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Saturday, January 17, 2009

Steve Jobs and Frivolous Shareholder Lawsuits

I was watching the Communism Channel, and the comedians were making a fuss about Apple's announcement that Steve Jobs was sick and taking a leave of absence from his CEO job. This came after repeated assurances by Apple's executives that Steve Jobs was perfectly healthy.

One of the first things the comedians said is "You can be sure there are going to be lots of shareholder lawsuits!"

Apple's stock price went down 10% on the announcement. That means that 10% of Apple's presumed market value comes from Steve Jobs himself. That seems silly to me. The certainly have been enough rumors circulating about Steve Jobs' health, and any Apple investor should have been at least suspicious.

On the other hand, a large corporation is about hype and marketing and connections/nepotism, rather than actual tangible value. Under those constraints, maybe Steve Jobs really is 10% of Apple's value, because of his marketing power and connections. When Communists/comedians say "The US economy is dependent on consumer confidence to keep going!", they really mean "It's all one big scam, and if people started realizing the truth, it's all over!"

Some of Apple's executives must have known about Steve Jobs' deteriorating health, even though they publicly said otherwise. If they told some of their friends, they could have profited immensely by short selling Apple's stock. Some of the reporters on the Communism Channel said that their contacts told them that Steve Jobs was much sicker than was publicly disclosed by Apple.

There now is the accusation that Apple's executives were lying about Steve Jobs' health. They were publicly saying he was healthy, while they knew he was getting worse. Apple's executives could have profited by withholding the news, because any friends they told could have short sold Apple's stock and profited.

Now, there will be class action shareholder lawsuits against the Apple corporation and Apple's executives. Suppose there is a settlement or a verdict favoring the shareholder class. The executives aren't going to be paying their own personal money on legal expenses or to settle the lawsuit. The legal fees and settlement will be paid out of Apple corporation's assets. Even if the executives are personally sued, their employment contract with Apple specifies that Apple will cover any damages; Apple is not bankrupt, so Apple will pay for the verdict (or Apple's insurer will pay, passing on the cost to everyone as higher premiums).

One group of Apple shareholders (current or former) will win the class action lawsuit, but the expense will be paid by all Apple shareholders. I've read about such settlements, and the shareholder will typically get a fraction of a penny per share. Everyone who bought or sold any shares of Apple during the claim period is entitled to a cut of the settlement. There probably were billions of shares traded during the class period, making the settlement per share a fraction of a penny.

The only ones that profit from the class action shareholder lawsuit are the lawyers. Apple will pay its lawyers a lot of money to handle the lawsuits. The lawyers representing the shareholder class will claim 33%-50% of the settlement for their own fees. Apple's executives don't lose anything, because Apple's shareholders will pay the cost.

The evil fnord is "Executives must behave responsibly, lest they be sued for misconduct." Unless the conduct is truly egregious, corporate executives are usually protected by sovereign immunity. Even if executives are sued and lose, the corporation pays the cost of the legal expenses and the verdict/settlement. The executives themselves typically pay nothing. Filing a lawsuit is expensive, only the most egregious misconduct leads to a lawsuit, and even then the corporation usually pays the cost and not the guilty executives. An executive only loses his personal assets when the misconduct is *REALLY* bad.

Frivolous shareholder lawsuits are one of many ways that the parasite class exploits productive workers. Apple's executives who lied about Steve Jobs' health aren't going to lose any of their own money; Apple's shareholders are paying the bill. The legal system is set up primarily so that attorneys can loot and pillage. After all, the rules for the legal system are set up by lawyers!

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