The S.E.C. also announced that it had agreed not to bring charges against Carter’s, which reported the alleged financial misstatements by the official, Joseph M. Elles, who served as executive vice president of sales for the Atlanta-based company.
The non-prosecution agreement is the first since the S.E.C. announced an initiative in January to encourage companies to report violations of securities laws and better assist with the agency’s investigations.
From 2004 until 2009, Mr. Elles, 55, is accused of falsely manipulating the amount of discounts that Carter’s granted the department store chain Kohl’s, its biggest wholesale customer, to get Kohl’s to buy more of its products.
The discounts were above what Mr. Elles was budgeted to authorize, and in order to conceal his actions, Mr. Elles reached an agreement with Kohl’s to defer them until later quarters – which he did not report to his company’s accountants.
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That resulted in Carter’s quarterly income being overstated for certain periods. Mr. Elles is accused of profiting over the course of his alleged fraud, selling some 200,000 shares of Carter’s stock for a pre-tax windfall of $4.7 million during the period when he was manipulating quarterly figures.
“Elles’s trickery in secretly awarding excessive discounts deceived and damaged Carter’s investors,” Robert Khuzami, the director of the S.E.C.’s enforcement division, said in a statement.
“While that was the wrong thing to do,” Mr. Khuzami added, “Carter’s did the right thing by promptly self-reporting the misconduct, taking thorough remedial action, and extensively cooperating with our investigation, for which it received the benefits of a non-prosecution agreement.”
An attorney for Mr. Elles did not immediately return a telephone message on Monday.
The S.E.C. complaint alleges that Mr. Elles had been warned a number of times against doing precisely the mathematical subterfuge he is accused of.
In its complaint, the S.E.C. cited a 2003 memo from Carter’s president to Mr. Elles in which the president informed him that it was “illegal” to defer the discounts – known in the retail industry as accommodations – to later fiscal years.
Carter’s first shed light on the possible accounting problems in October 2009, when it announced that it was delaying its third-quarter results, causing its shares to plummet 23.8 percent. It later restated its previously issued financial statements that were affected by Mr. Elles’s alleged maneuverings.
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