SEC launches investigation into GTAT's securities trading activity
GTAT revealed the investigation in a regulatory filing on Thursday, saying the SEC is investigating trading activity along with its sapphire production business. The records the Commission is looking for go back to January 1, 2013. GTAT said the SEC requested “information regarding trading activity in the Company's securities.”
The company didn't elaborate on what those activities might be, but it's possible stock sales the CEO and COO made ahead of the bankruptcy filing could be the target of the SEC's investigation.
GTAT signed a deal with Apple a year ago to produce synthetic sapphire glass for the Apple Watch, iPhone 6 and iPhone 6 Plus. The company wasn't able to follow through on its commitment, leading to spiraling expenses, missed deadlines, and ultimately bankruptcy.
Apple had agreed to front US$578 million in a series of payments so GTAT could ramp up its sapphire production. Apple also bought and leased factory space to the company to house the furnaces needed to produce the glass.
When GTAT failed to meet key milestone goals, Apple delayed and then ultimately withheld payments. Without that money, GTAT wasn't able to make ends meet.
GTAT characterized Apple's terms as “oppressive and burdensome,” calling into question exactly why the company would agree to the deal in the first place. After its Chapter 11 bankruptcy filing, GTAT said it planned to shut down its sapphire glass production facility and annouce it would lay off 727 employees.
What may have caught the eye of the SEC were the 9,000 shares of company stock CEO Tom Gutierrez sold the day before Apple introduced the iPhone 6 and iPhone 6 Plus with X-ion glass instead of sapphire for the display surface. When investors saw that Apple wasn't using GTAT's sapphire, they drove the stock down 13 percent. The company's stock has since lost almost all its value and has been delisted from the NASDAQ stock exchange.
Mr. Gutierrez made $10 million on his GTAT stock sales dating back to February. While it's possible his big cash-in was coincidental because trades like this must be planned in advance, the SEC may be looking into whether or not he scheduled his stock selloff because he knew GTAT was failing to meet Apple's milestone goals.
COO Daniel Squiller sold $1.2 million in company stock in May and another $750,000 ahead of the iPhone 6 introduction. He, too, was in a position to know the company was in trouble and was headed towards bankruptcy.
While the executive's stock sales do look like a big red flag, the SEC could be looking into something else related to the company's activities. That said, there's a good chance both Mr. Gutierrez and Mr. Squiller have yet another headache to deal with while GTAT works its way through the bankruptcy process.
[Thanks to the Wall Street Journal for the heads up]