Second Former Carter's Executive Pleads Guilty To Multi-Million Dollar Insider Trading Conspiracy
Defendant Tipped Former Co-Worker Between 2009 And 2010
ATLANTA – Richard T. Posey pleaded guilty today to conspiracy to commit securities fraud in connection with a multi-million dollar insider trading conspiracy involving Carter’s stock.
“Corporate insiders who disclose company secrets are the enablers who make illegal insider trading possible,” said United States Attorney Sally Quillian Yates. “Insider trading undermines faith in the nation’s stock markets. Public company executives and employees should be on notice that when it comes to material, non-public information, they are required to play by the same rules as everyone else.”
Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office, stated: “Today’s guilty plea holds this defendant accountable for his criminal actions and makes it clear that corporate executives are not exempt from the rule of law. The FBI asks that anyone with information regarding such criminal activity to contact their nearest FBI field office.”
According to United States Attorney Yates, the charges and other information presented in court: Posey, 52, of Duluth, Ga., was employed as a Vice President of Operations for various Carter’s brands and divisions, and later as Vice President of Operations for the company’s wholesale sales business from in or about July 2002 until his termination in January 2013.
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.
From approximately April 2009 through July 2010, while employed by Carter’s, Posey disclosed inside information about Carter’s upcoming earnings releases and other developments to Eric M. Martin, the company’s former head of investor relations, for the purpose of making illegal insider trades and tipping others. Martin, who was convicted on December 18, 2012, of tipping a former Wall Street analyst identified as “Cooperator Number 1” during Martin’s employment with Carter’s between 2005 and 2009, repeatedly bought and sold Carter’s stock based on the inside information provided by Posey between 2009 and 2010, and Martin also continued to tip Cooperator Number 1 and others.
For example, Posey tipped Martin in advance of Carter’s October 27, 2009, announcement that it was conducting an internal investigation into accounting problems and would be delaying its earnings release for the third quarter of 2009. Almost immediately after Posey tipped Martin, on Friday, October 23, 2009, Martin sold his entire position in Carter’s stock, over 35,000 shares valued at approximately $1 million. Later that morning, Martin passed the tip during a telephone call to an individual identified in the Criminal Information as “Portfolio Manager Number 1,” an employee of a prominent New York hedge fund identified in the Criminal Information as “Hedge Fund Number 1.” While still on the telephone with Martin, Portfolio Manager Number 1 ordered the sale of Hedge Fund Number 1’s entire position in Carter’s stock, 300,000 shares valued at nearly $9 million. The very next trading day, Monday, October 26th, Martin tipped Cooperator Number 1 during a telephone call. Immediately after the call ended, Cooperator Number 1 sold his entire position in Carter’s stock -- 15,000 shares valued at over $400,000 -- and bought November 30th put options, thereby betting on Carter’s stock price to decline significantly. The next morning, Tuesday, October 27th, Carter’s shocked the market with the news of its internal investigation and earnings delay, and its stock price fell over 20% in one day. The internal investigation ultimately resulted in a multi-year financial restatement by Carter’s, criminal indictments of two of its former top executives for securities fraud and related offenses, and three SEC enforcement actions.
Posey disclosed this and other inside information to Martin in exchange for reciprocal stock tips about other public companies to which Martin had access, for future networking opportunities, and for friendship. Posey did so over the phone, at dinners, during drinks, and on the golf course.
Posey also traded in Carter’s stock for his own benefit on the basis of inside information about Carter’s earnings releases during his employment with the company. Between mid-2005 and late 2009, Posey traded thousands of shares of Carter’s stock during company-wide trading blackout periods that preceded approximately 14 quarterly or annual earnings releases, even though company policies prohibited company insiders from trading in Carter’s stock at those times. Posey did so without obtaining approval for the trades from Carter’s Chief Financial Officer, which company policies required Posey and a select group of key personnel to do, given their regular access to and receipt of material, non-public information. Posey’s blackout trading resulted in illegal profits and losses avoided in the amount of approximately $50,000.
Posey was convicted of tipping his former co-worker about Carter’s quarterly and annual financial results and other material, non-public information in advance of the public announcement of the information, beginning shortly after the company terminated Eric M. Martin at the end of March 2009, and continuing through July 2010. He pleaded guilty to a Criminal Information charging one count of Conspiracy to Commit Securities Fraud. He 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, and has agreed to pay at least $800,000 in restitution to Carter’s, which represents the approximate amount of legal fees Carter’s has incurred to date in connection with the government’s insider trading investigation. Posey could receive a maximum sentence of five 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.
In a separate case, a federal grand jury indicted Eric M. Martin on November 7, 2012, on one count of conspiracy, seven counts of securities fraud, and three counts of wire fraud in connection with an insider trading conspiracy from early 2005 to March 2009 and his own blackout trading while working for Carter’s. Martin pleaded guilty to one count of conspiracy on December 18, 2012. A sentencing date has not yet been set for either case. Both cases are assigned to United States District Judge Richard W. Story.
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 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 is pending.
Assistant United States Attorney David M. Chaiken is prosecuting the case.
For further information please contact the U.S. Attorney’s Public Affairs Office at USAGAN.PressEmails@usdoj.gov or (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.