By LouAnn Lofton (TMF Lou2)
June 29, 2000

Summary: Steve Madden's founder and CEO was charged last week with securities fraud. News yesterday shows that he, along with other executives, filed to sell shares of the company three weeks before the charges were made. Madden hasn't been convicted yet, but investors should watch closely. Corrupt management can sink even the strongest performer.

Shoes, glorious shoes -- and securities fraud? Yep, if we're talking trendy Gen-X shoemaker Steve Madden, Ltd. (Nasdaq: SHOO), that is. The company's namesake himself was charged last week with manipulating 22 initial public offerings (IPOs), including his own company's.

The back story continues to evolve, as a regulatory filing released yesterday showed that Madden and other company executives filed with the Securities and Exchange Commission (SEC) to sell thousands of shares about three weeks before charges were brought against Madden.

No securities fraud charges have been made against the company or its executives, and Madden pled not guilty to all charges.

Since the announcement last week, a flurry of class action suits have followed, along with the company's stock being bid down about 40%. The company's board allowed Madden to stay on as CEO, but have temporarily named another officer chairman. The company tried some damage control today, sending out a release about its plans to open two new stores and continue its roll-out of the "Stevies" teen-brand concept.

Short-term price movements, of course, shouldn't concern long-term shareholders. However, potentially corrupt management should. Steve Madden, Ltd. has respectable financials, and great sales and earnings growth, but corrupt management negates all that. Bill Mann's excellent Rule Maker column on "When to Sell a Rule Maker" gives "Crooked Management" as its first reason to sell a Rule Maker, and this rule makes sense for any company -- Rule Maker or not -- in your portfolio.

Steve Madden hasn't been convicted yet, but Steve Madden, Ltd. shareholders should factor his legal troubles into their analysis of the company when thinking about whether to hold or sell.

Your Turn:
Vote in this poll and tell us what you think:

What should Steve Madden, Ltd. shareholders do now?

1. Sell now -- management looks corrupt.
   
2. Wait and see -- he hasn't been convicted yet, after all.
   
3. Buy more -- what a bargain!
   
4. None of the above
   

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