An irreverent Wall Street Blog
The Apple of My Ire
February 18, 2019
Let's play a game. I'm going to give you one paragraph of clues and you try to guess the name of "Company-I." See if you can take a bite out of the fact pattern and get to the core of the answer:
Company-I was a global technology company headquartered in Cupertino, California that designed, developed, and sold consumer electronics, computer software, and online services. Company-I was a publicly traded company whose securities were listed on the NASDAQ Stock Market. In terms of market capitalization, Company-I was consistently among the most valuable companies in the world.
DOJ's Company-I
In a criminal Complaint filed in the United States District Court for the District of New Jersey DOJ https://www.justice.gov/usao-nj/press-release/file/1131786/download, Gene Levoff was charged with one count of securities fraud involving an unnamed company, which is referred to in the criminal pleading only as "Company-I." As set forth in part in the criminal Complaint under the heading "Background Information":
1. At all times relevant to this Complaint:a. Company-I was a global technology company headquartered in Cupertino, California that designed, developed, and sold consumer electronics, computer software, and online services. Company-I was a publicly traded company whose securities were listed on the NASDAQ Stock Market. In terms of market capitalization, Company-I was consistently among the most valuable companies in the world.b. Defendant GENE LEVOFF ("LEVOFF") was employed by Company-I at its headquarters in Cupertino. From in or around 2008 through in or around 2013, LEVOFF, an attorney, was the Director of Corporate Law at Company-I. From in or around 2013 through his termination in or around September 2018, LEVOFF was the Senior Director of Corporate Law at Company-I. In that role, LEVOFF functioned as the top corporate attorney at Company-1, reporting directly to Company-1 's General Counsel. Among other things, LEVOFF was responsible for overseeing Company-1 's compliance with securities laws, which included advising others regarding U.S. Securities and Exchange Commission (the "SEC") filings and financial reporting. In or around February 2018, Company-1 named LEVOFF its Corporate Secretary, a title he maintained until his termination. Before that, LEVOFF held the role of Assistant Secretary. From in or around September 2008 through in or around July 2018, LEVOFF served on Company-l's Disclosure Committee, and, as a result, had access to and obtained Company-1 's draft SEC filings and earnings materials before Company-1 disclosed its quarterly and yearly financial results to the public. LEVOFF served as one of the Disclosure Committee's co-chairpersons from in or around December 2012 through in or around July 2018. . . .
As further explained in part in "Former Director Of Corporate Law At Global Technology Company Charged With Insider Trading" (DOJ Release)
https://www.justice.gov/usao-nj/pr/former-director-corporate-law-global-technology-company-charged-insider-trading:
The scheme allowed Levoff to realize profits of approximately $227,000 and to avoid losses of approximately $377,000.. . .Levoff's trades on other occasions resulted in profits of approximately $227,000; he also avoided additional losses of approximately $32,000.
A Foolish Inconsistency?
In a Complaint filed in the United States District Court for the District of New Jersey https://www.sec.gov/litigation/complaints/2019/comp-pr2019-10.pdf, the SEC alleged in part under the heading "Summary":
1. This matter concerns insider trading by Levoff, the Senior Director of Corporate Law and Corporate Secretary of Apple, Inc. ("Apple"). Levoff exploited his positions as a senior attorney and a member of Apple's Disclosure Committee to unlawfully trade Apple securities ahead of Apple quarterly earnings announcements.2. In two key respects, Levoff's misconduct violated the duty of trust and confidence he owed Apple and its shareholders. First, as head of the Corporate Law group at Apple, Levoff was responsible for ensuring compliance with the company's insider trading policy and determining the criteria for those employees (including himself) restricted from trading around quarterly earnings announcements. At the same time, as a member of Apple's Disclosure Committee, Levoff received material nonpublic information about Apple's financial results. The Disclosure Committee reviews Apple's periodic earnings results and draft public filings before that information is released to the public. . . .
