Did Apple's Board Break SEC Disclosure Rules?
Here we go again. As I explained back in January in Did Apple Break SEC Disclosure Rules Re: Steve Jobs's Health?:
According to the SEC's Regulation Fair Disclosure, better known to all concerned as Reg FD, public companies are required to disclose "material information" to all investors simultaneously. The idea behind Reg FD - enacted in 2000 - was to limit insider trading that occurred because of selective disclosure.At the time, my conclusion was that Apple's board was probably clean but an investigation was warranted. Furthermore, my advice was this:
What that means is this: if you're going to disclose "material information" about a security, then you must disclose it simultaneously to the entire investment community at once, typically in a press release, conference call, or on a corporate website.The definition of "material information" is somewhat subjective, but it's essentially anything that investors would likely find important in making investment decisions regarding that security.
Now here's the rub. While Canadian rules call for "immediate" disclosure of material information, Reg FD makes no mention of timetables, except when selective disclosure has already occurred, in which case companies have to remedy the situation "promptly," if the disclosure was unintentional, or "simultaneously," if intentional.
My advice to officers and directors faced with a similar situation regarding significant changes in key executive health: if you know it, disclose it, and do it as soon as you reasonably can. People talk and information leaks. The longer you hold information, the more likely a leak and a subsequent SEC investigation.That's exactly what happened this time around with respect to Jobs's liver transplant: the news leaked resulting in selective disclosure. Moreover, the board failed to remedy the situation promptly. In my opinion, that's a violation of Reg FD.And for all you privacy nuts out there: for officers and directors of public companies, when privacy intersects securities regulations, privacy loses. Like it or not, that's part of the deal.
In addition, I think even the plan of keeping this secret was probably a violation of the board's fiduciary duty and definitely stupid, since it should have been obvious that the news would leak, resulting in selective disclosure.
Bottom line: the board didn't manage the disclosure of material information in a manner consistent with their responsibilities and SEC rules. And make no mistake, a Steve Jobs liver transplant for whatever reason is material information.
I don't seem to be the only one who thinks Apple's board failed shareholders. Warren Buffett said as much on CNBC this morning. And, as reported on gawker.com's Valleywag, Alan Murray of the Wall Street Journal tweeted: "Gore, Jung, Schmidt, York, Levinson - where are you?" referring to Apple's board directors. And Joe Nocera of the New York Times wrote a characteristically excellent piece on Apple's Culture of Secrecy regarding Steve Jobs's health.
Will the SEC investigate? They should.
For more on the subject, check out Will Steve Jobs Remain Apple's CEO?