Former Carter’s Executives and Portfolio Manager for New York Hedge Fund Sentenced to Federal Prison in Multi-Million-Dollar Insider Trading Conspiracies
|U.S. Attorney’s Office July 08, 2014|
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.
A fourth defendant, Steven E. Slawson, 67, of Lebanon, New Jersey, was indicted by the grand jury on May 20, 2014. Slawson, a co-founder of Titan Capital Management, is alleged to have traded on tips obtained from Cooperator Number 1 and later directly from Martin from early 2005 through July 2010. The case has been assigned to U.S. District Judge Richard W. Story for trial. A trial date has not yet been set.
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.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
For further information please contact the U.S. Attorney’s Public Affairs Office at USAGAN.Presseemail@example.com or (404) 581-6016. The Internet address for the home page for the U.S. Attorney’s Office for the Northern District of Georgia Atlanta Division is http://www.justice.gov/usao/gan/.