It was further alleged in the SEC Press Release: "SEC Charges Former Senior Attorney at Apple With Insider Trading" (SEC Release)
https://www.sec.gov/news/press-release/2019-10 that
The SEC's complaint alleges that Gene Daniel Levoff, an attorney who previously served as Apple's global head of corporate law and corporate secretary, received confidential information about Apple's quarterly earnings announcements in his role on a committee of senior executives who reviewed the company's draft earnings materials prior to their public dissemination. Using this confidential information, Levoff traded Apple securities ahead of three quarterly earnings announcements in 2015 and 2016 and made approximately $382,000 in combined profits and losses avoided. The SEC's complaint alleges that Levoff was responsible for securities laws compliance at Apple, including compliance with insider trading laws. As part of his responsibilities, Levoff reviewed and approved the company's insider trading policy and notified employees of their obligations under the insider trading policy around quarterly earnings announcements. ]
The Apple of my Ire
So . . . what do we learn from the SEC's Complaint and Press Release that is hidden from us in the DOJ criminal Complaint and Press Release? Among other fascinating tidbits, we are informed of the following, as quoted from either the SEC Complaint or SEC Press Release [Emphasis added]:
- This matter concerns insider trading by Levoff, the Senior Director of Corporate Law and Corporate Secretary of Apple, Inc. ("Apple") . . .
- Levoff exploited his positions as a senior attorney and a member of Apple's Disclosure Committee to unlawfully trade Apple securities ahead of Apple quarterly earnings announcements . . .
- Levoff's misconduct violated the duty of trust and confidence he owed Apple and its shareholders.
- as head of the Corporate Law group at Apple, Levoff
- as a member of Apple's Disclosure Committee, Levoff received material nonpublic information about Apple's financial results. . .
- The SEC's complaint alleges that Gene Daniel Levoff, an attorney who previously served as Apple's global head of corporate law and corporate secretary, received confidential information about Apple's quarterly earnings . . .
- Levoff traded Apple securities . . .
- Levoff was responsible for securities laws compliance at Apple . . .
Bill Singer's Comment
I could barely contain my laughter as I read DOJ's Complaint -- I mean, seriously, how could you not figure out who "Company-I" was from all these teasers:
a. Company-I was a global technology company headquartered in Cupertino, California that designed, developed, and sold consumer electronics, computer software, and online services. Company-I was a publicly traded company whose securities were listed on the NASDAQ Stock Market. In terms of market capitalization, Company-I was consistently among the most valuable companies in the world.
Keep in mind that in pertinent part, DOJ's "1-7.000 - CONFIDENTIALITY AND MEDIA CONTACTS POLICY" https://www.justice.gov/jm/jm-1-7000-media-relations provides:
1-7.500 - Release of Information in Criminal, Civil, and Administrative Matters -- Disclosable InformationSubject to limitations imposed by law or court rule or order, and consistent with the provisions of this Policy, DOJ personnel may make public the following information in any criminal case in which charges have been brought:
A. The defendant's name, age, residence, employment, marital status, and similar background information;B. The substance of the charge, as contained in the complaint, indictment, information, or other public documents;C. The identity of the investigating or arresting agency and the length and scope of the investigation; andD. The circumstances immediately surrounding an arrest, including the time and place of arrest, resistance, pursuit, possession and use of weapons, and a description of physical items seized during the arrest.A news release issued before a finding of guilt should state that the charge is merely an accusation, and the defendant is presumed innocent until proven guilty.In civil and administrative cases, subject to limitations imposed by law or court rule or order, and consistent with the provisions of this Policy, DOJ personnel may release similar identification material regarding parties and the concerned government agency or program, along with a summary of the claim and an explanation of the government's interest.The public policy significance of a case may be discussed by the appropriate United States Attorney or Assistant Attorney General when doing so would further law enforcement goals.
[updated April 2018]
As a lawyer, yes, I understand the valid motivation behind not naming the name of an "innocent" non-defendant-third-party in a criminal Complaint and its attendant press releases. On the other hand, when a high-profile case prompts parallel civil and criminal actions, it would seem advisable to promulgate a cohesive disclosure policy among various federal regulators and prosecutors in order to avoid inconsistency. As evident in the inconsistent third-party disclosure policies at DOJ and SEC, the byproduct of such non-coordination is idiocy. And as if to add insult to injury, consider these opening lines on the Wikipedia record for Apple, Inc. https://en.wikipedia.org/wiki/Apple_Inc.:
Apple Inc. is an American multinational technology company headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and online services. It is considered one of the Big Four of technology along with Amazon, Google, and Facebook. . . .
