reisner and Richard Tarlowe, counsel for Cole, said the former CEO had acted lawfully and properly in all respects, and the case should not have been brought.
"All of the transactions at issue were fully reviewed and approved by Iconix's legal, finance and accounting professionals," the counsel added.
Cole stepped down from the top job at Iconix in August 2015, after about 10 years at the helm.
"I am pleased that we were able to resolve this legacy matter that arose under previous management," said CEO Bob Galvin, who was named CEO in October 2018.
He also said the company had taken "significant steps" to remediate compliance and reporting functions.
(Reporting by Praveen Paramasivam in Bengaluru and Brendan Pierson in New York; Editing by Lisa Shumaker and Anil D'Silva)