SEC presses charges against GT Advanced & CEO for fraud in iPhone sapphire supply

Posted:
in iPhone
The U.S. Securities and Exchange Commission on Friday charged GT Advanced Technologies and former CEO Thomas Gutierrez with fraud, accusing them of deceiving investors about its ability to supply sapphire for iPhones.

Sapphire en masse.
Sapphire en masse.


GT also misclassified over $300 million in debt to Apple, accumulated from its inability to meet multiple milestones, the SEC said. Without acknowledging or denying wrongdoing, both GT and Gutierrez have already consented to the SEC's findings, mostly avoiding punishment beyond a cease-and-desist order. Gutierrez will have to pay over $140,000 in fines.

"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," wrote Anita Bandy, an associate director for SEC enforcement.

In fall 2013, Apple consented to advancing $578 million for GT, delivered in four installments. By April 2014 however GT was still unable to meet Apple's performance standards, leading to it withholding $139 million, with the option of speeding up repayment of the $306 million already delivered.

GT then accused Apple of breaching part of its agreement in order to be set free from milestone obligations and avoid recognizing debt as current, the SEC claimed. In a subsequent earnings call, Gutierrez nevertheless said that GT was expecting to meet its deadlines and receive its fourth Apple installment by October 2014. The CEO also made exaggerated sales projections, yet within just two months, GT made a surprise filing for bankruptcy. It reached a settlement for $439 million in debt with Apple by November 2015.

GT has since left bankruptcy, but is no longer on the stock market. A joint factory in Mesa, Ariz. has since been repurposed into an Apple data center.


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Comments

  • Reply 1 of 21
    DAalsethDAalseth Posts: 618member
    “...both GT and Gutierrez have already consented to the SEC's findings, mostly avoiding punishment beyond a cease-and-desist order. Gutierrez will have to pay over $140,000 in fines.“ And thats the big mistake. They walk away with a minor fine, when you've pocketed millions , $140k is pocket change, and no promise they won’t do it to someone else. They should have done hard time.
    n2itivguyronnStrangeDaysracerhomie3repressthisradarthekatpscooter631stmuthuk_vanalingamllama
  • Reply 2 of 21
    evn616evn616 Posts: 25member
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it? This implies that all others without the moniker are inferior. In fact, they are so advanced that they handled their deal well. Quite advanced. Very advanced. Beautiful, clean, advanced sapphire ingot.
  • Reply 3 of 21
    rotateleftbyterotateleftbyte Posts: 1,085member
    evn616 said:
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it?
    Who makes the graphics devices used in some MacBook Pro's?  "Advanced" Micro Devices.

    I know that a lot of people would prefer NVidia but devices like the RX580 are as good as most NVidia cards and a lot more affordable IMHO.
    ronnDAalsethStrangeDaysracerhomie31STnTENDERBITSrepressthispscooter63muthuk_vanalingam
  • Reply 4 of 21
    chasmchasm Posts: 1,527member
    Although it ended up being a bad business deal (and I strongly agree with those who said Gutierrez should do time), Apple ended up getting their money back plus a free data center, so really they didn’t do too badly in the end. It’s a pity the technology turned out to be fraudulent, as it would have made a big and competitive difference to iPhones if the entire screen could ever have been that sapphire glass.

    White collar crime — and the lack of meaningful punishments for it — is a serious problem in the US and needs to be addressed much, much more harshly by the various agencies. There needs to be strong punishment as a deterrent to fraudulent/criminal behaviour among the rich, not just the not-rich.
    edited May 3 muthuk_vanalingamlarryjwllamaleftoverbacon
  • Reply 5 of 21
    lkrupplkrupp Posts: 7,072member
    evn616 said:
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it? This implies that all others without the moniker are inferior. In fact, they are so advanced that they handled their deal well. Quite advanced. Very advanced. Beautiful, clean, advanced sapphire ingot.
    It’s always Apple’s fault somehow, right?
    StrangeDaysrepressthisDanManTXpscooter63
  • Reply 6 of 21
    evn616evn616 Posts: 25member
    evn616 said:
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it?
    Who makes the graphics devices used in some MacBook Pro's?  "Advanced" Micro Devices.

