LOS ANGELES — Apple probably will be sued by investors unhappy with the company’s about-face on the health of its visionary chief executive, but the law is not clear on what duty the company has to disclose personal medical information, legal experts said on Wednesday.
Apple (NASDAQ: AAPL) said CEO Steve Jobs, 53, will take a medical leave of absence until June. The announcement that comes just nine days after the pancreatic cancer survivor downplayed investor concerns about his dramatic weight loss in recent months, saying it was caused by an easily treatable hormone imbalance.
Analysts and investors complained that Apple was slow to disclose Jobs’ true medical status and to form a succession plan after his 2004 cancer treatment because of his crucial role in vetting the company’s forward-looking designs.
It is a gray area because what is personal and what’s a fiduciary responsibility?” Ashok Kumar, an analyst with investment banking firm Collins Stewart LLC, said. “Steve’s presence at Apple probably carries significantly more weight than … Michael Dell’s presence at Dell.”
The company’s share price dropped as much as 10 percent on the announcement despite some analysts’ belief that a potential Jobs health crisis was “baked in” to the price.
Although securities lawsuits usually arise from companies’ false statements about material aspects of their businesses, Apple could run into trouble by falsely allaying investors concerns about whether Jobs would remain at its helm.
Plaintiffs and defense attorneys said this type of fraud allegation would be hard to prove and a first of its kind.
‘The Most Private Part of His Life’
“It is extremely difficult because it is the most private part of his life,” Steve Williams, a plaintiffs attorney for Cotchett Pitre & McCarthy, said. “At the same time, Apple is Steve Jobs.”
Former U.S. Securities and Exchange Commissioner Joseph Grundfest said Apple crossed no line if it failed to provide thorough disclosures about Jobs’ health unless company insiders traded on the knowledge before it was disclosed publicly.
No securities rules and no legal precedents directly address CEO health but Grundfest acknowledged that investors could argue that Jobs’ status as CEO was critical to their decision to invest in Apple.
“I never underestimate the cleverness of plaintiffs attorneys but I personally am aware of no theory that would support a filing of a case,” Grundfest said.
Williams said, however, that Apple may have “minimized” Jobs’ illness in the same way that pharmaceutical companies sometimes fail to promptly and thoroughly disclose how drugs are faring in government trials — a frequent lawsuit target.
“If the company misled me by giving me the impression that (Jobs) was going to continue to lead the company, that could be an actionable statement,” Williams said.
But a defense attorney said investors probably would need a “smoking gun” to overcome the company’s likely defense that Jobs’ medical condition was constantly evolving.
“In the absence of some memo from a doctor that contradicts what he is saying, I would think it would be problematic for a plaintiffs (to sue for disclosure lapses),” said the attorney, who asked not to be named because his firm is litigating with Apple. “It is not the same as looking at a piece of financial information at the end of the month.”
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