Ex-Heartland CEO’s straight shooter rep takes a hit with SEC charges

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The U.S. Securities and Exchange Commission is putting its weight behind allegations of insider trading that Heartland Payment Systems has levied against its former CEO.

With the SEC this week filing insider trading charges against former Heartland CEO Robert Carr, the payments industry is left to wonder how a man positioning himself with complete integrity and respect toward the industry could be accused of such wrongdoing.

The allegations came to light when Heartland Payment Systems LLC sued Carr in late May, claiming that Carr asked his girlfriend, Kathie Hanratty, to purchase stock in the company before its $4.2 billion acquisition by Global Payments was made public in December of 2015. Insider trading allegedly netted Carr and Hanratty hundreds of thousands of dollars, according to Heartland's claims.

Carr left Heartland in 2016, turning down an offer to be on the Global Payments board, to pursue another venture.

Global Payments, seeking to recoup trading profits it said came about from Carr's alleged breaches of duty, did not respond to inquiries. Lawyers for the company have not discussed details with other media outlets nor speculated as to what may have occurred in what the SEC is now saying in its charges against both Carr and Hanratty. Carr's attorney did not immediately return a request for comment.

The SEC's claims mirror those of Global Payments. The agency says that Carr, 73, often discussed the pending merger with Global Payments with Hanratty, 65, and gave her $1 million with instructions to open a brokerage account and buy $900,000 of Heartland stock.

Specifically, the SEC complaint filed in federal court in New Haven, Conn., seeks civil fines, the recouping of illegal profit, and an officer and director ban against Carr.

Carr's lawyer disputed Global Payments' version of the events when they first came to light. In a June statement to Bloomberg News, attorney Michael McGovern claimed Carr had run his plans by Global's chief legal officer.

"What Global characterizes as a ’scheme’ by Bob Carr to profit illegally, was in fact a planned sale of Heartland stock, ahead of the Global acquisition, that resulted in a significant tax liability that exceeded the profit from Ms. Hanratty’s lawful investment," McGovern told Bloomberg News. "Also, Global officials are fully aware that Mr. Carr sought and received prior authorization from Heartland’s chief legal officer for all of his stock transactions.”

Nevertheless, the SEC charges escalate the seriousness of the situation.

Carr's career
Carr is no stranger to controversy — under his leadership in 2009, Heartland disclosed a major data security breach — but this latest allegation is so jarring because he has long spoken of integrity as being core to his character.

Standing out as a rebel, Carr started his own merchant services company a year ago called Beyond. Carr positioned the new undertaking as a byproduct of his beliefs that a company needed to go beyond stressing only high earnings per share to investors and concentrate on honest relationships with clients.

Carr did put those words into action. Beyond's prime focus was on nonprofits, fundraising companies and small business segments. It was a vision close to Carr's professed values, particularly in that he had started his own nonprofit called Give Something Back, an organization designed to help lower-income students attend college.

In the course of unveiling Beyond, Carr told PaymentsSource that his past experience in the payments industry taught him that "100% focus on EPS growth is not helpful to a business."

When Carr spoke at payments conferences, attendees could always count on hearing an unfiltered version of exactly what was on his mind.

He was one of the first in the industry to label the Merchant Customer Exchange mobile wallet as doomed for failure simply because its focus was on avoiding card brands and interchange fees, as opposed to giving consumers and merchants something compelling and useful.

In late 2013, Carr became outspoken about the darker side of the independent sales organization and acquiring business, calling for the Federal Trade Commission to take more steps to stop fraudulent practices in the industry.

During a keynote speech at that year's Electronic Transactions Association conference, Carr scolded ISOs about their practices in hiding important aspects of client agreements in "fine print" and flat-out called them dishonest when boosting profits by falsifying interchange rates on merchant statements.

It may have made some ISOs in attendance uneasy, but most in the industry knew Carr was telling the truth. Thus, his persona and image grew as a payments executive not afraid to call a spade a spade.

Even in the wake of the 2009 Heartland data breach, Carr chose to be outspoken about his company's failings. "The [PCI] audits that are used to determine compliance are very much overvalued, and we overvalued our audits," Carr told American Banker at the time.

Though Heartland went on to champion — and sell — end-to-end encryption as a way to prevent further such data breaches, Carr was clear that the company's problems went beyond those touched by its breach. Its investigation found that employees had stored card account details on their own computers to help them do their jobs, but in the process put that data outside the scope of the processor's protections.

"That's been a real eye-opener," Carr told American Banker. "Anybody that has a data-loss prevention tool will be surprised in how many different places card numbers can wind up, especially in a corporate environment where you're doing a lot of servicing."

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Payment processing Compliance Global Payments Inc Heartland Payment Systems