The former head of investor relations of a Midtown-based children’s clothing company was indicted Wednesday by a federal grand jury on charges of conspiracy, securities fraud, and wire fraud in connection with multi-year, multi-state insider trading schemes primarily involving Carter’s, Inc., stock.
Carter’s, Inc., which is located at 1170 Peachtree Street in the Proscenium Building in Midtown, makes OshKosh B’gosh branded apparel.
If found guilty, the conspiracy and securities fraud charges against Eric M. Martin, 42, of Roswell, 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.
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 in a news release. “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.”
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, nonpublic 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.
In an unrelated story this past March, a former president of the children’s clothing company was indicted by a federal grand jury for securities fraud, causing the filing of false financial statements, and falsifying the books and records of a public company.