A Blatant and Aggressive Disregard for the Law
Apple's tumultuous relationship with the U.S. SEC & U.S. Department of Justice
Apple likes to hold itself out as a golden child of human rights & regulatory compliance. Like the state its headquartered in (California), much of Apple’s marketing is gross hypocrisy and a distraction from its actual actions. In reality, Apple has a long history of outright aggression towards regulation, including battles with the U.S. Department of Justice and the U.S. SEC over basic financial and antitrust compliance.
There’s been much discussion recently about “shareholder activism” at Apple: shareholders attempting to introduce proposals to reform Apple’s business practices and Apple quickly trying to shut the proposals down. The dynamic is far worse that it seems once you start to understand the history.
The Meeting that Never Happened
Back in 2006, Apple Inc was sued by the U.S. SEC and Department of Justice for securities fraud in “backdating” stock options (falsifying grant dates in order to get the largest capital gains). The SEC took enforcement action against former General Council Nancy Heinen and former CFO Fred Anderson. The charge against Heinen also alleged “the forging of documents involved in the backdating of the options.”
The focus of the probe and charges was Jobs’ receipt of $7.5 million options in 2001 that were backdated through minutes of an Apple Inc Board of Directors meeting that never occurred. An in-house lawyer drafted the minutes for the meeting that never occurred, and General Counsel Nancy Heinen signed them.
The star-studded Board of Directors approved the favorable grant date. Among the Board notables who approved the grant were Arthur Levinson (who is still Apple’s Board chairman); Larry Ellison (Oracle), William Campbell (Intuit), and Millard Drexler (The Gap).
At the end, Anderson settled with the U.S. SEC, paying $3.5 million and Heinen settled with the U.S. SEC, paying $2.2 million. NASDAQ sent Apple a formal notice of delisting from the stock exchange, though it appears Apple was able to avoid the sanction.
Strained & Unreasonable
In 2013, Apple was sued by the U.S. federal government alleging an anti-trust conspiracy related to electronic books. Apple was found liable for violating the Sherman Act. As part of the judgement, Apple was appointed a “Monitor” by the court, to ensure Apple ceased it’s unlawful conduct.
During the trials and Apple’s appeals, the Department of Justice and federal court Judges described Apple Inc as: 1
Not taking the law seriously
Showing no contrition
Providing “cryptic” responses and references
Showing “strained and unreasonable” readings of the law
Taking a “confrontational and obstructionist approach”
Dragging their feet
Sitting on its hands
Allowing issues to “fester” and “silently accumulating grievances”
Not “complying in good faith” 2
The court also described the conduct of Apple’s executives as demonstrating:
A “blatant and aggressive disregard for the law.”3
The Monitor requested meetings with the Board of Directors and senior management but was told those people were “very busy,” that interviewing the Board would be “extremely disruptive” and “would make no sense,” would be “intrusive,” and that there was “a lot of anger” from Apple about the Department of Justice lawsuit against them. 4
Apple attempted to disqualify the Monitor after the Monitor requested to meet with Al Gore and also asked Ronald Sugar a question “which Apple’s counsel instructed Sugar not to answer.'“Apple argued that the Department of Justice Monitor’s request to interview Apple executives “constituted irreparable harm.” Apple only allowed the Monitor to conduct 13 hours of interviews, and 7 of the 11 interviewed were lawyers. 5
Apple’s next adventure with the U.S. Department of Justice was with a lawsuit (which Apple settled) alleging a large conspiracy to suppress employee wages.
In 2019, ex-Apple Inc General Counsel Bruce Sewell would describe Apple’s legal culture as “wild” and “laissez-faire.” The same year, 2019, Apple was found to have violated U.S. sanctions laws. The U.S. Treasury fined Apple $467,000 and condemned Apple for a “reckless disregard for U.S. sanctions requirements.”
The Trials & Tribulations of Gene Levoff
In 2018, Apple Inc suspended and then fired their “Senior Director of Corporate Law,” Mr. Gene D. Levoff.
Apple had been made aware that Levoff would soon be indicted and charged by the U.S. SEC with six counts of securities fraud and six counts of wire fraud. Each charge carried a maximum of 20 years in prison and $5 million in fines.
Levoff had been with Apple for ten years and was responsible for Apple’s compliance with the U.S Securities and Exchange Commission (SEC).
