Apple has consented to a $490 million settlement to resolve allegations that CEO Tim Cook misled investors regarding the demand for iPhones in China. This settlement, pending approval from U.S. District Judge Yvonne Gonzalez Rogers in California, comes in response to a class action lawsuit that accused Cook of concealing a decline in iPhone sales in the critical Chinese market, as per information from a court filing cited by Reuters.
The controversy traces back to an earnings call on November 1, 2018, during which Cook painted a rosy picture of Apple's performance in various emerging markets, including China. Despite acknowledging sales pressures in countries like Turkey, India, Brazil, and Russia due to weakening local currencies, Cook notably excluded China from this list, describing Apple's business there as "very strong" with "very strong double-digit growth" for iPhone sales.
However, the narrative took a sharp turn on January 2, 2019, when Apple made the unprecedented move to revise its quarterly revenue forecast downwards by up to $9 billion, attributing the cut primarily to U.S.-China trade tensions and an economic slowdown in Greater China. This marked the first time Apple had adjusted its revenue forecast since the iPhone's introduction in 2007, leading to a significant 10% drop in Apple's share price the following day and erasing $74 billion in market value.
Investors argued that Cook was aware of the diminishing iPhone demand in China at the time of the November 2018 earnings call but chose not to disclose this vital information. Apple, while denying these allegations and not admitting any wrongdoing, opted for the settlement to sidestep the further costs and distractions of continued litigation.
Shawn Williams, a partner at Robbins Geller Rudman & Dowd representing the shareholders, lauded the settlement as an "outstanding result" for the class, which encompasses investors who acquired Apple shares in the two-month window between Cook's comments and the revised revenue forecast. Despite Apple's denial of liability, the decision to settle was framed as a pragmatic choice to avoid protracted legal battles.
In June of the previous year, Judge Rogers rejected a motion to dismiss the lawsuit, indicating that it was reasonable to infer Cook's statements on the analyst call were misleading about Apple's sales outlook, particularly given the known economic decelerations in China and potential impacts on demand.
The lead plaintiff in the case is the Norfolk County Council, administering the Norfolk Pension Fund in Norwich, England. As part of the settlement, lawyers for the shareholders may request fees of up to 25% of the settlement amount. Despite the legal challenges, Apple's share price has seen a significant appreciation since January 2019, with the company's market value exceeding $2.6 trillion.
