Carter's Inc. (CRI) on Monday became the first company to benefit from a new Securities and Exchange Commission program that allows a company to avoid prosecution in exchange for cooperation with fraud investigations.

The deal, known as a non-prosecution agreement, offers more incentive to company officials than deferred prosecution programs that have strings attached. The tool is among a series of measures the SEC announced in January to encourage greater cooperation from companies and individuals in SEC probes. Under the initiative, the SEC enforcement division authorized its staff to use new tools and expanded some existing tools.

In written agreements, the SEC can offer leniency for an entity that cooperates, agrees to defer prosecution or agrees to forgo prosecution altogether, as it did in this case.

"Not only does it put us in a better litigating position, but when we're in a better litigating position it encourages defendants to settle on terms that are more favorable for the agency and investors," said SEC Deputy Enforcement Director Lorin L. Reisner, who worked on the Carter's case.

Reisner said the case provided a road map for using non-prosecution agreements, calling the case "a very clear example of the benefits to be obtained from cooperation."

The SEC charged former Carter's executive Joseph M. Elles with fraud and insider trading for his role in an overstatement of the company's net income. But the SEC said that it agreed not to prosecute Carter's because of the company's extensive cooperation in the investigation and the "isolated nature of the unlawful conduct."

While he was a sales executive with the company between 2004 and 2009, Elles allegedly gave discounts to Kohl's Corp. (KSS) department stores, Carter's largest wholesale customer, and persuaded the company to defer the discounts to future reporting periods.

According to the SEC, he then exercised company stock options that resulted in a pre-tax profit of approximately $4,739,862 before Carter's publicly disclosed the fraud on Oct. 27, 2009, which led the company's shares to tumble 24% immediately afterward. Elles's attorney didn't respond to requests for comment.

Monday, Carter's shares closed down 0.5% at $31.45. The stock is up 20% so far this year.

-By Jamila Trindle, Dow Jones Newswires; 202-862-6684; jamila.trindle@dowjones.com

--Tess Stynes and Jessica Holzer contributed to this article.
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