Apple May Not Need to Disclose Details of Jobs Medical Leave, Lawyers Say
Apple Inc. may already have told investors all it needs to about Steve Jobs’s health problems in its statement yesterday that he was granted a leave of absence, according to three securities law experts.
“They don’t have to say any more than the fact that he’s taking a leave, it’s indefinite, if that’s what it is,” James Cox, a Duke University law professor, said yesterday. “Then they can express lots of generalized optimism which is not going to get them into trouble because that’s the kind of expected puffery for which there’s no actionable claims to speak of.”
Jobs took a leave of absence as his health deteriorates from battling a rare form of cancer and the effects of a liver transplant he had almost two years ago, according to a person with knowledge of the situation. Jobs, who took leaves for cancer surgery in 2004 and the transplant in 2009, has been unable to keep on weight as he undergoes treatment for his conditions, said the person, who requested anonymity because the matter is private.
The U.S. Securities and Exchange Commission probed the Cupertino, California-based phone- and computer-maker’s statements about Jobs’s health in 2009. Yesterday, the company released an e-mail in which Jobs told Apple employees that he was granted a medical leave of absence to focus on his health.
“The SEC hasn’t provided any guidance on this,” said Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor. “The last time this happened they did announce that they were going to investigate the disclosure and then we heard nothing else from them.”
The SEC started a review of the disclosures to ensure investors weren’t misled, a person familiar with the matter said in 2009. John Nester, an SEC spokesman, declined to comment yesterday on the results of the probe of Apple’s disclosures.
Chief Operating Officer Tim Cook will be responsible for day-to-day operations, with Jobs continuing as CEO, Apple said yesterday, citing an e-mail to employees from Jobs.
“I love Apple so much and hope to be back as soon as I can,” Jobs, 55, said in the e-mail. Jobs said he will continue to “be involved in major strategic decisions for the company.”
U.S. stock futures signaled losses for benchmark indexes after Apple’s announcement. Futures on the Nasdaq-100 Index, of which Apple makes up 21 percent, sank to 2,295.25 at 8:12 a.m. today in Tokyo, down 1.1 percent from their close on Jan. 14. Standard & Poor’s 500 Index futures expiring in March slipped 0.3 percent from their close last week. Apple, which rose last week to a record in New York, slid 6.2 percent in Germany yesterday, when U.S. exchanges were closed for Martin Luther King Jr. Day.
The announcement may spur a decline for Apple and computer makers after the company rallied 319 percent since March 2009, according to Michael Yoshikami, who owns the shares and oversees $1 billion at YCMNet Advisors in Walnut Creek, California.
“It’s a corporate setback and a negative for the stock,” Yoshikami said. “Investors may be less negative this time because we’ve been down the road before when Tim Cook did a great job navigating the company in Steve Jobs’s absence, and Apple probably has its product replacement cycle set for the next two years. Still, the stock could sell off 10 to 15 percent and bring technology stocks down on sentiment.”
Securities laws require Apple to disclose developments that a reasonable investor would consider to be important, Henning said in a phone interview. The SEC hasn’t provided guidance on whether that would include Jobs’s medical condition, he said.
“The standard is materiality and that’s a notoriously vague standard,” Henning said. “Steve Jobs may well be a special case just because he is viewed by the market as so important to the company, maybe on a par with Warren Buffett.”
“The board needs to be open with the public about what they know,” Elson said. “Maybe the SEC needs to reset its guidance in this area. Right now, it’s pretty squishy.”
Elson acknowledged that determining what to disclose is a complex problem. While an executive being in the hospital for knee surgery wouldn’t require disclosure, hospitalization for a life-threatening infection would, he said.
Jobs co-founded Apple in 1976 and after being ousted in 1985, he returned in 1997 and transformed it from a computer- industry also-ran into the world’s largest technology company by market value. Apple’s iPod, iPhone and iPad became trendsetters in each of their markets.
Steve Dowling, an Apple spokesman, declined to comment beyond the statement. The company will likely face questions about the leave during a conference call with analysts today after Apple reports first-quarter financial results.
‘Duty to Update’
“It’s in a company’s interest as well to limit its disclosure so that it does not create for itself a duty to update,” said Jacob Frenkel, a former SEC enforcement lawyer and now a partner at Shulman Rogers Gandal Pordy & Ecker in Potomac, Maryland.
“In this day and age, shareholders want to know everything,” Frenkel said in a phone interview. “As a practical matter, in terms of Mr. Jobs’s personal health condition, they’re entitled to know very little.”
When answering any questions by curious investors, Apple will also have to consider medical privacy laws, Cox said in a phone interview.
“My guess is we’re not going to learn very much about the future likelihood of Steven Jobs returning or when that’s going to be,” Cox said.
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