Apple's silence on Steve Jobs' health may have broken federal securities rules
- From: Chim <ChimS1@xxxxxxx>
- Date: Thu, 25 Jun 2009 16:30:44 -0700 (PDT)
http://www.latimes.com/business/la-fi-apple-jobs25-2009jun25,0,1155506.story
TECHNOLOGY
Apple's silence on Steve Jobs' health may have broken federal
securities rules
Firms aren't required to disclose medical details about executives,
lawyers say. But they are required to divulge 'material' information
investors should know before buying or selling stock.
By David Sarno and Walter Hamilton
June 25, 2009
Reporting from Los Angeles and New York -- Steve Jobs' medical
condition turned out to be more serious than Apple Inc. officials had
previously acknowledged -- and that has analysts and legal experts
questioning whether the company ran afoul of federal securities rules.
Apple had disclosed in early January that Jobs had a "hormone
imbalance" and would take a leave of absence, but never said he was so
sick that he needed a liver transplant.
Companies are not required to divulge medical details about
executives, lawyers said. But they are required to disclose "material"
information, which is defined as what a reasonable investor would need
to know to make an informed decision on buying or selling stock.
"If they tried to lessen the disclosure and make it misleading by
omission, that's just as bad as telling something that flat isn't
true," said Jeffrey C. Soza, a securities lawyer at Glaser, Weil,
Fink, Jacobs, Howard & Shapiro in Los Angeles.
The Tennessee doctor who led the transplant team said this week that
Jobs was "the sickest patient on the waiting list" at the time a donor
liver became available.
Dr. James D. Eason said that Apple's key man had tested high -- more
likely to die from the condition -- on an index that rates patients
with end-stage liver disease.
But all that investors or the public knew came from two brief
statements on Apple's website. The first, about the hormone imbalance,
was followed a week later by one from Jobs saying his health issue was
"more complex" and would require a six-month leave.
The Cupertino, Calif., company has maintained that the initial
statement was enough to satisfy disclosure rules imposed on publicly
traded companies. But some analysts aren't so sure. Intentionally
downplaying the extent of such an illness could set Apple on the wrong
side of securities laws, Soza said.
Investor Warren E. Buffett agreed that Apple had been less than
forthright. "Certainly Steve Jobs is important to Apple," he said in a
CNBC-TV interview Wednesday. "Whether he is facing serious surgery or
not is a material fact."
The state of Jobs' health has long been a subject of popular
discussion, including his surgery for pancreatic cancer in 2004 and
his widely observed weight loss that preceded his leave of absence.
With that information in the public sphere, some experts say Apple
fulfilled its legal obligation by saying that Jobs was on medical
leave.
"His health is a matter of private information, which the board may be
in possession of but has no affirmative obligation to disclose," said
G. William Speer, a lawyer at Bryan Cave in Atlanta.
Jobs, who founded Apple in 1979, is widely considered a visionary
whose products have repeatedly allowed the company to reinvent itself
and stay ahead of the competition. His importance to the company fuels
the debates on how much information about his health is material for
investors.
"Steve is Apple," said Danielle Levitas, an analyst for industry
research firm IDC. "The company was on the skids, and he came back to
revive them. No doubt, if he were gone, it would be a different
company. There aren't a whole lot of people out there like Steve
Jobs."
Nor are there many companies whose fate seems so closely tied to that
of a single person, said Stephen Davis, a corporate governance expert
at Yale University's Millstein Center for Corporate Governance and
Performance.
"Whether he's able to come back, in what capacity and when are all
highly relevant to Apple's owners," Davis said. "We're in the middle
of huge financial crisis that's been caused in part by huge failures
of corporate governance. This is an age when you would hope
corporations would get that shareholders need some pretty high-quality
disclosure."
The Securities and Exchange Commission declined to comment on the
situation.
The revelation of Jobs' illness riled critics because it comes on the
heels of long-standing displeasure with Apple's secretive culture and
what detractors say is its grudging disclosure of important issues.
"Across the board the company is tight-lipped and tends to hold
information close to its vest," said Patrick McGurn, special counsel
at RiskMetrics Group, a New York advisor to large investors on
governance issues. "This isn't an isolated issue with Apple. It's a
major concern at this point."
Apple agrees with Speer's view that Jobs' health is a private matter,
and it has said almost nothing about it even after news of the liver
transplant.
"Steve continues to look forward to returning to Apple at the end of
June," reiterated Apple spokesman Steve Dowling.
He noted that the Tennessee doctors were "authorized" to release their
statement late Tuesday about Jobs' condition, but declined to comment
on whether Apple should have said more to investors.
Dowling also said none of the eight members of the board of directors
would be available to comment. Former Vice President Al Gore and
current and former chief executives of Google Inc., Genentech Inc. and
Intuit Inc. declined to comment. Three other directors did not return
calls.
david.sarno@xxxxxxxxxxx
walter.hamilton@xxxxxxxxxxx
Staff writer Alex Pham contributed to this report.
.
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