Co-Founder of New Jersey Hedge Fund Indicted in Long-Running Carter’s Insider Trading Conspiracy
Fourth Defendant to be Criminally Charged in Government’s Investigation to Date
|U.S. Attorney’s Office May 29, 2014|
ATLANTA—Steven E. Slawson has been indicted by a federal grand jury for participating in a long-running insider trading conspiracy involving Carter’s Inc. stock.
“The charges against Slawson reflect that for over five years, Slawson obtained a sneak preview of Carter’s not-yet-released quarterly and annual financial results and other confidential internal information,” said United States Attorney Sally Quillian Yates. “He is charged with buying and selling tens of thousands of shares of Carter’s stock ahead of the news to make illegal profits in the stock market. Insider trading simply isn’t worth it. Sooner or later, you will be brought to justice.”
J. Britt Johnson, Special Agent in Charge, FBI Atlanta Field Office, stated, “Insider trading laws are in place to prevent those on the inside from having unfair advantage over the public and to further the desire to have and maintain a transparent stock market. The FBI will continue to work with its partners at the U.S. Securities and Exchange Commission in the enforcement of these federal laws.”
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.
Slawson, 67, of Lebanon, New Jersey, was the co-founder of Titan Capital Management LLC, a hedge fund manager located in Parsippany, New Jersey. At Titan, Slawson co-managed a multi-million-dollar portfolio of the securities of publicly-traded companies. Beginning in or about early 2005 and continuing through in or about July 2010, Slawson is alleged to have obtained inside information about Carter’s quarterly and annual financial results and other events in advance of the public announcement of the information. Slawson is alleged to have obtained the inside information from an individual identified in the indictment as “Cooperator Number 1,” who was working as a paid outside consultant to Titan. The indictment alleges that, at the time, Cooperator Number 1 was a retired equity research analyst formerly associated with the New York, New York office of a prominent global financial institution.
The indictment alleges that Slawson in turn caused Titan to execute transactions in Carter’s securities between early 2005 and July 2010 based on the inside information received from Cooperator Number 1, earning illegal profits and illegally avoiding losses for Titan. It further alleges that, in 2009 and 2010, Slawson also bought and sold Carter’s securities based on inside information in his own personal accounts, in addition to the hedge fund’s account.
According to the indictment, Cooperator Number 1 received the inside information from Eric M. Martin, who was employed as Carter’s head of Investor Relations between 2003 and March 2009. After Martin separated from Carter’s in March 2009, Martin is alleged to have obtained the inside information from Richard T. Posey, who was then employed as Carter’s vice president of Operations. Martin in turn continued to provide the information to Cooperator Number 1 through July 2010. The indictment alleges further that, beginning in or about March 2010, Martin began providing the inside information to Slawson directly, in addition to providing it through Cooperator Number 1.
The May 20, 2014 grand jury indictment charges Slawson with one count of conspiracy to commit securities fraud and wire fraud, 25 counts of securities fraud, and nine counts of wire fraud. Based on current estimates, the government alleges that Slawson is responsible for illegal insider trading gains and losses avoided resulting from the conspiracy, his own trading, and relevant conduct in the amount of approximately $1.7 million. Today Slawson had his initial appearance on the indictment before Chief U.S. Magistrate Judge Janet F. King. The case has been assigned to U.S. District Judge Richard W. Story for trial. A trial date has not yet been set.
Slawson is the fourth individual to be charged in a criminal investigation into insider trading in Carter’s stock and the sixth person overall to be criminally charged in connection with the accounting fraud and insider trading investigations arising out of Carter’s October 27, 2009 earnings delay and multi-year financial restatement.
Eric M. Martin, 44, of Roswell, Georgia, was indicted on November 7, 2012, for conspiracy, securities fraud, and wire fraud in connection with his participation in an insider trading conspiracy and for his own insider trading in Carter’s stock between 2005 and 2009, while Martin was still employed as Carter’s head of investor relations. The conspiracy charge alleged that Martin repeatedly provided inside information about Carter’s to Cooperator Number 1 ahead of the company’s earnings releases and other events between 2005 and 2009. This included tipping Cooperator Number 1 about Carter’s May 2005 acquisition of competitor Oshkosh B’Gosh before the news became public. Martin pleaded guilty to the conspiracy charge on December 8, 2012.
Richard T. Posey, 53, of Duluth, Georgia, was charged by criminal information and pleaded guilty to conspiracy to commit securities fraud on June 19, 2013. The conspiracy charge against Posey related to his disclosure of insider information to Martin ahead of quarterly and annual earnings releases and other events between early 2009 and July 2010, after Martin’s separation from Carter’s.
A third individual, Mark Megalli, 42, of New York, New York, was charged by criminal information and pleaded guilty to conspiracy to commit securities fraud on November 15, 2013. The conspiracy charge against Megalli related to trades that Megalli executed in Carter’s securities between September 2009 and July 2010 on behalf of multibillion dollar New York hedge fund Level Global Investors LP, based on inside information that he received from Martin. At that time, Megalli was employed as the portfolio manager for Level Global’s consumer sector. The illegal trading included Level Global’s liquidation of an approximately $9 million position in Carter’s stock in the days leading up to the October 27, 2009 earnings delay announcement.
Sentencing for Martin, Megalli, and Posey is scheduled for July 8, 2014, before U.S. District Judge Richard W. Story.
Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges, and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.
This case is being investigated by the Federal Bureau of Investigation.
Assistant United States Attorneys David M. Chaiken and Stephen H. McClain are prosecuting the case.
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.Pressemails@usdoj.gov or (404) 581-6016. The Internet address for the U.S. Attorney’s Office for the Northern District of Georgia Atlanta Division is http://www.justice.gov/usao/gan/.