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Top Apple Trading Compliance Lawyer Charged With Insider Trading

Feb 13, 2019
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Gene Levoff was the senior director of corporate law at the Cupertino, CA-based tech giant up until this past September, and he has been charged by the U.S. Securities and Exchange Commission with committing financial fraud due to insider trading during his time at Apple.

The SEC lawsuit, complete with criminal charges for Levoff, was filed today in New Jersey.

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It’s not every day you see such an ironic bit of news surrounding a firm like Apple, yet today here we are.

The irony mentioned above is that Mr. Levoff, 45, committed the felonious trades as the acting top dog in charge of insider trading compliance at Apple.

The Apple compliance officer who wasn’t very compliant

Gene Levoff, former Apple Senior Director of Corporate Law Source: CBS

Employees at publicly traded companies are often privy to sensitive company information not available to the public-at-large. They commonly will know how well or poor the corporation is doing as sales numbers are discussed internally on an on-going basis all the time.

Marketing and sales people will often have a weekly or bi-weekly call to review say, iPhone shipments in a particular geography, and its this information that is kept closely guarded internally until the company’s quarterly earnings call. Those earnings results aren’t published until after the stock market is closed that day in order to give all investors and traders an equal and fair amount of time to digest the information ahead of the next day’s trading session.

Compliance is a huge deal for large public companies as there are huge ramifications if employees are caught selling or buying shares/derivatives with insider information. It amounts to cheating since they are trading with the knowledge that the general public may not have for weeks or even months.

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Mr. Levoff’s basically had one job to do, prevent insider trading. Perhaps the most crucial element to this is making sure employees take notice and understand that they may not either sell or buy shares of the company’s stock during close periods, otherwise known as “blackout” times.

Close periods are just what they sound like, its when a financial reporting period is coming to a close, and the company is compiling financial results. Especially in today’s world of modern enterprise resource planning software, such as SAP or Oracle, many people in an organization will know up-to-date sales numbers. There is usually some accounting to be done in terms of deferring certain revenue or recognizing other revenue but the bulk of the data is already there.

Levoff made at least half a million dollars from the illegal trading

SEC

What makes Levoff’s alleged actions particularly disturbing is that he is accused of trading not once, but twice during explicit blackout periods. Amazingly, he sent trade blackout notices to employees right before he himself made some massive trades that regulators claim made him hundreds of thousands of dollars both in realized gains (before positive earnings) and losses that were avoided (before negative earnings). The SEC’s complaint adds a bit of color to the story:

For example, on February 24, 2011, Levoff sent an email to Apple employees explaining that a blackout period would begin on March 1, 2011, and remain in effect “until 60 hours after earnings are released in April 2011.”

The first sentence of Levoff’s February 24, 2011 email stated: “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.”

[The complaint continued]

Levoff also had a previous history of insider trading, having traded on Apple’s material nonpublic information at least three additional times in 2011 and 2012. For the trading in 2015 and 2016, Levoff profited and avoided losses of approximately $382,000

The SEC complaint also alleges that Levoff profited over $200,000 from gains realized ahead of positive Apple earnings releases, bringing his illegal winnings to over half a million just for the 2015 and 2016 trades.

Levoff was put on leave from Apple in July 2018 and terminated in September, the SEC says.

Its particularly striking that the company heralded as one of the largest success stories in modern history, and one that has competed and held the title of the World’s Most Valuable Company would have a single point of failure in a single lawyer: Gene Levoff. How was he able to make trades during close periods? Who was in charge of auditing his trading accounts? One would think that Apple would have additional checks and balances, especially considering its size as a company and its often volatile nature of its financial reports.

What’s especially mindblowing is that Levoff made an excellent salary at Apple. According to glassdoor.com, senior directors at the company make on average $300,000 or more. One could assume that given Levoff’s crucial role he was making above the average here. Given a higher base salary plus stock options and other incentives, he could have been making close to a million dollars a year. It seems his greed was just too great.

Apple (NASDAQ:AAPL) shares dipped slightly on the news today after trading in the green for the morning session.

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