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Steve Madden: Crisis of the Sole

Rather than finish college, Madden took a sales job at Jildor, a popular shoe store in Cedarhurst. His former boss, Jan Friedman, recalls him as being "one of the most natural-born salesmen I've ever seen. He could sell anything to anybody." After spending two years "like Al Bundy, with a little shoehorn hanging out of my back pocket," Madden moved to Greenwich Village and took a job at L. J. Simone, a shoe wholesaler known for boots decorated with fringe and faux gemstones.

During the next eight years there, Madden expanded his repertoire to include marketing, manufacturing, and design. But his employment came to an end in July 1988; four months later, he got arrested for drunken driving. "I was whacked out," Madden recalls. "Bad things happened when I drank." An attempt to start a new business with a former Simone colleague faltered. But on January 9, 1989, Madden took his last drink. Six months later, he was out on his own. "I wanted to be in charge," he says, "to be a boss."

With only $1,100 in the bank, Madden designed a Western clog called the Marilyn. He used credit to have 500 pairs manufactured and charm to convince his doorman to pose as his chauffeur while he sold samples from the trunk of his car. It was the early nineties, the beginning of the seventies-fashion revival, and Madden's thick-soled shoes quickly caught on. "He had a good eye," recalls Bob Goldenberg, a retired shoe wholesaler who has known Madden for years. "He went through every booth in Europe at the shows."

Madden's breakout hit was the Mary Lou, a patent-leather Mary Jane with a big bump toe that won an instant following among teens. "I started getting calls from mothers all over the tri-state area," he remembers. "Fifteen calls a day. The kids had nothing to wear to the bat mitzvahs, to the confirmations. This was something." Before long, like any other successful small businessman, he needed cash to grow.

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.

"Steve will overcome," vows his lawyer, Joel Winograd. "His company will continue to have record sales and earnings, and this will have a fairy-tale ending."

Only two months later, Belfort and Porush opened their own brokerage company in a Queens car dealership (their third partner was a man Belfort had met when they both spent a summer selling ice cream at Jones Beach). With Belfort at the helm, the partners transformed their firm into a business that, at least on the surface, seemed rather impressive: the venerably named and auspiciously located Stratton Oakmont of Lake Success, Long Island.

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. Take those customers "to the mat," Belfort would urge. "Rip their heads off!" Stratton's underwritings encompassed a vast array of low-rent businesses: Repossession Auction, which was a Miami-based used-car dealership; Licon International, possibly so named because in order to sell the stock you had to "lie" and "con"; and Master Glazier's Karate International, an Elizabeth, New Jersey-based martial-arts school with a total of four branches in only two states. Nearly all had the same trading pattern -- the stocks would soar when Stratton 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 another 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 June 1996, seeking a respite from all the stress, Belfort took his wife and six of his friends for a Mediterranean cruise aboard his 170-foot yacht, which had originally been built for Coco Chanel. Setting out from Rome for Sardinia in the midst of a brutal storm, they nearly drowned when the boat broke in half and sank; they were rescued by the Italian Navy. It was a bad omen: Six months later, Stratton Oakmont was forced to shut its doors. The month after that, in January 1997, the company filed for bankruptcy.