Carter’s Inc. is the SEC investigation that just keeps on producing cases. Recently former firm vice president Richard Posey settled insider trading charges with the Commission after pleading guilty to one count of conspiracy in a parallel criminal action. SEC v. Posey, Civil Action No. 1:14-CV-664 (N.D. Ga. Filed March 6, 2014). See Lit. Rel. No. 22970 (April 10, 2014). Overall the Commission has brought six actions related to its investigation of Carter’s Inc. and entered into one non-prosecution agreement.
Mr. Posey was a vice president of operations relating to various brands sold by the firm. That position required him to attend periodic internal staff meetings in which the operations and finances of the firm were discussed. Over approximately a three year period beginning in January 2006, Mr. Posey repeatedly traded in the shares of his employer while in possession of material non-public information he obtained through his position with the firm. Those trades were placed in violation of firm policy and procedures. The trades were placed in advance of earnings announcements and quarterly financial results, typically in the account of his wife. As a result of those trades he was able to make profits or avoid losses of about $49,778.
Beginning in April 2009, and continuing through October 2010, Mr. Posey repeatedly furnished material non-public information about the company to Eric Martin, a former vice president and director of investor relations for Carter’s. Mr. Martin in turn tipped others. As a result of those trades Mr. Martin had profits or avoided losses of about $427,000. Two of the people Mr. Martin tipped avoided losses of about $3 million.
The Commission’s complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b).
Mr. Posey settled with the Commission, consenting to the entry of an order enjoining him from future violations of the antifraud provisions. That Order also directs him to pay disgorgement and prejudgment interest totally $60,265 and bars him from serving as an officer or director. The amount of a civil penalty will be determined by the Court on motion of the Commission.
Other actions stemming from the Commission’s investigation of Carter’s Inc. include:
- The non-prosecution agreement with the Company tied to a financial fraud. This was the first use of a non-prosecution by the SEC, announced December 2010 and discussed here.
- SEC v. Elles, Civil Action No. 1:10-cv-4118 (N.D. Ga. Filed December 20, 2010, an action against Joseph Elles, a former EVP of Carter’s, based on financial fraud charges as discussed here.
- SEC v. Pacifico, Case No. 1:12-cv-03636 (N.D. Ga. Filed October 18, 2012), an action against Joseph Pacifico, the one time president of the firm, and Joseph Elles, then EVP of sales, based on financial fraud charges as discussed here.
- SEC v. Johnson, Civil Action No. 1;12-CV-03709 (N.D. Ga. Filed October 24, 2012), an action against Michael Johnson, an employee of Kohl’s department store, charged in connection with the financial fraud at Carter’s as discussed here.
- SEC v. Martin, Civil Action, No. 1:12-CV-02922 (N.D. Ga. Filed August 23, 2012), an action against Mr. Martin, a one time EVP of finance at the company who repeatedly traded while in passion of inside information as discussed here.
- SEC v. Magalli, Civil Action No. 1:13-CV-03783 (N.D. Ga. Filed November 14, 2013), an action against Mark Magalli who was furnished inside information about the company by Eric Martin and traded in four instances as discussed here.
- SEC v. Rosenberg, Civil Action No. 1:13-CV-3559 (N.D. Ga. Filed Ocotber 29, 2013), an action against Dennis Rosenberg, an equity analyst who was also tipped by Mr. Martin and traded while in possession of inside information in four instances as discussed here.
For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.
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