The idiocy of this non-disclosure/disclosure issues fully blossoms when we compare paragraph 1(a) of DOJ's criminal Complaint with the Wikipedia entry [Ed: emphasis added]:
[DOJ criminal Complaint]a. Company-I was a global technology company headquartered in Cupertino, California that designed, developed, and sold consumer electronics, computer software, and online services. Company-I was a publicly traded company whose securities were listed on the NASDAQ Stock Market. In terms of market capitalization, Company-I was consistently among the most valuable companies in the world.[Wikipedia]Apple Inc. is an American multinational technology company headquartered in Cupertino, California, that designs, develops, and sells consumer electronics, computer software, and online services. It is considered one of the Big Four of technology along with Amazon, Google, and Facebook. . . .
As laughable as DOJ's transparent efforts are to name what is not supposed to be named, the circumvention raises a troubling question. If, in fact, DOJ has a policy designed to not disclose the name of a non-defendant-third-party in criminal pleadings and press release, then what moron thought it would be a fun excursion around such a prohibition to allude to an unnamed Cupertino-headquartered "global technology company" listed on NASDAQ and "among the most valuable companies in the world?" How could you not conclude that such references were intended to name the name that should not be named of Apple, Inc.?
Enter any number of silly-ass online searches using some of the above clues. You could try "Gene Levoff AND Cupertino" or "Cupertino AND NASDAQ AND Global Technology Company" and all search roads lead to 1 Infinite Loop, Cupertino, CA. It's also not that daunting a task to come upon any number of SEC filings that disclose under the heading "Signature" the reference to "Apple Inc. by Gene D. Levoff, Secretary." Ultimately, what's the point of DOJ's no-name policy when its own press release states: "The U.S. Securities and Exchange Commission (SEC) also filed a civil complaint against Levoff today based on the same conduct" -- and the headline of the SEC's press release states [Emphasis added]:
SEC Charges Former Senior Attorney at Apple With Insider Trading
By way of beating a dead horse to death, the first paragraph of that SEC Press Release states [Emphasis added]:
The Securities and Exchange Commission today filed insider trading charges against a former senior attorney at Apple whose duties included executing the company's insider trading compliance efforts.
If it is inappropriate to name non-defendant-third-party Apple in any pleading, which, after all, consists merely of allegations, then why would that policy apply only to DOJ but not the SEC? After all, whether a federal complaint is of a civil or criminal variety, the statements are merely allegations and the presumption of innocence attaches to the defendants/respondents, and disclosure of a third-party's identity involve the same core considerations. At a minimum, DOJ could have simply enunciated its policy in its Press Release by noting something along the lines of:
It is the policy of the United States Department of Justice to not disclose the name of third-parties in any criminal Complaint, Information, or Indictment absent compelling circumstances. Notwithstanding such a policy, the Department is aware that the United States Securities and Exchange Commission has filed a civil Complaint and issued apress release in which the identity of "Company-I" is disclosed.
Recently, I took FINRA to task for playing hide-and-seek with a third-party's identification in Lord Voldemort, Bank Of America, Merrill Lynch, FINRA, And Childcare Expenses (BrokeAndBroker.com Blog / February 13, 2019)
http://www.brokeandbroker.com/4435/finra-voldemort/ If the rationale for not naming non-defendant-third-party Apple in the DOJ criminal complaint and press release was premised upon the "criminal" nature of those proceedings; and the rationale for naming Apple in the SEC's civil complaint and press release was premised upon the "civil" nature of those proceedings; then why do we find FINRA lined up on the criminal side of the divide when that self-regulator-organization has no ability to incriminate as a non-government actor? Frankly, FINRA's policy raises a host of unsettling concerns; among the foremost is why this Wall Street regulator drops a veil of secrecy around the names of the parent banks that own some of the largest broker-dealer members of that self-regulatory-organization -- particularly since the SEC discloses the names of non-defendant-third-parties lacking even an affiliate-subsidiary relationship. If the SEC discloses Levoff's mere employer Apple, Inc., then why won't FINRA disclose the name of Merrill Lynch's corporate parent Bank of America when that bank was the employer of the associated person subject to FINRA's sanctions and all the cited misconduct occurred within the ambit of her conduct at Bank of America? Either the SEC is wrong or FINRA is wrong. Pick your poison.