SEC investigating Apple's disclosures regarding CEO Steve Jobs' health issues

Mac Daily News ^ | Wednesday, January 21, 2009 - 09:20 AM EST

[Swordmaker]

"U.S. regulators are examining Apple Inc.’s disclosures about Chief Executive Officer Steve Jobs’s health problems to ensure investors weren’t misled, a person familiar with the matter said," David Scheer and Connie Guglielmo report for Bloomberg.

"The Securities and Exchange Commission’s review doesn’t mean investigators have seen evidence of wrongdoing, the person said, declining to be identified because the inquiry isn’t public," Scheer and Guglielmo report.

"Investors have been pressing for information on Jobs’s health since June, when he appeared noticeably thinner at an Apple event. The company’s stock whipsawed this month after Jobs, who battled pancreatic cancer in 2004, said he would remain CEO while seeking a 'relatively simple' treatment for a nutritional ailment. Nine days later, Jobs said he would take a five-month medical leave after learning his health issues were 'more complex,'" Scheer and Guglielmo report.

"'The good news flipped by the bad news makes one wonder what Apple knew,' said James Cox, a law professor at Duke University in Durham, North Carolina. 'It’s not surprising for the SEC to come in and look afterward, given the pressure and publicity regarding their handling of a lot of cases,' such as criticism of the SEC’s response to Bernard Madoff’s alleged $50 billion Ponzi scheme," Scheer and Guglielmo report.

"To bring any case, the SEC would probably have to show the company tried to benefit by withholding information about an unambiguous diagnosis, said Peter Henning, a former federal prosecutor and SEC lawyer who now teaches at Wayne State University Law School in Detroit," Scheer and Guglielmo report. "'It would be difficult, and certainly a new area of the law,' Henning said. 'You would have to pin down exactly what they knew, and with a health issue -- unlike a merger or a decline in revenue -- it’s not subject to definitive answers.'"

"Corporate governance experts say shareholder interest in Jobs is unusually high because he is considered synonymous with Apple. He returned as CEO in 1997, turning the once-unprofitable maker of Macintosh computers into a successful consumer- electronics company with the iPod media player and iPhone. Jobs established himself as the face of Apple, serving as the main pitchman at every major product announcement over the past decade while yielding little time to other top executives," Scheer and Guglielmo report.

MacDailyNews Note: Steve Jobs has never appeared in an Apple commercial.

Scheer and Guglielmo continue, "Apple’s board may have met its obligations to shareholders by notifying investors that Jobs will be on leave, said Edward Smith, a corporate governance expert at Chadbourne & Parke in New York... The board isn’t obligated to provide specific details about the nature of Jobs’s illness, Smith said. 'It’s really an issue of the ability of the CEO during the period of his ill health to continue to advise and consult and manage the affairs of the company,' he said. 'Someone might be able to do that from a hospital bed for several weeks just as well as they may do it from the office.'"

Full article here.

MacDailyNews Take: Besides the point that there's nothing there — doctor's can and do change their minds and modify diagnosises over the course of minutes, to say nothing of days, weeks, months, or years — the current SEC couldn't investigate its way out of a wet paper bag. The SEC ought to be investigating "analysts" who attempt to manipulate prices rather than analyze companies and bring back the Uptick Rule immediately which would go a long way towards decreasing the negative manipulation of stocks based on rumors and intentionally misleading "analysis."

[antiRepublicrat]

I think you are missing the point of a shareholder suit, which is to compensate shareholders for the loss of value in their shares due to corporate malfeasance, or at least damage to the company that could result in loss of value. Obviously neither applied here, so no grounds exist for a suit.

The issue of cooking the books is one for the SEC, and that has been settled.

[dayglored]

Hey THC, nice to see you again.

> I thought Jobs was understating his illness all along...

Jobs is IMO a very foolish person with regard to his personal health -- way too "groovy" and NewAge for my liking. I doubt he was intentionally understating his illness, I just think he was being oblivious due to thinking he could cure it with herbals and meditation.

Full disclosure: I use herbals and meditate, but I also use Neosporin and get a PSA done every few years (I'm 57 and male). No one discipline has all the answers.

> but I’m terribly pessimistic regarding Apple

No, really? I'm shocked, THC, I never would have guessed. ;-)

It's a free country, be as pessimistic as you like. I'm pessimistic about Jobs' long-term prognosis, but I think Apple will do just fine, with a few hiccups as they adjust.

[Richard Kimball]

Thanks for the heads up. Info here: Apple quarterly results. Revenue of over 10 Billion with profits of 1.6 Billion. 2.5 million Macs sold, 22 million iPods, 4.6 million iPhones and they're the largest music retailer in the world. Wow.

[tubebender]

I attended a Memorial Service last Saturday for a long time friend who starved himself to death in spite of medical intervention and his acknowledgment of his affliction. Even after he was fitted with a feeding port he rejected food. It was some strange compulsive behavior and I didn’t catch the name of it...

