Citi fined $30M for leaking iPhone supply chain data
Citi has signed a consent order with the Massachusetts Secretary of State agreeing to pay $30 million after its analysts leaked information on Apple's iPhone supply chain to a number of big clients, including SAC Capital Advisors.
Late last year, Citi's method of covering Apple revolved around a "unique team approach," with semiconductor analyst Glen Yeung, software analyst Walter Pritchard, and hardware analyst Jim Suva sharing the duties. That team initially upgraded AAPL to a buy recommendation in late November, but by December 17 the firm had cut its rating to neutral.
In a note to its clients, Citi explained the rating and target price cuts as stemming from "near-term supply chain orders" that cast doubt on iPhone 5 demand. As many analyst firms do, Citi was estimating iPhone shipments based on production reports from suppliers, longtime Apple supplier Hon Hai in this case.
A consent order (PDF) released Thursday by Massachusetts Secretary of State William Galvin now reveals that Yeung had received word on those production quotes nearly a week earlier and that another Taiwan-based Citi analyst had been slipping that information to select funds ahead of Citi's reports.
Among the clients said to have received advance knowledge was SAC Capital, the hedge fund run by billionaire Steve Cohen. Both Cohen and SAC are under investigation over insider trading allegations, and the Citi revelation stemmed from that process. SAC joined T. Rowe Price in selling off Apple stock ahead of the release of Citi's actual report, according to Reuters.
The consent order quotes a number of emails between Citi analyst Kevin Chang and personnel from SAC. Secretary Galvin said those emails "reveal this cozy culture which illustrates again that there are two types of customers; big ones and retail customers who often don't receive this information."
Galvin levied a $30 million fine on Citi, one of the biggest state securities regulators have ever handed down. The size of the fine stemmed in part from Citi's embarrassing role in the difficulties surrounding Facebook's initial public offering last year. Citi's supervisory culture, Galvin said, has not yet learned its lesson from that event.
The $30 million fine is the result of a settlement, and there have been no charges filed in the case.
Apple chief Tim Cook has previously warned investors about the perils of relying on supply chain reports to divine the company's quarterly fortunes, noting that "the supply chain is very complex, and we obviously have multiple sources for things."
Current speculation has Apple diversifying its supply chain even further in 2014, moving from a partnership model ? the type it currently has with Hon Hai ? to a transaction model for some devices.
Late last year, Citi's method of covering Apple revolved around a "unique team approach," with semiconductor analyst Glen Yeung, software analyst Walter Pritchard, and hardware analyst Jim Suva sharing the duties. That team initially upgraded AAPL to a buy recommendation in late November, but by December 17 the firm had cut its rating to neutral.
In a note to its clients, Citi explained the rating and target price cuts as stemming from "near-term supply chain orders" that cast doubt on iPhone 5 demand. As many analyst firms do, Citi was estimating iPhone shipments based on production reports from suppliers, longtime Apple supplier Hon Hai in this case.
A consent order (PDF) released Thursday by Massachusetts Secretary of State William Galvin now reveals that Yeung had received word on those production quotes nearly a week earlier and that another Taiwan-based Citi analyst had been slipping that information to select funds ahead of Citi's reports.
Among the clients said to have received advance knowledge was SAC Capital, the hedge fund run by billionaire Steve Cohen. Both Cohen and SAC are under investigation over insider trading allegations, and the Citi revelation stemmed from that process. SAC joined T. Rowe Price in selling off Apple stock ahead of the release of Citi's actual report, according to Reuters.
The consent order quotes a number of emails between Citi analyst Kevin Chang and personnel from SAC. Secretary Galvin said those emails "reveal this cozy culture which illustrates again that there are two types of customers; big ones and retail customers who often don't receive this information."
Galvin levied a $30 million fine on Citi, one of the biggest state securities regulators have ever handed down. The size of the fine stemmed in part from Citi's embarrassing role in the difficulties surrounding Facebook's initial public offering last year. Citi's supervisory culture, Galvin said, has not yet learned its lesson from that event.
The $30 million fine is the result of a settlement, and there have been no charges filed in the case.
Apple chief Tim Cook has previously warned investors about the perils of relying on supply chain reports to divine the company's quarterly fortunes, noting that "the supply chain is very complex, and we obviously have multiple sources for things."
Current speculation has Apple diversifying its supply chain even further in 2014, moving from a partnership model ? the type it currently has with Hon Hai ? to a transaction model for some devices.
Comments
But no one can possibly be manipulating Apple's stock price.
/s
Has to be Samsung behind this.
Is this like Samsung who robs every bit of Apple IP to build products and then gets fined a small % of their yearly company profit? Little justice if you ask me. $30M seems like little more than a slap on the wrist.
Second, Glen Yeung needs to be fired from Citibank for his role in this and barred from the securities industry.
I agree, plus people should go to prison.
I agree, plus people should go to prison.
There is no question that these guys are crooks and need to face some consequences, but prison isn't the answer. Prisons should be reserved for only those who pose a physical threat to society. These guys should be publicly humiliated for stealing, ordered to pay back any gains they may have received along with a substantial penalty out of their personal finances, and then fired.
There is no question that these guys are crooks and need to face some consequences, but prison isn't the answer. Prisons should be reserved for only those who pose a physical threat to society. These guys should be publicly humiliated for stealing, ordered to pay back any gains they may have received along with a substantial penalty out of their personal finances, and then fired.
Corporations are people, right? Therefore, they should be subject to the same penalties for breaking the law as regular people, including prison. Hey, it's only fair.
$30 million is such a nothing penalty. The regulators in the US are a total joke. With such piddling fines, no wonder companies like Google and Samsung continually break the law — there is no incentive for them not to.