Jay-Z’s Roc Nation Accuses Brand Group of Fraud

(Via Wikipedia)

MANHATTAN (CN) – Jay-Z once rapped, “I’m not a businessman, I’m a business, man!” On Friday, four companies owned by the world’s first hip-hop billionaire brought a federal complaint against a brand-licensing company he says has been cooking the books for years.

Signed by attorneys at Quinn Emanuel, the suit says that Iconix brand group inflated its reported revenue to induce a brand partnership with Jay-Z’s Roc Nation in 2013.

“To lure licensees, as well as to generate quick profits for itself, Iconix manipulated its financial statements for years to give the appearance that it was a thriving company and a premier player in the brand management space, when in fact it was teetering,” the complaint says.

The suit alleges that, instead of consolidating the joint ventures onto Iconix’s balance sheet, Iconix exploited brand-partnership deals by falsely accounting for the joint ventures as off-balance sheet even though they were structured in such a way that Iconix, rather than the other joint-venture partners, took on all of the economic risk.

“Then, Iconix booked its future hypothetical revenues from the joint ventures upfront even though it knew that the joint ventures, by design, were unlikely ever to be profitable,” the complaint states. “Thus, while it reported strong year-after-year performance, its revenues in large measure were fictitious.”

Jay-Z’s companies sat they never would “have entangled their business interests with Iconix had it disclosed the true condition of its business or the massive accounting fraud in which it was engaged.”

From July 2013 through July 2015, Iconix’s stock was trading for more than $250 per share, reaching an all-time peak above $400.

Following the abrupt resignation of the company’s President and CEO Neil Cole in August 2015, however, Iconix’s stock fell by nearly 80% and today trades for less than a dollar per share.

According to Forbes, Roc Nation accounts for $75 million of Jay-Z’s $1 billion portfolio, which also includes his ownership of the Tidal music streaming service, a $70 million art collection, $50 million of real estate and D’Ussé cognac, his $100 million joint venture with beverage giant Bacardi.

Following numerous shareholder derivative actions and securities class actions against Iconix and its officers and directors, the Securities and Exchange Commission and the Department of Justice have launched probes into the company’s practices.

Jay-Z was questioned last year by Securities and Exchange Commission about the fraud allegations arising from his joint ventures with Iconix.

The Iconix Brand Group hit Jay-Z with a federal complaint in 2017. Having bought certain rights associated with Rocawear apparel for more than $200 million in 2008, Iconix alleged trademark and contract violations related to a crossover line of Roc Nation hats licensed to Major League Baseball and the New Era apparel company. Jay-Z’s company countersued for breach of implied license, arguing that the 2007 agreement covered Rocawear but not the Roc Nation brand.

Iconix did not immediately respond to request for comment Friday.

In addition to Roc Nation, the plaintiff group includes S. Carter Enterprises. Jay-Z, whose given name is Shawn Carter, is not a party to the suit, which was filed in New York County Supreme Court.

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