Bloomberg News

Carter’s Ex-Executive Elles Pleads Not Guilty to Fraud Charges

September 26, 2011

Sept. 26 (Bloomberg) -- Joseph Elles, a former sales executive at Carter’s Inc., pleaded not guilty to charges he reported inflated sales at the world’s biggest maker of children’s clothing.

U.S. Magistrate Judge Janet King in Atlanta granted Elles $100,000 bail after his arraignment today on 32 counts including securities fraud, wire fraud, causing the filing of false financial statements and falsifying corporate books and records.

Elles, 57, a former executive vice president, “induced” customers such as Kohl’s Corp. to make “substantial purchases” of Carter’s products at unauthorized millions of dollars in discounts that he didn’t disclose, according to the indictment filed Sept. 21.

Elles allegedly hid those discounts, causing the company to overstate profit, prosecutors said. He also aided others, some of whom U.S. prosecutors haven’t identified, according to the indictment.

The U.S. Securities Exchange Commission sued Elles in December 2010. The SEC charges mirror the indictment by the U.S. Attorney’s Office in Atlanta.

The SEC agreed not to sue Atlanta-based Carter’s because of the company’s “prompt and complete self-reporting.”

Denies Charges

Raymond Joseph Burby, a lawyer for Elles, said in an e- mailed statement that his client will defend himself against the charges and “absolutely denies that he intended to defraud anyone in connection with the purchase or sale of Carter’s securities, as alleged in the indictment.”

Prosecutors should have waited to see what the evidence “revealed about the conduct of all employees at Carter’s and Kohl’s who were involved in this matter,” Burby said in his statement.

Prosecutors today asked the judge to set bond at $200,000, saying that Elles’s financial statements indicated he has close to $1 million in cash. Attorneys for Elles sought a lower bond, arguing that their client isn’t a flight risk.

“He came here today to voluntarily surrender,” Burby told King. “He is going to be here when the court needs him to be.”

Elles faces up to 10 years in prison if convicted, Assistant U.S. Attorney David M. Chaiken said today in court.

Elles’s employment “terminated in March 2009,” Sean McHugh, Carter’s vice president of investor relations, said in an e-mailed statement.

The departure was “prior to the company becoming aware of the events alleged in the indictment,” McHugh said in the statement. The company has “fully cooperated” with the Department of Justice and SEC investigations, he said.

The case is U.S. v. Elles, 11-CR-445, U.S. District Court, Northern District Court of Georgia (Atlanta).

--With assistance from Joshua Gallu in Washington. Editors: Mary Romano, Andrew Dunn

To contact the reporter on this story: Laurence Viele Davidson in Atlanta at lviele@bloomberg.net; David Beasley at dbeasley3@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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