Introducing: The Steve Jobs Defense

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The recent disclosures about backdating at Apple and the receipt by Steve Jobs of backdated options grants seems to have created an entirely new line of legal defense: if Steve Jobs did it, it can't be so bad. And, as we've discussed at length, it's probably not a bad thing if Jobs role in backdating helps the public understand move away from the impression that backdating is akin the embezzling. Yesterday's Wall Street Journal editorial page ran a story by two Skadden Arps lawyers representing the former CEO and chairman of Brocade Communications attempting to piggyback on Jobs popularity to exonerate their client.

Steve Jobs recently became the latest chief executive thrown into the options-timing imbroglio. Apple disclosed that its CEO was "aware or recommended" favorable grant dates on option grants to employees, but that he did not "receive or benefit" from any of the grants or "appreciate the accounting implications." Apple's board concluded that Mr. Jobs had done nothing wrong, and emphasized its "complete confidence" in its CEO. The markets followed suit. Rather than fret, investors actually bid up Apple's stock by more than $5 per share.
Given the stock bump, the board's exoneration and Mr. Jobs's lack of accounting experience, could this possibly be a case of criminal securities fraud? Believe it or not, in the minds of some prosecutors applying a far-reaching and unproven theory of fraud, it is. Just last summer, the government indicted Gregory Reyes, the former CEO of Brocade Communications, despite the fact that Mr. Reyes, like Mr. Jobs, was a non-accountant who didn't personally benefit one cent from the option grants at issue.
The problem with the government's theory is that it conflates books-and-records violations with criminal securities fraud. In the process, the government untethers securities fraud from the legal elements that help safeguard executives from conviction for inadvertent accounting violations resulting in little or no harm to companies or to investors.

One irony of this line of reasoning is that it might work the other way around. It may increase pressure on the SEC to bring charges against Jobs in order to demonstrate that "Jobs did it" is not a workable defense.
[Disclosure note: John Carney formerly worked for Skadden.]
Should Steve Jobs Go To Jail [Wall Street Journal]

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