AAPL Apple Inc

By Dave Michaels 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 4, 2019).

WASHINGTON -- A former supplier to Apple Inc. agreed Friday to settle civil fraud claims that it misled investors about its problems making scratch-resistant sapphire glass for iPhones.

GT Advanced Technologies Inc., which emerged from bankruptcy in 2016 and is now a private company, settled the Securities and Exchange Commission's probe without paying a fine. Thomas Gutierrez, GT's former chief executive, agreed to pay $140,000 to resolve an investigation of him.

New Hampshire-based GT and Mr. Gutierrez settled the probes without admitting or denying wrongdoing. An attorney for the company and a company spokesman didn't respond to requests for comment.

Jordan Hershman, an attorney for Mr. Gutierrez, said his client agreed to settle "solely to end this matter." The SEC claimed that Mr. Gutierrez "negligently made one alleged misstatement regarding the company's expectation of receiving a future milestone payment," while the CEO also warned the payment might never materialize, Mr. Hershman said.

The settlement comes five years after the company's venture with Apple blew up.

GT's $578 million contract with Apple required it to produce "an unprecedented amount of sapphire in boules that were over twice the size of boules GT had previously produced," the Securities and Exchange Commission said in a settlement order dated Friday.

GT had trouble meeting quality and delivery standards set by its contract, the SEC said. After GT missed a milestone in late 2014, Apple withheld a $139 million payment and gained the right to accelerate repayment of $306 million it had already paid to GT, the SEC alleged.

Instead of recognizing those liabilities as near-term debt, GT accused Apple of breaching the terms of the contract.

The SEC said Friday that GT's accusations were hollow and intended to cover up its need to recognize debt that would have put its status as an operating company in doubt. GT entered bankruptcy in late 2014, and at the time maintained Apple had engaged in a "bait and switch."

The SEC said Mr. Gutierrez falsely stated on earnings calls in 2014 that GT had met performance goals and expected to receive an installment payment from Apple. He also provided unsupported sales projections, the SEC said, causing the company to misstate closely-watched metrics such as its customized earnings estimates. Mr. Gutierrez resigned as CEO in 2015.

"GT and its CEO painted a rosy picture of the company's performance and ability to obtain funding that was paramount to GT's survival while they were aware of information that would have catastrophic consequences for the company," said Anita Bandy, an associate director of enforcement at the SEC.

--Kimberly Chin contributed to this article.

(END) Dow Jones Newswires

May 04, 2019 02:47 ET (06:47 GMT)

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