SEC files lawsuit against former Carter’s exec over fraudulent discounts

Atlanta -U.S. regulators have sued a former sales executive at Carter’s Inc., claiming that he caused the company to misstate earnings by hiding the cost of discounts given to a retailer.

According to a Monday report by the Securities and Exchange Commission, Joseph Elles induced Kohl’s Corp. to boost purchases from Carter’s from 2004 to March 2009 by granting unauthorized discounts that he didn’t disclose.

Elles allegedly got Kohl’s to defer the discounts until later quarters, causing Carter’s to report the increase in sales without disclosing the related expense, the SEC said. The executive, who was terminated by Carter’s last year, also directed an assistant to create false tracking sheets for the firm’s accounting department and signed memos to the CFO that misrepresented the cost of the discounts.

The SEC also sued Elles for insider trading, claiming he reaped $4.7 million in profits by selling options before the company disclosed the alleged fraud in October 2009.

The agency agreed not to sue Carter’s as a result of the company’s “prompt and complete self-reporting” and extensive remedial actions.