Apple Inc., the Cupertino-based technology giant, has agreed to shell out $490 million to resolve a class-action lawsuit. The lawsuit accused the company’s CEO, Tim Cook, of intentionally deceiving shareholders by hiding the declining demand for iPhones in China.
The lawsuit finds its roots in a surprising announcement from Apple on January 2, 2019. The iPhone maker revealed that it would be reducing its quarterly revenue forecast by as much as $9 billion. The main culprit, as per the company, was the escalating trade tensions between the US and China.
The abrupt announcement was a significant departure from the norm for Apple, marking the company’s first revenue forecast slash since the launch of the iPhone in 2007. The news sent shockwaves through the market, leading to a 10% drop in Apple’s shares the next day. This slump erased a staggering $74 billion of the company’s market value.
Cook’s Controversial Statement
Prior to the announcement, on a November 1, 2018 analyst call, Cook had assured investors that despite sales pressure in markets like Brazil, India, Russia, and Turkey due to weakened currencies, China wouldn’t face the same issues.
“I would not put China in that category,” Cook told investors.
A few days after this statement, Apple instructed its suppliers to curb production.
The market reaction to Apple’s revenue forecast cut was swift and brutal. Apple’s share price plummeted by 10% the following day, leading to a $74 billion drop in the company’s market value.
Although Apple denied any wrongdoing, the company chose to settle the lawsuit to sidestep the costs and distractions associated with litigation. According to court documents, the preliminary settlement was filed with the US District Court in Oakland, California, and is pending approval from US District Judge Yvonne Gonzalez Rogers.
The shareholders were represented by Shawn Williams, a partner at Robbins Geller Rudman & Dowd. Williams lauded the settlement as an “outstanding result” for the class.
The settlement will cover investors who purchased Apple shares in the two months between Cook’s contentious comments and the revised revenue forecast.
During its most recent fiscal year, Apple reported net income of $97 billion. Thus, the settlement amount equates to roughly two days of the company’s profits.
In June of the previous year, Rogers declined to dismiss the lawsuit. She found it plausible that Cook had been discussing Apple’s sales outlook instead of currency changes. She also stated that Apple was likely aware of China’s slowing economy and potential demand decline.
The lead plaintiff in the case is the Norfolk County Council, acting as the Administering Authority of the Norfolk Pension Fund, based in Norwich, England.
The lawyers representing the shareholders may seek fees amounting to up to 25% of the settlement amount.
Despite the lawsuit and the initial market shock, Apple’s share price has quadrupled since January 2019. The company now boasts a market value of over $2.6 trillion.
The case continues to be under the purview of the US District Court for the Northern District of California, with the case number 19-02033.