    I know that a lot of people would prefer NVidia but devices like the RX580 are as good as most NVidia cards and a lot more affordable IMHO.
    Good point, but I don’t associate the word “affordable” with Apple. They are far from affordable, which is apparent in the very high build quality of most of their products. Also, I sincerely doubt Apple selected AMD over Nvidia because of their affordability. The point is, one has to wonder why/how Apple came to select “GT Advanced” as their Sapphire buddy. Seems like the tuna was bad from the get go.
  • Reply 7 of 21
    evn616evn616 Posts: 25member
    lkrupp said:
    evn616 said:
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it? This implies that all others without the moniker are inferior. In fact, they are so advanced that they handled their deal well. Quite advanced. Very advanced. Beautiful, clean, advanced sapphire ingot.
    It’s always Apple’s fault somehow, right?
    Not really. Sometimes it’s an act of God.
    repressthis
  • Reply 8 of 21
    DAalsethDAalseth Posts: 618member
    evn616 said:
    evn616 said:
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it?
    Who makes the graphics devices used in some MacBook Pro's?  "Advanced" Micro Devices.

    I know that a lot of people would prefer NVidia but devices like the RX580 are as good as most NVidia cards and a lot more affordable IMHO.
    Good point, but I don’t associate the word “affordable” with Apple. They are far from affordable, which is apparent in the very high build quality of most of their products. Also, I sincerely doubt Apple selected AMD over Nvidia because of their affordability. The point is, one has to wonder why/how Apple came to select “GT Advanced” as their Sapphire buddy. Seems like the tuna was bad from the get go.
    As I understand it, the GT Advanced guys came in with a small Sapphire ingot and a good story. Like most con men they made everything they said sound brilliant. They said that their new system would have no trouble scaling up from little ingots to giant ones suitable for iPhone and iPad screens. It sounded wonderful. Apple listed to the presentation and got conned. That's what con men do.
    muthuk_vanalingamllama
  • Reply 9 of 21
    StrangeDaysStrangeDays Posts: 7,587member
    evn616 said:
    evn616 said:
    Big mistake Apple. Who would trust a company/company name with the word “Advanced” in it?
    Who makes the graphics devices used in some MacBook Pro's?  "Advanced" Micro Devices.

    I know that a lot of people would prefer NVidia but devices like the RX580 are as good as most NVidia cards and a lot more affordable IMHO.
    Good point, but I don’t associate the word “affordable” with Apple. They are far from affordable, 
    Not really. Apple stuff is a type of product known as "affordable luxury". It's not like being a Rolls Royce, anyone in the developed world can own an iPhone even tho it's in the higher end of its product category. Add in that there are entry-level models, etc. Almost anyone who wants one can get an iPod, a Mac mini, or one of several price-point iPhones.
  • Reply 10 of 21
    chasm said:
    Although it ended up being a bad business deal (and I strongly agree with those who said Gutierrez should do time), Apple ended up getting their money back plus a free data center, so really they didn’t do too badly in the end. It’s a pity the technology turned out to be fraudulent, as it would have made a big and competitive difference to iPhones if the entire screen could ever have been that sapphire glass.

    White collar crime — and the lack of meaningful punishments for it — is a serious problem in the US and needs to be addressed much, much more harshly by the various agencies. There needs to be strong punishment as a deterrent to fraudulent/criminal behaviour among the rich, not just the not-rich.
    Apple did not get a “free” data center.
    They didn’t recoup the cost of finishing the abandoned solar plant. They ended up spending a lot of money getting that plant to use green energy. 

    They also were made to blame for all of the employees who lost their job when the truth came out. Most of them were offered jobs when Apple agreed to take the plant and convert it to a data center among other things.

