Attorneys:
On the heels of Ropes & Gray’s recent success securing an unprecedented non-prosecution agreement with the SEC for the children’s clothing company Carter’s, Inc., a Ropes & Gray litigation team has won dismissal of a related consolidated securities fraud action in the Northern District of Georgia.
The securities fraud action involved two distinct sets of claims arising from two separate sets of events. The first set of claims – the so-called “OshKosh Claims” – related to Carter’s acquisition of OshKosh in 2005. Following a write down of OshKosh’s goodwill in 2007, a shareholder filed suit alleging that Carter’s and certain of its officers had violated Section 10(b) of the 1934 Securities Exchange Act by purposefully misleading investors about OshKosh’s growth prospects, thereby artificially inflating the Company’s stock price.
The second set of claims – the so-called “Accommodations Claims” – stemmed from Carter’s announcement in November 2009 that it would restate several years of financial statements due to its reporting of wholesale customer accommodations, or discounts, in incorrect periods. Seizing on the restatement, which was the culmination of an extensive internal investigation conducted by Ropes & Gray, a separate shareholder alleged that Carter’s and certain of its officers and directors violated Section 10(b) of the Exchange Act by misstating Carter’s true earnings.
Later in November 2009, while the original motion to dismiss the OshKosh Claims filed by Ropes & Gray was pending, the Court consolidated the two actions on its own. Ropes & Gray subsequently filed a consolidated motion to dismiss both sets of claims in April 2010.
On March 17, 2011, the Court granted Carter’s motion as to both sets of claims in a sweeping 90-page opinion. Agreeing with the arguments advanced by Ropes & Gray, the Court held that the confidential witness testimony upon which the plaintiffs relied was not credible, and as a result the complaint failed to allege the element of scienter as to both sets of claims. The Court further agreed with Ropes & Gray’s argument that most, if not all, of the individual defendants’ statements about OshKosh constituted forward-looking statements protected by the safe harbor provision of the Private Securities Litigation Reform Act.
The Court’s opinion came on the heels of Carter’s successful resolution of a related matter with the U.S. Securities & Exchange Commission. While the motions to dismiss had been pending, Ropes & Gray guided Carter’s through a year-long SEC investigation concerning Carter’s reporting of customer accommodations in incorrect periods, including through numerous witness interviews and presentations, which culminated in Carter’s entry into the SEC’s first-ever non-prosecution agreement. Pursuant to the agreement, the SEC agreed not to commence any enforcement action against Carter’s or require any financial penalties in exchange for Carter’s continued cooperation. When the SEC announced the agreement, it credited Carter’s prompt self-reporting, “thorough and comprehensive internal investigation,” and “exemplary and extensive cooperation,” among other factors, for the favorable result.
The Ropes & Gray litigation team was led by Boston-based securities litigation partner Randall Bodner, head of the firm’s securities litigation practice group. It also included Boston-based associate JR Drabick.
The SEC investigation team was led by partners Randall Bodner and R. Daniel O’Connor. It also included Boston-based associate JR Drabick.
The consolidated matter is captioned Plymouth County Retirement Sys. v. Carter’s, Inc., No. 1:08-CV-2940-JOF (N.D. Ga.).
The securities fraud action involved two distinct sets of claims arising from two separate sets of events. The first set of claims – the so-called “OshKosh Claims” – related to Carter’s acquisition of OshKosh in 2005. Following a write down of OshKosh’s goodwill in 2007, a shareholder filed suit alleging that Carter’s and certain of its officers had violated Section 10(b) of the 1934 Securities Exchange Act by purposefully misleading investors about OshKosh’s growth prospects, thereby artificially inflating the Company’s stock price.
The second set of claims – the so-called “Accommodations Claims” – stemmed from Carter’s announcement in November 2009 that it would restate several years of financial statements due to its reporting of wholesale customer accommodations, or discounts, in incorrect periods. Seizing on the restatement, which was the culmination of an extensive internal investigation conducted by Ropes & Gray, a separate shareholder alleged that Carter’s and certain of its officers and directors violated Section 10(b) of the Exchange Act by misstating Carter’s true earnings.
Later in November 2009, while the original motion to dismiss the OshKosh Claims filed by Ropes & Gray was pending, the Court consolidated the two actions on its own. Ropes & Gray subsequently filed a consolidated motion to dismiss both sets of claims in April 2010.
On March 17, 2011, the Court granted Carter’s motion as to both sets of claims in a sweeping 90-page opinion. Agreeing with the arguments advanced by Ropes & Gray, the Court held that the confidential witness testimony upon which the plaintiffs relied was not credible, and as a result the complaint failed to allege the element of scienter as to both sets of claims. The Court further agreed with Ropes & Gray’s argument that most, if not all, of the individual defendants’ statements about OshKosh constituted forward-looking statements protected by the safe harbor provision of the Private Securities Litigation Reform Act.
The Court’s opinion came on the heels of Carter’s successful resolution of a related matter with the U.S. Securities & Exchange Commission. While the motions to dismiss had been pending, Ropes & Gray guided Carter’s through a year-long SEC investigation concerning Carter’s reporting of customer accommodations in incorrect periods, including through numerous witness interviews and presentations, which culminated in Carter’s entry into the SEC’s first-ever non-prosecution agreement. Pursuant to the agreement, the SEC agreed not to commence any enforcement action against Carter’s or require any financial penalties in exchange for Carter’s continued cooperation. When the SEC announced the agreement, it credited Carter’s prompt self-reporting, “thorough and comprehensive internal investigation,” and “exemplary and extensive cooperation,” among other factors, for the favorable result.
The Ropes & Gray litigation team was led by Boston-based securities litigation partner Randall Bodner, head of the firm’s securities litigation practice group. It also included Boston-based associate JR Drabick.
The SEC investigation team was led by partners Randall Bodner and R. Daniel O’Connor. It also included Boston-based associate JR Drabick.
The consolidated matter is captioned Plymouth County Retirement Sys. v. Carter’s, Inc., No. 1:08-CV-2940-JOF (N.D. Ga.).
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