Apple has agreed to pay $490 million to settle a class-action lawsuit alleging CEO Tim Cook misled investors about a steep downturn in iPhone’s sales in China that culminated in a jarring revision to the company’s revenue forecast.,
The preliminary settlement filed Friday in Oakland,
California, federal court stems from a shareholder lawsuit focused on the way
Apple relayed information about how iPhone models released in September 2018
were performing in China, one of the company’s biggest markets.
Cook signaled that the new iPhones were off to a good start
during an investor conference call in early November 2018, according to the
complaint.
That reassurance dissolved into a huge letdown on Jan. 2,
2019 when the Cook issued a warning that Apple’s revenue for the just-completed
quarter would fall $9 billion below management’s forecast for the period.
What’s more, virtually all of the sales drop was traced to weak demand in
China.
It marked the first time Apple had cut its revenue guidance
since the iPhone’s release in 2007 and triggered its stock price to plunge 10%
in the next day of frenetic trading, wiping out more than $70 billion in
shareholder wealth.
Apple vehemently denied Cook deceived investors about the
iPhone’s sales in China between early November and early January. The
Cupertino, California, company maintained that stance in the settlement
documents, but said it decided to make the payment after more than four years
of legal wrangling to avoid an “overly burdensome, expensive, and distracting”
hassle.
The settlement was reached through a mediator after U.S.
District Judge Yvonne Gonzalez Rogers rejected Apple’s request to dismiss the
case and set a Sept. 9 trial date.
Gonzalez Rogers is now being asked to approve the settlement
in a hearing scheduled for April 30.
Thousands of shareholders who bought Apple stock in late
2018 could be eligible for a piece of the settlement, which will be distributed
from of a pool that will be less than $490 million after lawyers involved in
the case are paid. The attorneys plan to seek up to one-fourth, or about $122
million, of the settlement.
The $490 million payment represents less than 1% of the $97
billion profit that Apple pocketed during its last fiscal year ended in
September. Apple shareholders who have held on to their shares have become
wealthier too. Apple’s stock price has more than quadrupled from where it stood
after Cook’s China warning, creating an additional $2 trillion in shareholder
wealth.