    Sure they got tax breaks, most companies who build something like this get one, but nothing like Foxconn’s deal in Wisconsin. 
    larryjwstompyleftoverbacon
  • Reply 11 of 21
    StrangeDaysStrangeDays Posts: 7,587member
    Sogg ought to be pleased.
    pscooter63
  • Reply 12 of 21
    wood1208wood1208 Posts: 1,958member
    No need to beat the dead horse.
  • Reply 13 of 21
    DAalsethDAalseth Posts: 618member
    One part of the whole fiasco that I found interesting was that toward the end Apple withheld the final payment because GT Advanced had not fulfilled their contract. They had not been able to produce anything even approaching the quality or quantity they had promised to and it was obvious they never would. A couple of months later GTA filed for bankruptcy. What was interesting was how many message boards, I followed MacRumors and a few others back then, were filled with invective about how it was Apple's fault. How Apple had screwed this poor little company over and were the bad guy. It was almost funny the convoluted and tortured logic some of the posters used to explain how the con man was the victim when the pigeon wised up. 
    radarthekatpscooter63
  • Reply 14 of 21
    DAalseth said:

    As I understand it, the GT Advanced guys came in with a small Sapphire ingot and a good story. Like most con men they made everything they said sound brilliant. They said that their new system would have no trouble scaling up from little ingots to giant ones suitable for iPhone and iPad screens. It sounded wonderful. Apple listed to the presentation and got conned. That's what con men do.
    Apple got hustled by con men who shouldn't have been able to con Apple.  GT Advanced already had a terrible reputation overseas.  IIRC, their furnaces either didn't work properly or weren't delivered.  Multiple industry experts said what GTA was promising wasn't possible.  Apple bet on them anyway.  I think Apple thought they were hedging their bet by placing onerous terms in the infamous "big boy pants" contract.  Con men don't care about contract terms.  From day one, Apple was gonna eat it with this deal but I think they wanted it to work so badly they ignored all the warning signs.
    radarthekat
  • Reply 15 of 21
    radarthekatradarthekat Posts: 3,048moderator
    Back in 2014 when this all played out I happened to be writing an essay on the difference between investing and speculating.  I choose to contrast Apple and GTAT as examples of an investment and a speculative bet, respectively.  I noted reading the article above how closely Anita Bandy's characterization of GTAT paralleled my own.  Have a read:

    2014:  RadarTheKat

    INVESTING VERSUS SPECULATION

    or What I learned from Warren Buffett and 25 years in the market.  But mostly from Warren Buffett.

    The first level of wisdom a prospective investor hears and integrates is the old saw about diversification. And that's about as far as it goes for many.  The problem with diversification is that, even if you are diversified, you'll still likely have in your portfolio several holdings that don't fit the definition of a good investment.

    Those who go a bit farther in their studies begin to have a more nuanced comprehension and come to realize that not all businesses and opportunities represent investments. So what do these other businesses and opportunities represent if not investments? The answer is that anything that isn't an investment is speculation.  To be successful with individual stocks/businesses, you should carry in your mind a definition of these two concepts.  Here are my working definitions of the two terms:

    "An investment is a commitment to holding a security as long as the underlying fundamentals and business prospects remain intact." 

    Take Apple, for example. Apple shares are an investment as long as Apple continues to perform as well as it is currently performing. As long as it continues to generate the revenues and earnings it is currently generating.  Even if neither rise.

    "Speculation is a bet on some future outcome, either positive or negative, that would materially change the fortunes of a business."

    Note that the main difference here is that an investment relies upon the continuation of the status quo while speculation is a bet against the status quo.  

    GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet.  In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers.  Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6.  GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience.  That reinvention, if successful, would materially enhance the value of the company.  If a failure, it would mark the collapse of GTAT as a viable business.  GTAT did fail, and filed for bankruptcy protection.  In the process, the share price went from a high of about $20 to about 40 cents.  Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team.  They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment.  These people were speculating and paid a high price.


