GT Advanced Technologies, the company that was supposed to make sapphire screens for the iPhone early this decade, has been charged with misleading investors by the SEC.
The SEC’s investigation found that GT and its CEO violated antifraud provisions of the federal securities laws as part of its deal to supply Apple with sapphire. After failing to meet certain performance requirements, GT caused “significant investor harm” by reclassifying over $300 million in debt to Apple. Sadly, the company’s punishment is pretty much just a slap on the wrist.
As part of its deal with Apple, GT received a $578 million loan in exchange for sapphire glass that met certain standards. GT was supposed to pay Apple back in four installments but by April 2014 the company had failed to meet those standards. Apple withheld its final loan payment of $139 million and demanded the company repay the $306 million it had already given to GT. That’s when GT CEO Thomas Gutierrez decided to be sneaky about the company’s debt.
GT tried to say that Apple breached its part of the agreement, thus relieving the company of its debt obligations. Gutierrez also told investors on an earnings call that GT expected to hit its performance goals and would get its final payment from Apple by October. None of that was true.
“GT and its CEO painted a rosy picture of the company’s performance and ability to obtain funding that was paramount to GT’s survival while they were aware of information that would have catastrophic consequences for the company,” said the SEC’s Anita Bandy in the agency’s report. “We will continue to hold chief executives accountable when they breach their most fundamental duty to make full and truthful disclosures to investors.”
Two months after Apple withheld its payment GT filed for bankruptcy. It is now a privately held company and managed to exit bankruptcy. The Arizona plant that was supposed to churn out sapphire has since been turned into a data command center by Apple.
Thomas Gutierrez had to pay $140,000 in monetary relief as punishment from the SEC’s findings. Both he and GT Advanced agreed to cease and desist from further violations.
