Ex-exec of kids' clothing co. charged with fraud

[September 27, 2011]  ATLANTA, Ga. (AP) -- A former executive of a kids' clothing company was charged with lying about the company's financial situation and then selling shares of its stock when the price was artificially bloated, the U.S. Attorney's office said Monday.

A federal grand jury indicted Joseph Elles on charges of securities fraud, falsifying corporate records and filing false statements when he was a senior vice president with Carter's Inc., an Atlanta-based children's clothing maker. Elles, who left the company in 2009, was released on $100,000 bond at a court hearing Monday. His defense attorney said that Elles would be exonerated and that he was carrying out orders from the company's leadership.

The charges laid out in the 16-page indictment mirror a civil lawsuit that the Securities and Exchange Commission filed against Elles in December 2010. He's charged with giving rebates worth tens of millions of dollars to Kohl's Corp., the firm's largest customer, and then hiding those discounts in financial statements.

As a result, the company's quarterly financial reports did not reflect the cost of the discounts. The lost revenue appeared to be profit, and expenses appeared to be lower than they actually were. The reports helped buoy the company's stock price, and Elles earned $4.7 million from selling stock shared between 2004 and 2009, according to authorities. The share price then plummeted by more than 20 percent when the company discovered the accounting issues in December 2009.

U.S. Attorney Sally Quillian Yates said Elles, who could face decades in prison and a fine of up to $5 million, cheated the public by "cooking the books and causing his company to falsely inflate its income."

Defense attorney Joseph Burby said his client denied that he intended to defraud anyone and that he acted at the direction of Carter's senior management. The company said it was cooperating with investigators.

Burby also said his client is disappointed prosecutors sought criminal charges rather than waiting to see what the results of the SEC investigation "revealed about the conduct of all employees at Carter's and Kohl's who were involved in this matter."

"Mr. Elles looks forward to trial and is confident that when a jury hears the entire story, as opposed to just one side, it will find him not guilty of any crime," Burby said.

[Associated Press; By GREG BLUESTEIN]

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