The SEC recently announced insider-trading charges against the former senior lawyer at Apple specifically tasked with ensuring insider-trading compliance at the company. The Department of Justice also addressed this case of “the fox guarding the hen house” by filing criminal charges against the former Apple attorney. The defendant, Gene Daniel Levoff, denies all charges and vows to defend himself.
The SEC alleges that Levoff received material non-public information about Apple’s quarterly earnings announcements through his role as a reviewer of draft earnings materials before their public distribution. Armed with this confidential information, Levoff allegedly traded Apple securities just ahead of three separate quarterly earnings announcements in 2015 and 2016, reaping some $382,000 in profits and losses avoided. The SEC contends that Levoff conducted his trading during blackout periods, selling Apple securities when he knew Apple was going to miss analysts’ estimates, and buying when he knew Apple stood to beat estimates.
He also had an alleged history of insider trading. The SEC complaint describes illicit trading in 2011 and 2012, even once after Levoff himself emailed all employees forbidding them to trade during an upcoming blackout period. The SEC is seeking (i) an injunction against further violation of the antifraud provisions of the federal securities laws, (ii) disgorgement of the amount of unjust enrichment, i.e., combined trading profits and losses avoided, and (iii) civil money penalties of up to three times the amount of the disgorgement. It is further seeking to bar Levoff from serving as an officer or director of a public company. And we can expect that the Commission will later seek to bar him under SEC Rule 102(e) from appearing or practicing law before the Commission. The Rule 102(e) proceeding will be a follow-on administrative proceeding based upon the entry of an injunction in the civil SEC case or a conviction in the criminal DOJ action.
The DOJ is seeking criminal fines and potential imprisonment of up to 20 years, though such a severe sentence is not likely.
It is difficult to see what Apple could have done to prevent this situation. The defendant in these cases is perhaps the person least expected to engage in such conduct. Further, Apple’s insider-trading policies and procedures are reported to be appropriate. And Apple seems to have reacted responsibly once it learned of the issue. For instance, upon hearing from regulators, the company investigated. “After being contacted by authorities last summer, we conducted a thorough investigation with the help of outside legal experts, which resulted in termination,” an Apple spokesman said. Levoff was fired in September 2018.
As for Levoff himself, he would have been well advised not only to follow the policies and procedures he was paid to enforce, but to implement a Rule 10b5-1 trading plan. Exchange Act Rule 10b5-1 puts trading on autopilot by allowing major shareholders to sell a predetermined number of shares at a predetermined time. Had Levoff used a Rule 10b5-1 plan, he would have likely avoided career-threatening consequences.
 The 2011 and 2012 trades are not at issue because of the five-year statute of limitations applicable to SEC actions, but the SEC will try to use them for other purposes, such as to show that the 2015 and 2016 trades were no accident or mistake.