    2019: SEC's Anita Bandy

    "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," wrote Anita Bandy, an associate director for SEC enforcement. 

    muthuk_vanalingam
  • Reply 16 of 21
    DAalsethDAalseth Posts: 618member
    DAalseth said:

    As I understand it, the GT Advanced guys came in with a small Sapphire ingot and a good story. Like most con men they made everything they said sound brilliant. They said that their new system would have no trouble scaling up from little ingots to giant ones suitable for iPhone and iPad screens. It sounded wonderful. Apple listed to the presentation and got conned. That's what con men do.
    Apple got hustled by con men who shouldn't have been able to con Apple.  GT Advanced already had a terrible reputation overseas.  IIRC, their furnaces either didn't work properly or weren't delivered.  Multiple industry experts said what GTA was promising wasn't possible.  Apple bet on them anyway.  I think Apple thought they were hedging their bet by placing onerous terms in the infamous "big boy pants" contract.  Con men don't care about contract terms.  From day one, Apple was gonna eat it with this deal but I think they wanted it to work so badly they ignored all the warning signs.
    Exactly right. Apple bought into the con, and they should have known better. A bit more due diligence might have brought up the red flags. But con-men succeed because people fall for the story and ignore the facts. This goes from a telephone call saying you must pay your taxes now, in iTunes Gift Cards, to Nigerian Prince scams, to...well due to forum rules I'll leave it at that. 
  • Reply 17 of 21
    bobroobobroo Posts: 88member
    The GT Advanced spanking that Tim and Jony received negatively influenced the future of Apple in many ways. Mainly, the dream of Steve Jobs for Apple to be trailblazing was ditched.

    Sapphire glass screens were just the first big step to using new, innovative materials. But because the deal went bad, out the window went the using all that intellectual property that Apple gobbled up. Remember all those little companies; like consistently 10-15 each quarter that Apple would buy out? Remember Apple working alongside companies like Liquidmetal and Glassimetal? Those days are long over. It's a shame, maybe another firm could have successfully made the boules of sapphire?

    So today Tim and Jony are very conservative and adverse to taking risks or experimenting with new technology. Thusly, we have iPhones that are still made of Gorilla glass and aluminum and look and preform pretty much as the the last model you just traded in. You visually can't tell the difference between an iMac made in 2010 or one made in 2020. A Magic Mouse is preforming the same magic as 2009. Etc. etc. etc.

    I remember the conference call after the GT debacle and Apple lost that $200 and what ever million; Apple reported making so much God damn money that quarter, the GT $200 million loss---wasn't even mentioned. Not one analyst brought it up. CFO Peter Oppenheimer certainly didn't say a word, he didn't need to.




    larryjwllama
  • Reply 18 of 21
    fastasleepfastasleep Posts: 2,847member
    bobroo said:
    The GT Advanced spanking that Tim and Jony received negatively influenced the future of Apple in many ways. Mainly, the dream of Steve Jobs for Apple to be trailblazing was ditched.

    Sapphire glass screens were just the first big step to using new, innovative materials. But because the deal went bad, out the window went the using all that intellectual property that Apple gobbled up. Remember all those little companies; like consistently 10-15 each quarter that Apple would buy out? Remember Apple working alongside companies like Liquidmetal and Glassimetal? Those days are long over. It's a shame, maybe another firm could have successfully made the boules of sapphire?

    So today Tim and Jony are very conservative and adverse to taking risks or experimenting with new technology. Thusly, we have iPhones that are still made of Gorilla glass and aluminum and look and preform pretty much as the the last model you just traded in. You visually can't tell the difference between an iMac made in 2010 or one made in 2020. A Magic Mouse is preforming the same magic as 2009. Etc. etc. etc.

