Northern District of Georgia
ATLANTA—Eric M. Martin, Mark Megalli, and Richard T. Posey have been sentenced to federal prison for their roles in insider trading conspiracies involving Carter’s, Inc. stock.
“Illegal insider trading undermines confidence in the nation’s stock markets. Today’s sentences are a step towards restoring that confidence. These sentences send a strong message to company insiders and investment industry professionals in this district and elsewhere that they are required to follow the same rules that govern regular investors, and that the consequences for failing to do so can be severe,” said United States Attorney Sally Quillian Yates.
J. Britt Johnson, Special Agent in Charge, FBI Atlanta Field Office, stated: “Those individuals who choose to ignore insider trading laws do so at the risk of becoming targets of federal investigations. The FBI will continue to provide substantial investigative resources toward such insider trading activities with the primary goal of maintaining a fair and equitable stock market for all.”
According to United States Attorney Yates, the charges and other information presented in court: Carter’s, Inc. is a major children’s clothing company headquartered in Atlanta, Georgia. Carter’s is a public company registered with the U.S. Securities & Exchange Commission (“SEC”), and its common stock is listed on the New York Stock Exchange.
Martin was employed as Carter’s Director and later Vice President of Investor Relations between 2003 and March 2009. In this capacity, 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 and other duties afforded Martin regular access to material, non-public information about Carter’s upcoming earnings releases and other significant developments and transactions.
On a consistent basis between early 2005 and his separation from Carter’s 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 by the government 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. Cooperator Number 1 also tipped others, including Titan Capital Management LLC, a New Jersey hedge fund that had retained him as an outside consultant. 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.
After Martin separated from Carter’s in March 2009, Martin continued to obtain inside information in advance of Carter’s earnings releases and other events from Posey, who was his friend and former Carter’s co-worker. Posey 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. Posey disclosed the information to Martin from early 2009 through July 2010 in exchange for friendship, reciprocal stock tips, and future business and networking opportunities.
Martin in turn traded on the information himself and also continued to provide the inside information to Cooperator Number 1 and others through July 2010. Further, in or about September 2009, Martin began providing the inside information to several financial institutions and investment firms that hired him as an outside consultant, including multibillion dollar New York hedge fund Level Global Investors LP. Martin’s contact at Level Global was Mark Megalli, who was employed as the portfolio manager for Level Global’s consumer sector. Megalli in turn caused Level Global to execute multimillion dollar trades in Carter’s stocks based on the inside information received from Martin from September 2009 through July 2010.
Martin and Posey also traded in Carter’s stock for their own benefit on the basis of material, non-public information in advance of Carter’s earnings releases and other events during their employment with the company. This trading took place 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’s illegal trading and tipping of others between 2005 and 2010 resulted in over $7 million in insider trading gains and losses avoided for Martin and his downstream tippees. Posey’s illegal trading and tipping of Martin between 2009 and 2010 resulted in over $5 million in insider trading gains and losses avoided. Megalli’s illegal trading between 2009 and 2010 resulted in over $3 million in insider trading gains and losses avoided for Level Global.
- Martin, 44, of Roswell, GA, was sentenced to two years in prison to be followed by three years of supervised release, ordered to pay restitution in the amount of $950,000, and ordered to perform 80 hours of community service. Martin was convicted on these charges on December 18, 2012, after he pleaded guilty.
- Posey, 53, of Duluth, GA, was sentenced to one year, three months in prison to be followed by three years of supervised release, ordered to pay restitution in the amount of $750,000, and ordered to perform 80 hours of community service. Posey was convicted on these charges on June 19, 2013, after he pleaded guilty.
- Megalli, 42, of New York, NY, was sentenced to one year and one day in prison to be followed by three years of supervised release, ordered to pay restitution in the amount of $50,000, and ordered to perform 100 hours of community service. Megalli was convicted on these charges on November 14, 2013, after he pleaded guilty.
The cases are being investigated by the Federal Bureau of Investigation.
Assistant United States Attorneys David M. Chaiken and Stephen H. McClain are prosecuting the cases.
The Atlanta Regional Office of the SEC has conducted a separate investigation into potential civil violations of the U.S. securities laws relating to insider trading in Carter’s stock. In connection with its investigation, the SEC has filed civil enforcement actions against multiple individuals.
Carter’s, Inc. is cooperating in the investigation.
