By not disclosing just how ill Apple co-founder Steve Jobs was, the company may have fallen foul of rules governing how much information investors need, say lawyers
THE MEDICAL condition of the Apple computer manufacturer’s co-founder Steve Jobs turned out to be more serious than Apple officials previously acknowledged – and that has analysts and legal experts questioning whether the company ran afoul of federal securities rules.
Apple disclosed in early January that Jobs had a “hormone imbalance” and would take a leave of absence, but the company never said he was so sick that he would need a liver transplant. “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,” says Jeffrey C Soza, a securities lawyer at Glaser, Weil, Fink, Jacobs, Howard & Shapiro in Los Angeles.
The Tennessee doctor who led Jobs’ transplant team said this week that the Apple co-founder was “the sickest patient on the waiting list” at the time a donor liver became available.
Dr James D Eason said Jobs had tested high – more likely to die from the condition – on an index that rates patients with end-stage liver disease.
All that investors and the public knew came from two brief statements posted 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 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 says.
Investor Warren Buffett agreed that Apple had been less than forthright. “Certainly Steve Jobs is important to Apple,” he says. “Whether he is facing serious surgery or not is a material fact.”
Companies are not required to divulge medical details about executives, lawyers say, but might need 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.
The state of Jobs’ health has long been a subject of popular discussion, from his surgery for pancreatic cancer in 2004 to his widely observed weight loss that led to his leave of absence.
With that information in the public sphere, some experts say, Apple fulfilled its legal obligation by saying 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,” says G William Speer, a lawyer at Bryan Cave in Atlanta.
Jobs, who founded Apple with Steve Wozniak in 1979, is widely considered a visionary whose products repeatedly have enabled the company to reinvent itself and stay ahead of the competition.
His importance to the company is fuelling the debates on how much information about his health is material for investors.
“Steve is Apple,” says Danielle Levitas, an analyst for industry research company 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 fates seem so closely tied to a single person, says 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 says.
“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." – ( Los Angeles Times/Washington Post)