SEC Continues to Investigate Apple's Disclosures About Jobs's Health:
Could CEO's Condition Really Constitute Misleading Material Info?
Apple's disclosures about Steve Jobs's health remain under scrutiny by Securities and Exchange Commission investigators over how his condition went from "relatively simple" to "more complex" in nine days, said a person familiar with the matter. A pivotal question for regulators is what Apple's board knew at the time of Jobs's Jan. 5 announcement that he had a hormone imbalance and a Jan. 14 statement that he was taking a five-and-a-half month medical leave, said the person, who declined to be identified because the probe is confidential, Bloomberg News reports.
Jobs went on to have a liver transplant during his leave. SEC investigators want to be sure that Jobs's January disclosures didn't mislead investors, the person said. Bloomberg reported in January that the SEC had opened the probe. "The issue here is: Did Apple or Jobs make misleading disclosures, tested by what they knew at the time?" said Robert Hillman, a securities law professor at the University of California, Davis. "A disclosure could be misleading if it's a partial truth," he added, report Bloomberg writers Connie Guglielmo, David Scheer and Karen Gullo.
The review doesn't mean the SEC will accuse Jobs or the company of wrongdoing, the person familiar with the investigation said. Apple's lead directors, Art Levinson and Bill Campbell, were being briefed by Jobs's doctors on his condition at the time, said another person familiar with the matter.
Corporate governance experts and lawyers have disagreed about whether Apple has made sufficient disclosures this year about Jobs's health. Some argue that since Jobs is critical to Apple's future, his health is material information that should be shared with investors. Others argue that privacy laws trump investors' right to know the details of his health.
Apple said last week that Jobs, 54, had returned to work. He will spend a few days a week at the office and the rest of the time working at home, the company said. Methodist University Hospital in Memphis said last month that Jobs had undergone a liver transplant there. Apple hasn't acknowledged the liver transplant or said why it was needed.
One issue lawyers agree on: The law is murky when it comes to corporate disclosures about a CEO's health. That may make the SEC reluctant to press a case, said Peter Henning, a former federal prosecutor and SEC lawyer who teaches at Wayne State University Law School in Detroit. Regulators will probably focus on the two statements made by Jobs in January, he said.
"I think they would ask what happened between the first disclosure and the second to find out what changed," Henning said, Bloomberg reports. "If it's an outright lie and he had a diagnosis before that first disclosure that, ‘You're going to need a liver transplant,' then there's an issue. But I doubt the company out and out lied."
When the CEO is a "luminary" and viewed as pivotal to the company's financial health and prospects, health information may be material to the business and therefore require disclosure, said Allan Horwich, a partner at Schiff Hardin LLP in Chicago. He wrote a paper this year advocating that the SEC adopt a rule requiring health disclosures for some CEOs.
"People think his creativity and insights and planning are so very important to the continuing operations of the company," Horwich told Bloomberg. "If you've reached the stage where he is so sick that he goes to the top of the transplant list, that's significant."
Jobs's health has been the focus of investor speculation since he appeared thinner at a company event in June 2008. Apple first said Jobs was suffering from a "common bug." The company later declined to comment on his health, saying it was a private matter, even as he appeared thinner at company events through the rest of the year.
Jobs said in the Jan. 5 letter addressed to the "Apple Community" that the cause of his weight loss was a "hormone imbalance that has been ‘robbing me' of the proteins my body needs to be healthy." He said the treatment was "relatively simple."
While there has to be some measure of confidentiality around the health of executives, any disclosures need to be accurate and complete, said Jahan Raissi, a former SEC enforcement attorney. "Once you open your mouth and start to speak on a topic, you have to say something completely truthful," Raissi, who is now a partner at Shartsis Friese LLP in San Francisco, told Bloomberg. "If what you omitted is material, that's a problem."
Apple's directors, in a statement on Jan. 5, said they had "unwavering support" for Jobs. "If there ever comes a day when Steve wants to retire or for other reasons cannot continue to fulfill his duties as Apple's CEO, you will know it," the board wrote.
"The biggest case you could make is that with 20-20 hindsight they should have dug deeper," said James Cox, a securities law professor at Duke University. "The issue is not going to be whether they needed to disclose the medical records," he told Bloomberg. "It's going to be whether they monitored the disclosures about his health, in relation to investor expectations that Apple would continue to be led by Steven Jobs."
Tim Cook, Apple's chief operating officer, took control of Apple's day-to-day operations while Jobs was on leave. During that time, the company introduced new Macintosh computers, as well as redesigned iPod media players. Last month, Apple began selling a faster new version of the iPhone.
The company's performance over the past six months may be a sign that Jobs's health isn't material, said Henning.
