The recent insider trading case of a former senior lawyer at Apple Inc. serves as a reminder that those tasked with upholding a company’s insider trading rules are expected to ‘walk the walk’ when it comes to complying with ethical and legal obligations in handling confidential information. This case and similar prior cases remind us that counsel and firms ought to be vigilant and take proactive steps to monitor and enforce insider trading programs.

Apple lawyer faces insider trading allegations

Gene Daniel Levoff faces criminal and civil charges in New Jersey, where prosecutors allege that he illegally traded Apple securities ahead of quarterly earnings announcements with the benefit of material non-public information. Levoff was Apple’s former global director of corporate law and corporate law secretary and was responsible for enforcing the firm’s insider trading program. In that role, Levoff determined “the criteria for those employees (including himself) restricted from trading around quarterly earnings announcements”. He was also a member of Apple’s Disclosure Committee, where he had access to material non-public information about Apple’s financial results.

The SEC alleges that Levoff exploited his access to this financial information by trading in Apple securities in advance of quarterly earnings announcements. In one instance, it is alleged that Levoff sold almost all his Apple holdings upon discovering that the company was going to miss analysts’ iPhone sales targets.

Similar issues have arisen in Canada

The Levoff case bares resemblance to a recent Ontario Securities Commission (“OSC”) case against the general counsel of a public company, who had a major role in enforcing the company’s insider trading policy and advising when the company was in a ‘blackout period’ during which insiders were prohibited from trading.

In that case, the former GC and the OSC reached a settlement in June 2018 whereby the former GC acknowledged and admitted that “he was in a position of high responsibility and trust and was subject to a high professional standard to avoid any appearance of conflicts of interest and any appearance of misuse of confidential information related to [his employer, a public company]” and that “the prudent course of action … [as] general counsel would have been to err on the side of caution given his knowledge of [certain confidential matters] and refrain from purchasing [his employer’s] securities at the time he did”.[1] The former GC undertook to make a voluntary payment of $30,000 to be designated for allocation or use by the OSC, obtain external legal advice in regard to any future trades in securities of issuers of which he is an insider, and successfully complete director education training. He was also reprimanded for his conduct and ordered to pay $10,000 in costs.

It is not just in-house counsel who must exercise caution. Outside counsel also walk a precarious line as a result of their access to their clients’ confidential information. In one notable example, former Bay Street lawyer, Mitchell Finkelstein, was sanctioned by the OSC for misusing confidential information which he obtained while acting on deals and through his access to his firm’s document management database. The OSC found that in passing on the material non-public information to a friend and investment advisors, who then traded on that information, Finkelstein had abused his position of trust.[2]

Observations

Policies and procedures need to be in place in ensure ALL personnel who have access to confidential information act cautiously and transparently when making personal trading decisions. Officers and directors must ensure not only that these policies are widely and fully understood, but that they are consistently adhered to. Consideration needs to be given of the role of oversight to ensure that the gatekeepers charged with monitoring and enforcing the policies, are themselves satisfactorily complying with the high standards expected of them.