SEC charges ex-Apple supplier with fraud
One of the most famous lines in movie history was said during 1967's The Graduate. College grad Benjamin Braddock, played by a very young Dustin Hoffman, is getting advice about his future when a family friend seems ready to give him the secret to success. "Plastics," says the friend and that one-word line is the 42nd most famous quote in the history of cinema according to API. If that movie had been filmed in 2013, the word "plastics" might have been replaced with "sapphires."
iPhone 5s but before Apple unveiled the iPhone 6 series the next September, it appeared to be a sure bet that the company would use a sapphire glass display on its new phones. The time was right for such a move; this was the first year of a design overhaul for the device. Besides, Apple had been using the material to protect the camera lens on its handsets and the Touch ID sensor. So in November of that year, Apple gave a company called GT Advanced a $578 million advance to ensure that the latter had enough equipment to supply Apple with all the sapphire glass it would need for iPhone production. But low yields (rumored to be just 25%) and other issues resulted in the iPhone 6 and iPhone 6 Plus sporting "ion strengthened" glass rather than sapphire glass.It's hard to remember now, but back in 2013, after the launch of the
Eventually, GT Advanced ended up in bankruptcy court and today the Securities and Exchange Commission (SEC) charged (via Tech Crunch) both the company and its former CEO with fraud. The SEC said that both mislead investors about GT Advanced's abilities to supply Apple with sapphire glass for the iPhone, and "misclassified" $300 in debt owed to Apple. The regulatory agency noted that GT Advanced's failure to hit certain performance milestones resulted in Apple withholding payment of $139 million from the outfit. It also gave Apple the right to demand an accelerated repayment of $306 million that Apple had provided GT Advanced in advance.
GT Advanced's CEO lied to investors about its deal with Apple
The SEC alleges that GT Advanced's filings with the agency hid the fact that Apple could demand the $306 million repayment at any time. The agency says that the company also made unsupported claims that Apple hadn't lived up to its end of the deal, thus releasing GT Advanced from having to meet its performance benchmarks. During the firm's second quarter 2014 earnings call, then-CEO Thomas Gutierrez lied to investors, the SEC claims. He said that GT Advanced expected to hit performance targets and would get paid another installment payment from Apple by that October. Two months later, the company filed for bankruptcy. Today, GT Advanced is privately owned.
Both GT Advanced and its former CEO Thomas Gutierrez both consented to the findings of the SEC that they had violated antifraud provisions of the federal securities laws. Neither admitted or denied the findings, and both agreed to cease and desist from further violations. The former executive also agreed to pay the SEC over $140,000.
Interestingly, before Apple's deal with GT Advanced turned sour, it was thought that every phone manufacturer would use silicon glass on their handsets. One model that did use sapphire glass was 2014's Kyocera Brigadier, which was offered by Verizon. Apple also ended up using sapphire glass on the Apple Watch.