The guilty plea to felony insider trading by former Apple, Inc. corporate secretary and director of corporate law Gene Levoff announced today reminds corporations and their leaders of the importance of ensuring their own insider trading controls are up-to-date and consistently followed.admitted engaging in an insider trading scheme that spanned five years, Attorney for the United States Vikas Khanna announc
Levoff plead guilty by videoconference before U.S. District Judge William J. Martini to six counts of an indictment charging him with securities fraud stemming from charges I nitially filed in February 2019.
The securities fraud counts each carry a maximum penalty of 20 years in prison and a $5 million fine. levoff’s sentencing is scheduled for November 10, 2022.
The SEC also previously filed a civil complaint against Levoff based on the same conduct.
Levoff Insider Trading Charges
In court documents and statements, the Justice Department charged that Levoff illegally realized profits of approximately $227,000 on certain trades and avoided losses of approximately $377,000 on others by using misappropriated material, nonpublic information about Apple’s financial results between February 2011 and April 2016.
Although Levoff was subject to Apple’s regular quarterly “blackout periods,” which prohibited individuals with access to material nonpublic information from engaging in trades until a certain period after the company disclosed its financial results to the public, as well as the company’s broader Insider Trading Policy – which he was responsible for enforcing. Levoff ignored these restrictions by repeatedly executing trades based on material, nonpublic information without Apple’s knowledge or authorization. On several occasions, Levoff executed trades within a blackout period after notifying other individuals subject to the restriction that they were prohibited from buying or selling Apple stock until the blackout period terminated.
Throughout this period, Levoff served as Apple’s top corporate attorney, assistant secretary and corporate secretary and co-chairman of Apple’s Disclosure Committee, which reviewed and discussed the company’s draft quarterly and yearly earnings materials and periodic U.S. Securities and Exchange Commission (SEC) filings before they were publicly disclosed. The Justice Department alledged that Levoff used these positions to minethese materials for inside information about Apple to guide his decisions to buy and sell Apple stock ahead of its earnings announcements. When Apple posted strong revenue and net profit for a given financial quarter, he purchased large quantities of stock, which he later sold for a profit once the market reacted to the news. When there were lower-than-anticipated revenue and net profit, Levoff sold large quantities of Apple stock, avoiding significant losses.
Warning To Other Corporations & Insiders
Statements from the Justice Department and other officials made in connection with the announcement of Levoff’s guilty plea contain strong warnings for other corporations and their insiders against engaging in insider trading.
“Gene Levoff betrayed the trust of one of the world’s largest tech companies for his own financial gain,” Attorney for the United States Khanna said. “Despite being responsible for enforcing Apple’s own ban on insider trading, Levoff used his position of trust to commit insider trading in order to line his own pockets. This Office will continue to prioritize securities fraud prosecutions.” (Emphasis added.)
“This defendant exploited his position within a company strictly for financial gain that he would not have otherwise realized,” Terence Reilly, FBI Acting Special Agent in Charge in Newark, said. “That’s called ‘gaming the system.’ Insider trading is not just illegal, it is a threat to the viability of our markets. The average American, whose retirement savings is invested in these companies, has every right to expect that rules are being followed, the game is being played fairly, and their nest egg is safe from profiteers who willingly sidestep the rules to improve their own financial future at the expense of others. The FBI is here to make sure the playing field is level.”
Given these warnings, corporate insiders and their corporations should take documented steps to review and verify the adequacy of their policies and their administration to prevent insider trading.
Adopung and consistently enforcing appropriate insider trading policies and processes is particularly critical because the felony criminal liability associated with insider trading violations make can trigger organizational liability for the corporation and other leaders under the Federal Sentencing Guidelines for failing to take appropriate preventive measures or to properly respond to redress and report violations.
As illustrated by the Levoff prosecution and conviction, insider trading policies and controls should reach to all relevant levels of the organization including senior management, board members, and even those attorneys or other parties on the audit and oversight committees responsible for their administration and compliance.
Simply having policies alone is not sufficient. Documented steps should be taken to ensure that prohibitions and restrictions against trading and disclosures of purchases and sales by insiders provide adequate protection and processes to prevent insider trading.
To ensure appropriate flexibility to investigate and monitor activities involving stock, corporations also should require all insiders eligible to buy or sell stock to sign a Fair Credit Reporting Act compliant consent that also meets the requirements of applicable state law for conducting the necessary investigations to monitor and enforce compliance.
As the conduct of the compliance and risk assessments necessary to evaluate and determine actions required or recommended in response to the emerging SEC and other cybersecurity obligations and risks could uncover and involve discussions of obligations and options for responding to known or suspected past or existing noncompliance risks, organizations and leaders should conduct their audit and analysis to the extent possible with the guidance of and within the scope of attorney-client privilege.
