The executive at the center of the fraud at Carter’s, Inc., Joseph Elles, was named as a defendant in a 32 count indictment. The charges include securities fraud and wire fraud. U.S. v. Elles, 11 CR 445 (N.D. Ga.). The company entered into the SEC’s first non-prosecution agreement in December 2010.
Mr. Elles was a sales executive at Atlanta based clothing store, Carter’s, Inc. According to the court documents, from the first quarter of 2006 through the third quarter of 2008 Mr. Elles engaged in a scheme which resulted in the falsification of the financial results of the company. Specifically, Mr. Elles granted larger discounts than appropriate to firm customers to induce them to make purchases. He then concealed the excessive discounts. As a result the revenue of the company was overstated in a range of 5% to about 19% during the period. Prior to his resignation in 2009 Mr. Elles is also alleged to have executed millions of dollars in stock options.
The fraud was not discovered until after his departure from the company. On discovery the company promptly self-reported, made a full and complete investigation and cooperated with the SEC. As a result the matter was resolved with Carter’s entering into the SEC’s first non-prosecution agreement. It was based on the cooperation of the company as well as the isolated nature of the fraud. Since the execution of that agreement the Commission entered into its first deferred prosecution agreement. These are the only two such agreements entered into by the Commission to date.
The SEC also previously brought an enforcement action against Mr. Elles. SEC v. Elles, Civil Action No. 1:10-CV-4118 (N.D. Ga. Filed Dec. 20, 2010). That case is pending.