A former executive at kids’ clothing maker Carter’s Inc has been charged with fraud and insider trading by the Securities and Exchange Commission (SEC).

Joseph Elles, who was executive director of sales at the time of the allegation, is accused of lying about the company's financial picture between 2004 and March 2009 and selling shares when their price was artificially high.

The SEC filing says Elles granted excessive discounts to department store retailer Kohl's, its largest wholesale customer, in order to induce Kohl's to buy greater quantities of Carter's products.

These discounts – known in the clothing industry as “accommodations” – were intended to help Kohl's defray costs related to inventory clearance and sales promotions, and to allow Kohl's to achieve a desired profit margin on its sales of goods purchased from Carter's.

To conceal his actions from Carter's accounting personnel, Elles persuaded Kohl's to postpone deducting these accommodations from invoice payments until later quarters.

The cost of the discounts was not reflected in Carters' quarterly financial reports, leading the company to overstate its quarterly profit.

The SEC filing also claims Elles made $4.7m between May 2005 and March 2009 by selling Carter’s shares.

Atlanta-based Carter’s makes apparel exclusively for babies and young children under its own Carter's and Osh Kosh brands, as well as private label apparel. In fiscal 2009, the company generated net income of$116m on sales of $1.59bn.

However, it has cooperated fully with the SEC and will not be charged with violating federal securities laws relating to Elles' actions.