SEC Accuses Ex-Apple Executive of Insider Trading--3rd Update

Date : 02/13/2019 @ 10:59PM
Source : Dow Jones News

SEC Accuses Ex-Apple Executive of Insider Trading--3rd Update

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By Dave Michaels and Tripp Mickle 

The former Apple Inc. executive who enforced the company's insider-trading policies was charged criminally with violating those rules by allegedly dumping over $10 million in stock before the company announced it missed a closely watched metric for iPhone sales.

Gene Daniel Levoff, who was senior director of corporate law at Apple until he was fired in September, used material nonpublic information that he learned on the job to illegally trade at least three times in 2015 and 2016 and avoid losses of about $377,000, according to a criminal complaint filed Wednesday in New Jersey federal court. Authorities said he also earned more than $220,000 by trading ahead of good news he learned about in 2011 and 2012.

The Securities and Exchange Commission also filed a civil suit against Mr. Levoff and is seeking a judgment that would force him to pay back all profits and losses avoided from 2015 and 2016 trades made based on alleged insider information.

Apple said it was contacted by authorities last summer and conducted a thorough investigation, which resulted in Mr. Levoff being fired.

Kevin Marino, an attorney for Mr. Levoff, said the lawyer would rebut the criminal charge and the SEC's civil claims. "We look forward to defending him in both matters," Mr. Marino said.

Mr. Levoff, 45 years old, sat on a corporate committee for a decade that helped Apple's chief executive and chief financial officer review the firm's compliance with investor-protection laws that require companies disclose timely and accurate information. As a result, he routinely had access to Apple's securities filings before they were made public, according to the criminal complaint filed in federal court in Newark. Mr. Levoff often signed trading disclosures for executives and board members, including services chief Eddy Cue and Apple director and former Vice President Al Gore.

Perhaps more importantly for Apple, Mr. Levoff managed the company's subsidiaries. The company has a longstanding practice of creating subsidiaries under different names to sometimes purchase supplies and components for special projects, so that it can keep those initiatives secret, people familiar with practice said. Mr. Levoff typically set those subsidiaries up, the people said. His department also handled the legal review of the company's finances on a weekly basis, one of these people said.

People who worked closely with Mr. Levoff over the years expressed surprise when told of the allegations. They say the Stanford Law School graduate was close with Apple's former finance chief Peter Oppenheimer and was well respected inside the company. He was known as a challenging but fair boss and he rose up the ranks of the corporate legal team during his decade-plus career, one of these people said, playing a key role in everything from due diligence on acquisitions to debt financing.

But it was Mr. Levoff's position on the company's compliance committee that helped enable his allegedly illicit trading, the SEC said. For example, knowing in July 2015 that Apple would miss analysts' third-quarter estimates for iPhone unit sales, the SEC said Mr. Levoff sold roughly $10 million of Apple stock -- virtually all of his holdings -- and avoided losses when the company's shares fell 4% after it reported quarterly financial results.

Apple this year stopped providing data on the number of products it sells. It last month reported the first decline in revenue and profits in more than a decade for the three months ended in December. The company said iPhone sales fell 15% during the period, which it attributed to a slowdown in China's economy and people holding on to smartphones longer. Shares have rebounded since then and are up about 8% year to date.

The criminal complaint charges Mr. Levoff with one count of criminal securities fraud. The SEC through its civil lawsuit is seeking that Mr. Levoff disgorge trading profits, pay a civil fine and be barred from serving as an officer or director of a public company.

In addition to the three episodes of alleged insider trading in 2015 and 2016, authorities said Mr. Levoff made approximately $220,000 by trading illegally in 2011 and 2012.

In each of those cases, Mr. Levoff allegedly purchased Apple shares after learning the company's reported profit would probably cause its share price to rise. In April 2011, for instance, after seeing the company's draft earnings release for the second quarter, he used a TD Ameritrade account to buy 3,140 shares costing about $1 million, according to the criminal complaint.

Seven days later, Apple reported record revenue and net income, while former Apple CEO Steve Jobs said the company was "firing on all cylinders." Later on the same day, Mr. Levoff sold about 3,500 Apple shares while he was still subject to a trading blackout, the criminal complaint says. The trade earned him $60,000, according to authorities.

The alleged illegal trades over the years by Mr. Levoff often came after he emailed Apple employees to notify them of blackout periods for selling Apple stock. For example, in 2011, the SEC said he emailed staff to say that they shouldn't sell shares until 60 hours after earnings were released. "REMEMBER, TRADING IS NOT PERMITTED, WHETHER OR NOT IN AN OPEN TRADING WINDOW, IF YOU POSSESS OR HAVE ACCESS TO MATERIAL INFORMATION THAT HAS NOT BEEN DISCLOSED PUBLICLY," he wrote in all caps.

Maria Armental contributed to this article.

Write to Dave Michaels at dave.michaels@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com

 

(END) Dow Jones Newswires

February 13, 2019 17:44 ET (22:44 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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