Thursday, November 08, 2012

Corruption: Former Carter’s Inc. exec indicted for role in long running insider trading schemes

U.S. Attorney’s Office 
Northern District of Georgia

ATLANTA—Eric M. Martin, 42, of Roswell, Georgia, former head of investor relations for Carter’s Inc., the major children’s clothing company, was charged by a federal grand jury today with conspiracy, securities fraud, and wire fraud in connection with multi-year, multi-state insider trading schemes primarily involving Carter’s stock. The indictment alleges that, during Martin’s employment with Carter’s between 2005 and 2009, he traded in Carter’s stock based on material, non-public information about the company’s quarterly and annual financial results and, further, that he tipped a former Wall Street analyst about this and other non-public information in advance of Carter’s public announcement of the information.

“President Obama’s Financial Fraud Enforcement Task Force is committed to combating illegal insider trading wherever it occurs, whether on Wall Street or Peachtree Street,” said United States Attorney Sally Quillian Yates. “This indictment charges that for years, Carter’s trusted Martin with the company’s most intimate secrets, including information about its not-yet-disclosed financial results. Instead of safeguarding this inside information, he was using it to make illegal profits in the stock market and tipping others so that they could do the same.”

Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office, stated, “Corporate leaders are expected to follow the rules and laws that govern corporate proprietary and financial disclosure. On occasion, such leaders disregard these rules and laws for personal gain. The FBI will continue to work with its various law enforcement partners in dedicating investigative resources toward such criminal activities as alleged in this indictment, to include acts of insider trading.”

According to United States Attorney Yates, the charges, and other information presented in court: Martin was employed as the head of investor relations for Carter’s Inc., headquartered on Peachtree Street in Atlanta, Georgia, from early 2005 until his termination in March 2009.

Carter’s is a publicly-traded company registered with the U.S. Securities and Exchange Commission (SEC), and its stock is listed on the New York Stock Exchange under the ticker symbol “CRI.” Carter’s is obligated to report its financial results in annual and quarterly filings with the SEC so that members of the public can make informed investment decisions.

The indictment alleges that, among other duties as Carter’s head of investor relations, Martin participated in and helped the company’s key executives prepare for Carter’s public disclosure of its quarterly and annual financial results at the end of each quarter or fiscal year. These disclosures took place in the form of “earnings releases,” the issuance of a formal press release to the public and the SEC that contained the financial results, followed by a conference call in which the company’s key executives presented the financial results to investors and Wall Street analysts. The indictment alleges that these and other duties afforded Martin regular access to material, non-public information about Carter’s upcoming earnings releases and other significant developments.

The indictment alleges that, on a consistent basis between early 2005 and his termination in March 2009, Martin disclosed material, non-public information about Carter’s upcoming earnings releases and other developments to a former Wall Street analyst identified in the indictment as “Cooperator Number 1” for the purpose of making illegal insider trades. The indictment alleges that Cooperator Number 1 repeatedly bought and sold Carter’s stock on the basis of this information, earning substantial illegal profits and illegally avoiding substantial losses. As an example, the indictment alleges that Martin disclosed material, non-public information to Cooperator Number 1 in advance of Carter’s May 2005 acquisition of competitor Oshkosh B’Gosh, which was at that time publicly traded on the NASDAQ Stock Market under the ticker symbol “GOSHA.” This material, non-public information enabled Cooperator Number 1 to short thousands of shares of Oshkosh stock and then make substantial illegal profits after the merger became public.

The indictment also alleges that Martin traded in Carter’s stock for his own benefit on the basis of material, non-public information about Carter’s earnings releases and other events during his employment with the company. The indictment alleges that, between November 2007 and his termination in March 2009, Martin bought thousands of shares of Carter’s stock during company-wide trading blackout periods that preceded the company’s quarterly and annual earnings releases, even though company policies prohibited company insiders from trading in Carter’s stock at those times. It also alleges that Martin did so without obtaining approval for the trades from Carter’s chief financial officer, which company policies required Martin and a select group of key personnel to do, given their regular access to and receipt of material, non-public information.

The indictment charges Martin with one count of conspiracy and with multiple counts of securities fraud and wire fraud. The conspiracy and securities fraud charges against Martin each carry a maximum sentence of 25 years in prison and a fine of up to $250,000. The wire fraud charges each carry a maximum sentence of 20 years in prison and a fine of up to $250,000. In determining the actual sentence, the court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being investigated by special agents of the FBI. The Atlanta Regional Office of the SEC has conducted a separate investigation of possible civil violations of the U.S. securities laws, and on August 22, 2012, the SEC filed a civil enforcement action against Martin for insider trading. That case remains pending.

Assistant United States Attorney David M. Chaiken is prosecuting the case.

Members of the public are reminded that the indictment contains only allegations. A defendant is presumed innocent of the charges, and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.