    I remember the conference call after the GT debacle and Apple lost that $200 and what ever million; Apple reported making so much God damn money that quarter, the GT $200 million loss---wasn't even mentioned. Not one analyst brought it up. CFO Peter Oppenheimer certainly didn't say a word, he didn't need to.
    So much bullshit to unpack here. Apple still works with and experiments with new materials, eg recycled aluminum in the MB Air, ceramic and various alloys in Watch, etc. My iPhone performs miles above the one I upgraded from. I can most definitely tell the difference between a 2010 and 2019 iMac (2020 TBD). What different do you want out of a mouse? So ridiculous on all levels.
    StrangeDays
  • Reply 19 of 21
    iOS_Guy80iOS_Guy80 Posts: 151member
    Back in 2014 when this all played out I happened to be writing an essay on the difference between investing and speculating.  I choose to contrast Apple and GTAT as examples of an investment and a speculative bet, respectively.  I noted reading the article above how closely Anita Bandy's characterization of GTAT paralleled my own.  Have a read:

    2014:  RadarTheKat

    INVESTING VERSUS SPECULATION

    or What I learned from Warren Buffett and 25 years in the market.  But mostly from Warren Buffett.

    The first level of wisdom a prospective investor hears and integrates is the old saw about diversification. And that's about as far as it goes for many.  The problem with diversification is that, even if you are diversified, you'll still likely have in your portfolio several holdings that don't fit the definition of a good investment.

    Those who go a bit farther in their studies begin to have a more nuanced comprehension and come to realize that not all businesses and opportunities represent investments. So what do these other businesses and opportunities represent if not investments? The answer is that anything that isn't an investment is speculation.  To be successful with individual stocks/businesses, you should carry in your mind a definition of these two concepts.  Here are my working definitions of the two terms:

    "An investment is a commitment to holding a security as long as the underlying fundamentals and business prospects remain intact." 

    Take Apple, for example. Apple shares are an investment as long as Apple continues to perform as well as it is currently performing. As long as it continues to generate the revenues and earnings it is currently generating.  Even if neither rise.

    "Speculation is a bet on some future outcome, either positive or negative, that would materially change the fortunes of a business."

    Note that the main difference here is that an investment relies upon the continuation of the status quo while speculation is a bet against the status quo.  

    GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet.  In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers.  Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6.  GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience.  That reinvention, if successful, would materially enhance the value of the company.  If a failure, it would mark the collapse of GTAT as a viable business.  GTAT did fail, and filed for bankruptcy protection.  In the process, the share price went from a high of about $20 to about 40 cents.  Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team.  They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment.  These people were speculating and paid a high price.


    2019: SEC's Anita Bandy

    "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," wrote Anita Bandy, an associate director for SEC enforcement. 

    I got burned with GTAT but learned a good lesson that has paid off 100 times over. 
    radarthekat
  • Reply 20 of 21
    StrangeDaysStrangeDays Posts: 7,587member
    bobroo said:
    The GT Advanced spanking that Tim and Jony received negatively influenced the future of Apple in many ways. Mainly, the dream of Steve Jobs for Apple to be trailblazing was ditched.

    Sapphire glass screens were just the first big step to using new, innovative materials. But because the deal went bad, out the window went the using all that intellectual property that Apple gobbled up. Remember all those little companies; like consistently 10-15 each quarter that Apple would buy out? Remember Apple working alongside companies like Liquidmetal and Glassimetal? Those days are long over. It's a shame, maybe another firm could have successfully made the boules of sapphire?

    So today Tim and Jony are very conservative and adverse to taking risks or experimenting with new technology. Thusly, we have iPhones that are still made of Gorilla glass and aluminum and look and preform pretty much as the the last model you just traded in. You visually can't tell the difference between an iMac made in 2010 or one made in 2020. A Magic Mouse is preforming the same magic as 2009. Etc. etc. etc.
    Holy cow what a load of nonsense. Ew. All I’ll say is, I have an iMac from 2011 and I can certainly tell the difference, not that the way it looks is or should be its defining feature.

    Btw, what do you call Apple making niche new products in gold and stainless steel and ceramic, if not experimenting with new materials design? From the outside we don’t know what the lessons of that experimentation were, but I love my stainless steel phone which now matches my Watch.

    Apple still buys smaller companies from time to time, and generally does not comment on it. Same as it ever was...
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