Yeah, you read that correctly.
Levoff’s duties, among other things, included overseeing compliance with insider trading laws, acting as Corporate Secretary, co-chair of Apple’s financial SEC Disclosure Committee, managing a team of 20-30 attorneys, directing Apple Operations International, managing Apple’s corporate subsidiary structure (including serving as the officer of every major Apple subsidiary), working with the Finance and Audit Committee chaired by Ronald Sugar, and providing legal advice related to Apple’s SEC filings and financial reporting.6
Levoff was also one of the very few executives Apple permitted the U.S. Department of Justice Monitor to interview as part of the anti-trust conspiracy judgement. (One of the others was Tom Moyer, head of Apple Global Security and the Chief Compliance Officer, who would be indicted for bribing the Silicon Valley Sheriff’s office one year after Levoff was charged with fraud).
Levoff reported directly to General Counsel: Kate Adams in 2017, Bruce Sewell (2009-2017), & Daniel Cooperman (2007-2009).
In February 2019, Levoff was charged by the SEC and Department of Justice with insider trading (the thing he was supposed to prevent). He was released on a $500,000 bail due the federal court Judge considering Levoff a “flight risk.”
For Levoff’s defense against the charges, he argued that insider-trading prosecution is unconstitutional.7 He also argued the SEC’s insider trading rules violate the non-delegation doctrine. Levoff then quoted a Justice Scalia decision against Chevron deference for criminal statutes and argued that without Chevron deference, he is not guilty of insider trading.8
Levoff, who was previously responsible for ensuring insider trading compliance at Apple, argued to the U.S. SEC that there were no laws prohibiting insider trading.
Levoff’s motion to dismiss was denied.
iVoter Suppression
Part of Levoff’s job was to respond to shareholder proposals. When a corporation would like to prevent its shareholders from voting on a shareholder proposal, that corporation asks the U.S. SEC for something called a “no-action” letter. The corporation is asking the SEC to agree to take no enforcement actions against the corporation for preventing a vote.
Apple’s first attempt at this was back in 2008 with a proposal requesting that Apple disclose more information about its safety and environmental practices.
Mr. Gene Levoff, then Director of Corporate Law, responded to the SEC, requesting to exclude the proposal because Apple Inc supposedly received it one day past the deadline. The SEC approved.
From 2008 through 2017, Apple Inc via Gene Levoff, would submit over twenty “no-action” requests to the U.S. SEC in attempt to block shareholder voting. During this span of time, Levoff would argue to prevent shareholder votes about:
After Levoff was terminated, he was replaced by Sam Whittington who continued Levoff’s decade-long tradition of suppressing shareholder direct-democracy efforts.
From 2018-2020, Whittington would request no-action letters for shareholder proposals related to a human rights assessments, human rights policies, human rights in China, and freedom of expression and access to information, among other topics.
Apparently, Whittington was previously Tim Cook’s personal lawyer.
Conclusion
Considering all of this, perhaps the U.S. SEC should consider using a heightened standard when reviewing any future “no action” requests from Apple when they attempt to suppress shareholder voting.
UPDATE: On June 30 2022, Gene Levoff pled guilty to six charges of securities fraud. Each count carries a maximum 20-year prison term and $5 million fine.
U.S. v Apple Inc, F.Supp.2nd 263 (S. Dist. of NY 2014).
U.S. v Apple Inc, 787 F.3d 131 (2nd Circuit 2015).
U.S. v Apple Inc, F.Supp.2nd 263 (S. Dist. of NY 2014).
U.S. v Apple Inc, F.Supp.2nd 263 (S. Dist. of NY 2014).
U.S. v Apple Inc, F.Supp.2nd 263 (S. Dist. of NY 2014).
U.S. SEC v Gene Daniel Levoff, Civil No 2:19-5536, US District Court, District of New Jersey (2019); U.S. SEC v Gene Daniel Levoff, 19-CR-780, US District Court, District of New Jersey (2020).
U.S. SEC v Gene Daniel Levoff, 19-CR-780, US District Court, District of New Jersey (2020).
U.S. SEC v Gene Daniel Levoff, 19-CR-780, US District Court, District of New Jersey (2020).
Amazing work, Ashley! I hope Captain and you are having a great summer! Much love, @joely