The Securities and Exchange Commission has charged the former president of Carter’s, an Atlanta-based marketer of children’s clothing, with engaging in financial fraud.
The SEC filed charges last Thursday against Joseph Pacifico, alleging that his misconduct caused Carter’s to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009.
The SEC’s complaint, filed in the United States District Court for the Northern District of Georgia, alleges that between 2004 and 2009, Carter’s executive vice president of sales, Joseph Elles, who reported to Pacifico, fraudulently manipulated the amount of discounts that Carter’s granted to its largest wholesale customer in order to induce that customer—itself a large national department store—to purchase greater quantities of Carter’s clothing for resale.
Elles then concealed his conduct by persuading the customer to defer subtracting the discounts from payments until later periods and creating and signing false documents misrepresenting the timing and amount of those discounts to Carter’s accounting personnel.
After Pacifico discovered Elles’s scheme, the complaint alleges that Pacifico signed a false certification to Carter’s accounting personnel that understated the amount of discounts that Carter’s owed to the customer. The complaint also alleges that Pacifico signed false internal forms that also misstated that discounts to be paid to the customer related to sales in 2009 when, in fact, the discounts related to prior financial periods. After conducting its own internal investigation, Carter’s was required to issue restated financial results for the affected periods.
This is the second case that the SEC has filed in connection with the financial fraud at Carter’s. The SEC previously charged Elles in connection with the scheme.