SEC v. Mark Megalli, (N.D. Ga.).  On November 14, 2013, the SEC announced it filed insider trading charges against Mark Megalli for trading on nonpublic information about clothing company Carter’s Inc.  According to the SEC, Megalli got inside information through a consulting agreement with Eric Martin who had worked at Carter’s but left to start a consulting firm.  Martin got confidential information from a contact at the company. 

According to the SEC, Megalli worked at hedge fund Level Global Investors L.P.  After starting at Level Global, he began a consulting relationship with Martin’s firm.  Immediately, Martin started giving Megalli confidential information about Carter’s anticipated financial results and Megalli caused Level Global to trade on the inside information.  The SEC alleges that Megalli directed the purchase of Carter’s stock after leaning from Martin that the company would soon release positive earnings information.  Megalli also sold Carter’s stock after learning about an accounting issue at Carter’s.  The SEC further alleges that Megalli caused Level Global to take short positions in Carter’s stock when he learned about negative information concerning Carter’s upcoming earnings announcements.  According to the SEC, Megalli enabled Level Global to avoid about $2.4 million in losses and make $853,655 in profits by trading on inside information.  The SEC has charged Megalli with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.  The U.S. Attorney’s Office has filed parallel criminal charges against Megalli.

In connection with its insider trading investigation of insider trading and financial fraud at Carter’s, the SEC previously charged Eric Martin, Joseph Elles, former president Joseph Pacifico, and Michael Johnson.  The SEC also entered into a non-prosecution agreement with Carter’s in return for the company’s cooperation with the SEC’s investigation.