Eric M. Martin, 42, of Roswell, former head of investor relations for Carter’s, Inc., the major children’s clothing company, pleaded guilty Tuesday to conspiracy to commit securities fraud and wire fraud in connection with a multi-year, multi-state insider trading conspiracy primarily involving Carter’s stock.
Martin was convicted of tipping a former Wall Street analyst about Carter’s quarterly and annual financial results and other material, non-public information in advance of the public announcement of the information during Martin’s employment with Carter’s between 2005 and 2009.
Carter’s, Inc., which is located at 1170 Peachtree Street in The Proscenium building in Midtown, makes OshKosh B’gosh branded apparel.
“This conviction is further evidence that illegal insider trading takes place throughout the country, not just on Wall Street,” said United States Attorney Sally Quillian Yates in a release. “This office is committed to combating illegal insider trading wherever it occurs, and public company executives and employees in this district and elsewhere should take note."
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.
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. These and other duties afforded Martin regular access to material, non-public information about Carter’s upcoming earnings releases and other significant developments.
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. 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, 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.” The information related to the fact that Carter’s would be surprising the market by acquiring Oshkosh for a price that was lower than the price at which Oshkosh stock was then trading. 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 and Oshkosh’s stock price fell.
Martin disclosed this and other material, non-public information in exchange for friendship, reciprocal stock tips about other public companies to which Cooperator Number 1 had access, and future business and networking opportunities. Martin also 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.
Between June 2004 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.
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. As part of his plea agreement with the United States, Martin has agreed that he is responsible for illegal insider trading gains and losses avoided resulting from the conspiracy, his own trading, and relevant conduct between $2.5 million and $7 million.
A federal grand jury indicted Martin on November 7, 2012, on one count of conspiracy, seven counts of securities fraud, and three counts of wire fraud. Martin could receive a maximum sentence of 25 years in prison and a fine of up to $250,000. A date for sentencing has not yet been set.
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.