November 21, 2005 12:00 PM

As the founder of a $338 million shoe empire, Steve Madden had grown accustomed to traveling in style, whether jetting to the famed golf course at Pebble Beach or to his stores in Miami. But the private plane he boarded on Sept. 18, 2002, was for a trip Madden wished he didn’t have to take: After pleading guilty to two counts of securities fraud and money laundering, the shoe designer was off to a Florida correctional facility, where he would spend the next 31 months locked up. “It was unbelievably mind-blowing,” says Madden, who was also ordered to pay $5 million in restitution. “I checked myself in, and the next day, I was cleaning bathrooms and picking up cigarette butts out in the rain.”

As humbling as the experience may have been—Madden’s prison job was to operate and repair the sprinkler system, and he slept in a cubicle with another inmate—Madden says it also gave him “a lot of time to think” about what had led him, back in ’94 and ’95, to get involved with two brokerage firms in manipulating IPO prices. “Fear of losing my talent, letting my family down and greed—that’s how I got in trouble,” he says. “I regret the mistakes I made, and I don’t blame anybody else. I took responsibility and did my time like a man.”

Now Madden, 48, who was released from prison last April, is working to rehabilitate his reputation as the driven head of Steven Madden Ltd., which he founded in ’90 with $1,100. The company itself wasn’t implicated in the scandal and continued to thrive during Madden’s incarceration, expanding to 93 stores and beating out Nike and Adidas as favorite footwear among 13- to 29-year-olds in a recent survey. “I don’t think Steve Madden the person is as important as Steve Madden the brand,” says consumer expert Michael Berland, who conducted the poll. “That there is a Steve Madden would be a real shock to some people.”

There is, of course, and while he was out, his moderately priced label continued to tempt both celebs (Beyoncé, Hilary Duff) and less affluent shoppers with stylish shoes. (Some critics charged they were akin to knockoffs.) “Not everyone can buy Chloé,” says Carmen Electra, who owns Madden gold flats. “But you can get the closest thing at Steve Madden.”

For his part, Madden, who was allowed to receive his $700,000 salary throughout because his crimes didn’t involve his company, says he “wasn’t that interested in shoes while I was away.” What he did miss was “being able to take a shower without shower shoes. Walking down the street on a fall day in Manhattan. Getting up in the morning and reading the newspaper.”

He found some solace in reading books, from David McCullough’s bio of John Adams to The Devil Wears Prada—and from a course he taught fellow inmates about how to start a business. He says he also “got in touch with the prayer thing.” Madden, who says he used alcohol and drugs in the ’80s and relapsed during his legal troubles, also underwent court-ordered rehab. Sobriety, he says, “is not a struggle, but it’s not something I take lightly.”

If there was an upside to his forced time off, it was that Madden, who says he used to “work seven days a week and sneak a round of golf in,” fell in love. Wendy Ballew, 34, his director of operations who says she used to view Madden “like a brother,” visited him often in prison. They would talk, watched by guards, in the cafeteria and, recalls Madden, “I would hold her hand. [One day] I kissed her. Obviously there was no sexual intimacy until I came home, but it was very romantic.”

Two months before his release, Madden proposed, and he spent his first weekend as a free man with Ballew in Montauk, shopping and enjoying a spa. “It just was so nice,” she says, “being out.”

No doubt her fiancé would agree. But Madden isn’t trying to forget the past three years entirely. Faced with challenges now, Madden says he thinks back to prison. “There’s a quote from Winston Churchill I put up on the wall,” he says.” If you’re going through hell, keep going.’ That’s what I’ve done. I’ve kept going.”

Marisa Wong. Fannie Weinstein in New York City

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