by T. GormanPosted on Posted in SECActions

A corporate attorney charged with monitoring the insider trading policy for a large publicly traded company clearly knows the practice is illegal. Indeed, at one point while administering the insider trading policy the attorney disseminated an email at his firm as part of the policy enforcement mechanism which stated in part: “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.” Nevertheless, he traded during periods when the trading window was closed and he had pre-release information on earnings announcement. Three times he got away with it – the statute of limitations had expired. The next three times it had not. SEC v. Levoff, Civil Action No. 2:19-cv-05536 (D.N.J. Filed Feb. 13, 2019).

Gene Daniel Levoff was the Senior Director of Corporate Law at Apple, Inc., having worked at the firm for years. He reported directly to the General Counsel. Mr. Levoff also served on the firm’s Disclosure Committee. That Committee was established to assist the CEO and CFO with their responsibilities regarding oversight of the accuracy and timeliness of disclosures made by Apple, ensuring the timely, accurate, complete and fair representation of the firm’s financial condition and results of operations.

Mr. Levoff also had responsibility for ensuring compliance with Apple’s insider trading policy. In 2015 he initiated and implemented an update to that policy, reviewing and commenting on drafts. He circulated emails at the company assisting with its implementation when blackout periods were instituted that precluded trading. The policy cited financial results as an example of material inside information. It warned of possible civil and criminal penalties.

As a member of the Disclosure Committee Mr. Levoff regularly received material nonpublic information regarding Apple’s earnings and financial condition prior to its public release. In three instances in 2015 and 2016 Mr. Levoff traded Apple shares after receiving that information but before its public release:

· On Friday, July 10, 2015, Mr. Levoff and the other Committee members received draft third quarter financials and related materials showing that Apple earnings fell short of analysts’ expectations. Prior to the public release of that information Mr. Levoff sold over 70,000 shares of Apple from his brokerage accounts for gross proceeds of about $10 million. Following the public release of the information the share price closed down over 4%. Mr. Levoff avoided losses of about $345,000.

· On Tuesday, October 13, 2015, Mr. Levoff and the Committee received draft earnings materials for the fourth quarter showing that Apple would beat analysts’ earnings per share estimates. Three days later Mr. Levoff purchased 10,000 shares of Apple. When Apple released earnings on Tuesday, October 27, 2015, the share price closed up over 4%. Mr. Levoff had trading profits of about $4,700.

· On Friday, April 8, 2016, Mr. Levoff and the Committee received a draft Form 10-Q that contained information showing that for the first time since 2003 the firm’s year over year revenue for the quarter declined. On Thursday, April 21, 2016, Mr. Levoff sold over 4,000 shares of Apple stock. When the company released its financial results on April 26, 2016 the stock price closed down over 6%. Mr. Levoff avoided losses of about $32,000.

In 2011 and 2012 Mr. Levoff engaged in insider trading of Apple shares. He made about $245,000 in profits. The complaint alleges violations of Exchange Act section 10(b) and Securities Act section 17(a)(1). The case is pending. See Lit. Rel. No. 24399 (Feb. 13, 2019). The U.S. Attorney’s Office for the District of New Jersey filed parallel criminal charges.

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by T. GormanPosted on Posted in SECActions

While the government shutdown dragged on, the Courts and the Department of Justice continued to investigate and prosecute FCPA and related actions. One resulted in a guilty plea by a business man in Hawaii. U.S. v. Lyon, No. 1:19-cr-00008 (D. Hawaii Plea Jan. 22, 2019). Another involved a citizen of Micronesia tied to the bribery scheme with Mr. Lyon. That complaint, filed on January 24, 2019 was unsealed on February 11, 2019. U.S. v. Halbert, No. 1:19-mj-00089 (D. Hawaii Filed Jan. 24, 2019).

Frank J. Lyon is an executive at an Engineering Firm based in Hawaii. Master Halbert, a citizen of Micronesia, is an Official in the Federated State of Micronesia or FSM Department of Transportation, Communications and Infrastructure.

Beginning as early as 2006, and continuing through 2016, Mr. Lyon and others entered into a conspiracy to obtain and retain business from FSM and a State Agency. During the period Mr. Lyon transferred funds from the Engineering Firm’s bank accounts to his personal account. Later funds were withdrawn from his account and used to pay bribes at various times.

By 2012 Mr. Lyon was able through the payment of bribes to secure a $2.5 million contract for the Engineering Firm. As the scheme continued other payments were made. One involved the purchase of an automobile for Mr. Halbert. The payments were concealed with false records.

Mr. Lyon pleaded guilty to one count of conspiracy to violate the FCPA and pay bribes to an agent of an organization receiving federal funds and a state agency. Sentencing is scheduled for May 13, 2019.

Master Halbert was arrested and made his first appearance in the District Court in Hawaii on February 11, 2019. He is charged with participating in a money laundering scheme involving bribes paid by Mr. Lyon to secure project management contracts for the Engineering firm. The case is pending.

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