While Disney CEO Bob Iger mourned his 84-year-old father’s death from a heart attack at a funeral in New York yesterday, federal authorities 3,000 miles away at the company’s headquarters of Los Angeles were arresting an assistant to one of his most trusted lieutenants on insider-trading charges.
The shocking indictment of Bonnie Hoxie—a secretary in the office of corporate communications head Zenia Mucha, who ranks as one of Disney’s five most powerful executives—and her boyfriend, Yonni Sebbag, reverberated throughout the Magic Kingdom, as insiders and those close to Disney termed it, if proven true, as perhaps the biggest betrayal in the company’s long history.
“I am willing to share this information for a fee that we can determine later.”
Things like this aren’t supposed to happen at Disney, where employees are called “cast members” and loyalty to the company is prized above all else. New “cast members” go through an intense orientation to indoctrinate them to Disney’s team-first culture, for instance, and it’s not uncommon to see them walking the halls proudly wearing pins given out by the company to commemorate landmark anniversaries. Disney workers are expected to exhibit a purity of character that is in keeping with the wholesome image Mickey Mouse represents for American families.
“Disney takes things like ethics very seriously,” says one source who knows its culture intimately. “They hold their employees to a higher standard because as a company it is held to a higher standard. They really feel like they have an obligation to the American people.”
That’s why the allegations against Hoxie and Sebbag, whose reported scheme was both bumbling and routine, is likely to have more impact on Disney internally, particularly as it relates to the relationship between Iger and Mucha, than it will in the eyes of the public.
According to the affidavit, filed in New York’s Southern District court, beginning in March of this year, Hoxie and Sebbag sent emails and form letters to roughly 33 investment firms offering to sell inside information about Disney’s quarterly earnings and tips about plans to sell its ABC television network to private-equity firms. Not only did none of the investment firms bite on the offer, many of them promptly notified authorities.
“Hi, I have access to Disney’s quarterly earnings report before its release on 05/03/10,” reads one email sent by Sebbag, who used the alias Jonathan Cyrus, in the scheme. “I am willing to share this information for a fee that we can determine later. I am sorry but I can’t disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is email@example.com. I count on your discretion as you can count on mine.”
In another email, Sebbag attempts to gain the trust of a potential buyer of the information by the name of Al Tyson, who was really an undercover FBI agent setting up a sting, by writing that, “Bob Iger is in serious and advanced negotiations with two private-equity firms to sell them the ABC network but no price has been determined yet.”
After a series of email exchanges, Sebbag, who previously ran a Los Angeles restaurant called Yonni’s that is now closed down, met with the FBI agent posing as Tyson and accepted a $15,000 payment for supplying the inside information, which led to the charges of wire fraud and conspiracy. According to a separate civil lawsuit filed by the U.S. Securities and Exchange Commission, after collecting the money, Hoxie emailed Sebbag pictures of a Stella McCartney designed handbag “available for $700 at Neiman Marcus” as well as pricey shoes made by the designer. Instead of getting those items, however, Sebbag and Hoxie, a 33-year-old Michigan native who has worked at Disney since December 2007, could each get 25 years in prison and a fine of at least $250,000. They were arraigned in Los Angeles yesterday on the criminal charges and the U.S. Securities and Exchange Commission is expected to file a separate civil insider-trading lawsuit shortly.
Disney said in a statement that it is fully cooperating with authorities and that the reference to conversations regarding the sale of the ABC network “were and are false.”
As it relates to ABC, Iger has been sending mixed signals lately. Last month, for instance, he denied to The New York Times that the network was for sale. But at Disney’s annual shareholder meeting in March, he said that he would consider a sale or spinoff of ABC. And in April, three sources with direct knowledge of the situation told The Daily Beast that Iger planned to focus his attention on ABC and could potentially sell the network.
For Iger, the fact that the insider-information leak came from Mucha’s office is a devastating blow. Mucha, who earned her reputation as an aggressive public-relations strategist as an adviser to former New York Governor George Pataki and former U.S. Senator Alfonse D’Amato, is one of Iger’s closest advisers at Disney and was his biggest supporter for the CEO post after former boss Michael Eisner stepped down.
“This has got to be hard for Bob because he trusts Zenia completely,” says one Disney insider. “But now, if I’m in his shoes, I have to think twice about going to her with information. It’s personal for him to have this come from her office.”
No one is suggesting that Mucha is responsible for this, and she certainly isn’t going to lose her job because of it—scandals like this happen because confidential information flows through many corporate fingers and there’s no real way to police and prevent it from getting out. As U.S. Attorney Preet Bharara said in a statement announcing the arrests, “The integrity of the securities exchanges can be compromised not only by top executives but also by anyone entrusted with material, nonpublic information.” Given the small-time nature of the scheme, the whole situation is likely to be out of the news cycle by the weekend. But, according to the Disney insider, it will change things at the company, and not for the better.
“A betrayal of trust within the company like this is likely going to cause people to be less communicative with each other,” says the Disney insider. And when your whole corporate modus operandi is built around a finely tuned marketing machine that funnels projects between its movie, television, theme parks, consumer products and publishing divisions, less communication can’t be a good thing.
Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, Black Men, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.