The SEC Should Leave Steve Jobs Alone
By HARVEY SILVERGLATE
The Securities and Exchange Commission is investigating whether Apple committed securities fraud by failing to inform the public about CEO Steve Jobs's health. This investigation exemplifies how the agency has run amok.
Mr. Jobs has been synonymous with Apple since he revived the struggling company in 1997. A technical, design and marketing genius, Mr. Jobs and his team performed one of the most fabled turnarounds in corporate history. To the horror of his cohorts and Apple's investors, Mr. Jobs was diagnosed with pancreatic cancer in 2004. Despite heavy odds, his surgery appeared successful, and he returned to his post after just two months of recovery.
Over the next two years, however, rumors spread as his weight fluctuated. In June 2008, when a gaunt Mr. Jobs debuted the iPhone 3G, concerns about his health competed for headlines with the latest Apple gadget.
Unsurprisingly, investors began to press for information. At first, Mr. Jobs chalked his weight loss up to a "relatively simple" problem: a hormone imbalance that prevented his body from extracting full nutrition from food. Shortly thereafter, Mr. Jobs admitted the situation was "more complex" than he originally thought and announced he would take a five-month medical leave starting Jan. 14. On Jan. 16, Bloomberg reported that Mr. Jobs might have to undergo a liver transplant to correct complications from his prior cancer treatment.During all of this, Apple's share price swung wildly with each rumor and bit of news. After the announcement of his leave, the company refused to be more specific about his health. Mr. Jobs met persistent inquiries with a snippy, "Why don't you guys leave me alone? Why is this important?"
It was important, of course, to those who had invested in Apple precisely because of Mr. Jobs. His health was surely material information for investors. And under federal securities laws, it is a serious felony -- securities fraud -- for corporate officials to disseminate false material information, or to fail to disclose true material information related to the company's financial prospects. But while the legal meaning of "materiality" has long been the subject of dispute and little regulatory definition, it should not dictate that corporate officers have no right to any privacy.Yet when the severity of Mr. Jobs's health began to leak, the SEC -- whose reputation has suffered mightily in recent months due to Wall Street's cratering and the Madoff scandal -- jumped in to commence a review of the apparently incomplete disclosures.
The SEC's investigation is the latest in a long history not only of incompetence, but of connivance with Department of Justice prosecutors. The absence of a comprehensive definition of "fraud" has enabled the SEC to harass, and the DOJ to prosecute, businessmen who engage in seemingly normal professional behavior. Such investigations and prosecutions -- for "securities fraud" as well as the equally malleable "mail fraud" and "wire fraud" -- have become the hallmark of prosecutorial juggernauts since the mid-1980s. The same technique, based upon an absence of clear definitions, is used against a vast array of people in other fields, from accountants to artists.
And so the feds will investigate whether Apple misled investors by not disclosing the intimate details of Mr. Jobs's latest health scare. But the notion that investors were entitled to every detail, when they knew the CEO's health history and saw his obvious weight loss, is ludicrous. That a man's desire to maintain a shred of privacy under these circumstances can justify a fraud investigation tells us much about the lack of legal precision, not to mention decency, with which federal investigators and prosecutors too often operate.
source : The Wall Street Journal
