iPod woes could leave executives singing prison blues

Nine executives at Inventec Appliances Corp. could face jail time for failing to reveal plans by Apple Inc. to reduce iPod orders to the company in a timely manner.

The executives have been indicted by Taiwanese prosecutors over allegations of insider stock trading, the company said Thursday.

Taiwan's Banciao District Prosecutors Office alleged the nine executives and one lower level employee failed to publicly reveal a steep drop in iPod orders until after they had sold off nearly NT$740 million (US$22.4 million) worth of stock on the Taiwan Stock Exchange.

The executives knew as early as Jan. 19, 2006 that the company would have to reduce iPod output by 49 percent in February as orders moved to China, prosecutors said in a statement.

Prosecutors also allege the company planned to lay off workers at a factory devoted to iPod production long before it revealed the troubles to investors in mid-March.

"[The information] had a huge impact on the company's stock price," prosecutors said in a statement.

The company's stock hit a 2006 peak of NT$183.08 per share on Feb. 3, and stood at NT$160 on March 8 of the same year. But it started to tumble the next day, hitting NT$106.54 a few weeks later on March 24.

Prosecutors are seeking the stiffest penalties against the two top executives, Chairman Jackson Chang and President Daniel Lee. Chang faces six-and-a-half years in prison and a fine of NT$30 million, while prosecutors are seeking a seven-and-a-half year term for Lee and a fine of NT$60 million.

The company's monthly revenue statements show the damage caused by Apple's order reduction. Inventec Appliances reported revenue of NT$12.3 billion for the month of January, 2006, but February revenue dropped to NT$6.95 billion, and failed to rebound.

The company has struggled to recover from the blow. It reported revenue of NT$4.91 billion for July, 2007.

The stock market trouble for Inventec Appliances occurred just months after its debut on the main board. Hype around the iPod had helped the company post a record for the biggest one-day gain in an initial public stock offering in Taiwan history just months before, on Oct. 25, 2005.

IDG News Service

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