Another Defendant Indicted in Carter’s Inc. Trading Conspiracy

Patch Staff Report

Steven E. Slawson of New Jersey has been indicted by a federal grand jury for participating in a long-running insider trading conspiracy involving Carter’s, Inc. stock.

He is the fourth defendant to date to be criminally charged in the government’s investigation of the Buckhead-headquartered company.
According to United States Attorney Sally Quillian Yates, the charges, and other information presented in court: Carter’s, Inc. is a major children’s clothing 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, N.J., was the co-founder of Titan Capital Management LLC., a hedge fund manager located in Parsippany, N.J. At Titan, Slawson co-managed a multimillion 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 9 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.

On Thursday, 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, 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, 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, N.Y., 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.