Apple Settles for $490M in Lawsuit After CEO’s China Comments – Apple agreed to a $490 million settlement to resolve a class-action lawsuit on Friday, which accused CEO Tim Cook of misleading shareholders in 2019 by not disclosing the low demand for Apple products in China.
According to plaintiffs, Cook allegedly withheld information about the declining demand, leading to a significant decrease in shareholder wealth when Apple later projected a sharp decline in profits in 2019. The majority of this decline was attributed to low demand in China, as reported by The Associated Press.
While Apple has denied the allegations of withholding information, it chose to settle to avoid the expenses and distractions of legal proceedings. In the settlement documents, the company expressed its desire to steer clear of a legal ordeal that would be “overly burdensome, expensive, and distracting.”
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The preliminary settlement was filed on Friday with the U.S. District Court in Oakland, California, pending approval by U.S. District Judge Yvonne Gonzalez Rogers, who declined to dismiss the lawsuit last year. The lawsuit stems from an investor meeting in 2018, when Cook expressed confidence in how Apple is performing in China, saying it was “very strong last quarter.”
He added that although Apple has struggled with iPhone sales in Brazil, Russia, India and Turkey, he “would not put China in that category.” Following the call, Apple instructed its suppliers to reduce production rates. Also, in January 2019, Apple issued a revenue forecast that startled numerous shareholders, indicating a projected decrease in profits by approximately $9 billion.
This downturn was attributed to trade tensions between the United States and China. The anticipated decline in revenue led to a 10% decrease in Apple shares, resulting in a total loss of $74 billion in the company’s market value. As per The Wall Street Journal, plaintiffs argued that Apple was aware of its underperformance in China and should have disclosed this information to shareholders sooner.
They said, “Apple’s business metrics and financial prospects were not as strong as defendants had led the market to believe.” The primary plaintiff in the lawsuit is Norfolk County Council in the U.K., serving as the administering authority of the Norfolk Pension Fund.
Rogers remarked that she found it credible that Cook had been discussing the company’s sales projections rather than currency matters. She further stated that Cook was aware of China’s economic slowdown and the potential decline in demand for iPhones.
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According to Shawn Williams, an attorney representing the Apple shareholders, the settlement marks an exceptional outcome for the involved class in the litigation. The attorneys for the shareholders may pursue fees amounting to up to 25% of the settlement sum.
Since January 2019, Apple’s stock price has surged more than fourfold, resulting in a market value of $2.6 trillion. The settlement payment will represent less than two days’ worth of profits for the company, which reported approximately $97 billion in net income in its latest fiscal year.