[Swordmaker]

1. The only photos I've seen of Jobs look bad. He looks seriously ill in them.

Jobs does look gaunt. However, some of the pictures have been enhanced to make him look even worse. Time Magazine was particularly egregious in deliberately distorting a picture of Jobs to make him appear even more gaunt in an article about his health:

After they were caught at distorting Jobs' appearance (picture on the left), Time quietly replaced the picture with the one on the right.

2. People keep referring to his MacWorld appearance, which was something like a year ago.

Jobs gave the keynote address at the World Wide Developers Conference in June and the photo above was taken in October 2008.

3. The speculation about his health hurts the stock more than bad news would, IMHO. Sword, you keep up with all things Apple, is Jobs doing a Howard Hughes now?

Possible, but I doubt it. I think that Jobs had every intention of following through with his announced plans when his doctors hit him with something that they had probably had just discovered... the results of a test or something... that changed his plans from treating his problem with diet changes to something that requires more drastic treatment.

[Swordmaker]

Sure, I suppose its okay to cook books then as long as it doesn’t bankrupt the company. Just because their crookery made the stock rise doesn’t mean their hands are clean, it just means they have good lawyers.

Exactly what evidence do you have in your possession that Apple's management "cooked books" and participated in institutionalized "crookery?"

Do you know something the SEC investigators don't? If you don't, you certainly are playing fast and loose with words that could be considered libelous and/or slanderous. These allegations were thoroughly investigated over a three year period.

The granting of back-dated stock options as a form of employee compensation was practiced by over 5000 major companies. The vast majority of the stock Apple back-dated was for general employee grants that were back-dated to the end of trading on the Monday of the week the employees were hired. Steve Jobs, who gets $1 a year in salary, was granted The problems occurred because of major changes in the Generally Accepted Accounting Practices (GAAP) standards between the time the Stock Options were granted and the time of all the hoopla, when Congress passed a very ill considered bill called Sarbanes-Oxley in 2002. In addition, Apple found and reported the irregularities on its own, after an internal audit looking for past actions that could be impacted by the newly changed GAAP rules. After their internal audit uncovered some problems, Apple itself turned all of its records over to the SEC and cooperated completely with the SEC investigators.

Are these the actions of an institutionalized culture of "crookery" that would "cook the books?" And, exactly how do you propose that "crookery" made Apple's stock rise?

. . . it just means they have good lawyers.

Ironically, it was Apple's Chief Legal Officer who was fired and later fined $3 million for not doing things properly.

[Swordmaker]

Apparently a sentence got truncated:

Steve Jobs, who gets $1 a year in salary, was granted seven million share options, restricted for three years, at the strike price (IIRC) as of the closing of stockmarket on October 19th... but the board vote was actually taken at a board meeting on December 18th of that year.

The Board had actually voted the options in August ... but delays, a vacation in the legal department, and sheer error, resulted in the paperwork for the option grant to Jobs not being completed until early October. Ordinarily, that would not be an issue, but Apple company by-laws require that such options be granted in the fiscal year the board voted them. Apple's fiscal year ends at Five PM on the last Saturday in September. Thus, the stock grant which was signed and delivered on October 19th (incidentally, at a far higher strike price than it would have had the grant been completed before the end of the Fiscal year) was no longer '"authorized" having timed-out. Nancy Heinman, Apple's Chief Legal Officer decided that to make things kosher, she would cobble up minutes for a telephone meeting of the Board of Directors—that supposedly occurred the day before the options were granted—showing a vote for the grant. She apparently figured that these minutes could be validated—and the "vote" made official by the Board accepting them (after all, it merely duplicated the already voted on action from August)— and these bogus minutes put into record with a vote at the next scheduled BOD meeting in December. Unfortunately for her, the board declined to rubber stamp the minutes for the non-existent meeting, and instead merely voted Jobs' options again, and back-dating them to the date the transfer actually occurred.

Two years later, a year before the strike date when he could exercise his options, Jobs cancelled the options in exchange for a transfer of $70,000,000 in three year restricted shares of Apple Common Stock.

[Badeye]

Has nothing to do with product, everything to do with the man.

[conservatism_IS_compassion]

Has nothing to do with product, everything to do with the man.

I never said I liked the man personally, and I certainly don't like his politics nor those of AAPL board member A. Gore.

But when you invest in a company, you invest in the products the company will attempt to sell, not the CEO's politics or his personality. So the board was dead-on right to hire Steve Jobs; it was the only real chance to save the company from continuing the way it was headed, which was well on its way toward bankruptcy.

[Badeye]

We disagree, no big deal.

[Troll_House_Cookies]

Do you know something the SEC investigators don’t? If you don’t, you certainly are playing fast and loose with words that could be considered libelous and/or slanderous.

Get real.

[Swordmaker]

Get real.

I am. It's you who seems to prefer disproved allegations to investigated facts.