Efforts should begin by taking carefully crafted, well-documented documented steps to prudently evaluate and strengthen cybersecurity and breach safeguards and compliance, as well as prudently to assess and verify those of their vendors and others involved with their employee benefit plans or their administration within the scope of attorney-client privilege.
In assessing, designing and administering the cybersecurity processes, organizations and their leaders should give due attention to assessing and addressing the adequacy of their internal and external controls to ensure the adequacy of their systems, processes, oversight and response practices and capabilities as of the time of the assessment and on an ongoing basis. Beyond establishing required policies and formal controls, organization should ensure that their organizations have in place the necessary policies and practices to monitor proposed and executed stock transactions as well as clear processes and consequences for prompt redress to any suspected insider trading violation.
These another process is some procedures and their results should be reported regularly to the Board of Directors.
We hope this update is helpful. For more information about or assistance with these or other workforce, internal controls and compliance or other legal, management or public policy developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297.
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About the Author
Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 30+ years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications.
Scribe for the ABA JCEB Annual Agency Meeting with HHS-OCR, and author of the “Medical Privacy” Chapter in the BNA/ERISA Litigation Treatise, the “Other Torts Chapter” in the BNA/ABA E-Heath & Other Torts Treatise, “Privacy and the Pandemic Workshop” for the Association of State and Territorial Health Plans, as well as a multitude of other highly regarded data privacy and security, workforce and health care change and crisis management and other highly regarded publications and presentations, Ms. Stamer is widely recognized for her decades of pragmatic, leading edge work, scholarship and thought leadership on health and other privacy and data security and other health industry legal, public policy and operational concerns.
A Fellow in the American College of Employee Benefit Counsel, the American Bar Foundation and the Texas Bar Foundation, Ms. Stamer’s work throughout her 30 plus year career has focused heavily on working with private and public companies of all types and sizes, health care and managed care, health and other employee benefit plan, insurance and financial services and other public and private organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns. In the course of this work, she has had extensive involvement in the design, administration and defense of payroll, employee benefit, insurance, securities, trade secret and other confidential information and other internal and external record and data systems and processes as well as investigation, reporting, redress and mitigation of cyber and other incidents.
As a part of this work, she has continuously and extensively worked with domestic and international health and other employee benefit plans, their sponsors, fiduciaries, administrators, and insurers; managed care and insurance organizations; hospitals, health care systems, clinics, skilled nursing, long term care, rehabilitation and other health care providers and facilities; medical staff, accreditation, peer review and quality committees and organizations; billing, utilization management, management services organizations, group purchasing organizations; pharmaceutical, pharmacy, and prescription benefit management and organizations; consultants; investors; EHR, claims, payroll and other technology, billing and reimbursement and other services and product vendors; products and solutions consultants and developers; investors; managed care organizations, self-insured health and other employee benefit plans, their sponsors, fiduciaries, administrators and service providers, insurers and other payers, health industry advocacy and other service providers and groups and other health and managed care industry clients as well as federal and state legislative, regulatory, investigatory and enforcement bodies and agencies. She also has extensive experience dealing with OCR Privacy and Civil Rights, Department of Labor, IRS, HHS, DOD, FTC, SEC, CDC and other public health, Department of Justice and state attorneys’ general and other federal and state agencies; JCHO and other accreditation and quality organizations; private litigation and other federal and state health care industry actions: regulatory and public policy advocacy; training and discipline; enforcement; and other strategic and operational concerns.
American Bar Association (ABA) International Section Life Sciences Committee Vice Chair, a Scribe for the ABA Joint Committee on Employee Benefits (JCEB) Annual OCR Agency Meeting, current RPTE Welfare Benefit Committee Co-Chair and former Chair of its Fiduciary Responsibility, Plan Terminations and Distributions and Defined Contribution Plan Committees, a former JCEB Council Representative, Past Chair of the ABA Managed Care & Insurance Interest Group, former SHRM Consultants Board and Region IV Chair, former Texas Association of Business Board, BACPAC Board and Dallas Chapter Chair, former Vice President and Executive Director of the North Texas Health Care Compliance Professionals Association, past Board President of Richardson Development Center (now Warren Center) for Children Early Childhood Intervention Agency, past North Texas United Way Long Range Planning Committee Member, and past Board Member and Compliance Chair of the National Kidney Foundation of North Texas.
Ms. Stamer also shares her extensive publications and thought leadership as well as leadership involvement in a broad range of other professional and civic organizations. For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.
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