Apple's Tim Cook Made a Rookie Mistake and Might Face SEC Sanctions
Grow Your Business, Not Your Inbox
Even though Steve Jobs founded and managed Apple into arguably the world's most successful company, Tim Cook has been more than just a steward of Apple's growth. He has been a skilled, decent and otherwise strong CEO.
Which is why it's such a head-scratcher he'd make a blunder even penny-stock CEOs know to avoid.
Amid the market turmoil early today, Cook responded to an email from CNBC personality and host Jim Cramer, specifically talking about China.
Fellow CNBC host Carl Quintanilla did what all good journalists would do and reported the reply:
Trouble is, Cook's note very likely violates Regulation Fair Disclosure (Reg FD), the Securities and Exchange Commission rule that prevents executives from publicly traded companies from disclosing business conditions to one set of investors and not others. It was an offshoot of the Internet bubble of the late 1990s, when some investors complained that larger institutions were being given private, better advice about investment decisions than they were because of better access afforded by companies to Wall Street analysts, traders and investment bankers.
Reg FD was designed to democratize the flow of information -- and it did. For the most part, company executives know they have a duty under the law to distribute information evenly. That's why the vast majority of companies issue all their news via press release, put their executives through careful media training and generally do not disclose anything to anyone that might be construed to be a financial projection. Boring, yes, but fair.
Cook clearly made a selective disclosure in his email to Cramer and gave valuable financial information. "(W)e have continued to experience strong growth in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks." Investment decisions have been made on far less information than that.
Cook's defense could be that he was answering a journalist's question, which is allowed under Reg FD. The SEC was careful to carve out the workings of journalism, and the First Amendment rights inherent in the craft, when it drew up its regulations.
But, as MarketWatch reporter Jennifer Booton notes, Jim Cramer isn't only a business-news commentator, he is an investor with a position in Apple.
“I certainly could see, in some circumstances, where the SEC would want to review the conduct and think it is a violation of Reg FD,” securities attorney Bill Singer told MarketWatch. “It constitutes a disclosure giving certain individuals the benefit before it was percolated by the rest of the public, during a fast-moving, extraordinary market.”
Apple could, in theory, issue Cook's private email publicly as a way to make amends, but the regulatory barn door has already been open so long the hinges broke off. CNBC's reporting, and Cook's blunder, were so important because the Dow Jones Industrial Average had fallen more than 1,000 points and performance in China was to blame. (My own FD: I was on-air at CNBC from 1999 through 2006, and I managed editorial for CNBC competitor FOX Business Network from 2007 to 2013. I know a great business-news scoop when I see it.) Regulators tend to enforce rules based on the impact the violation had. This wasn't Tim Cook telling Jim Cramer he had Frosted Flakes for breakfast. This was indeed market-moving and gave an advantage to one Apple investor before anyone else in the world.
What is odd is the disclosure came from Apple, which, for so long, was known for being so secretive about its performance and closed-lips between product-launch events and quarterly earnings reports.
But Cook has certainly made his own mark on his role as CEO there. It's a break from Steve Jobs but not a distinction he necessarily should want to make.