SEC v. Joseph Pacifico, Case No. 1:12-cv-03636 (N.D. Ga.).  On October 18, 2012, the SEC announced charges against Joseph Pacifico, a former President of Carter’s, Inc., marketer of children’s clothing, for engaging in financial fraud at Carter’s.  Carter’s Executive Vice President of Sales, Joseph Elles, who reported to Pacifico, manipulated the amount of discounts that Carter’s gave to its largest wholesale customer in order to induce that customer to purchase more clothing for resale from Carter’s.  Elles then hid his conduct by getting the customer to delay 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 the scheme, he signed a false certification to Carter’s accounting personnel that understated the amount discounts that Carter’s owed to the customer. Pacifico also signed false internal forms that misstated that discounts.  After conducting an internal investigation, Carter’s issued restated financial results for the affected periods.

The SEC charged Pacifico with violating Section 17(a)(2) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5(b) and 13b2-1 thereunder.  He is also charged with aiding and abetting Carter’s violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5(b),12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The SEC seeks injunctive relief, financial penalties, and an officer and director bar against Pacifico.

This is the second case that the SEC has filed in connection with the financial fraud at Carter’s. The Commission previously charged Joseph Elles in connection with this scheme.