Apple on Friday settled a class-action lawsuit for $490 million that accused Chief Executive Tim Cook of misleading shareholders in 2019 by failing to disclose low demand for Apple products in China.
The plaintiffs allege that Cook concealed the drop in demand, leading Apple to later predict a sharp decline in profits in 2019, reducing shareholder wealth by billions of dollars. According to the Associated Press, this decline is almost entirely due to sluggish demand from China.
Apple denied accusations of withholding information but reached a settlement to avoid the costs and distraction of litigation. The company said in settlement documents that it wanted to avoid an “overly onerous, expensive and distracting” legal ordeal.
The preliminary settlement was filed Friday in U.S. District Court in Oakland, California, but still needs approval from U.S. District Judge Yvonne Gonzalez Rogers, who last year declined to dismiss the lawsuit.
The lawsuit stems from an investor meeting in 2018, when Cook expressed confidence in Apple’s performance in China, saying it was “very strong last quarter.” He added that despite Apple’s difficulties with iPhone sales in Brazil, Russia, India and Turkey, he “wouldn’t put China in that category.”
Days after the call, Apple told suppliers to slow down production.
Then, in January 2019, Apple made a revenue forecast that shocked many shareholders, saying that profits would fall by approximately $9 billion. The decline has been blamed on trade tensions between the United States and China.
The expected drop in revenue caused Apple’s stock price to drop 10%, ultimately wiping $74 billion off the company’s market value.
according to wall street journal, the plaintiff said that Apple knew that it was performing poorly in China and should have disclosed this information to shareholders as early as possible. “Apple’s business metrics and financial outlook are not as strong as Defendants have led the market to believe,” they said.
The lead plaintiff in the case is Norfolk County Council, the governing body of the Norfolk pension fund.
Rogers said it seemed reasonable to her that Cook had been discussing the company’s sales prospects rather than currency issues. She added that Cook knew China’s economy was slowing and demand for iPhones might decline.
Apple has denied these claims.
Shawn Williams, an attorney for Apple shareholders, said the settlement was an “excellent outcome” for the class involved.
Shareholder attorneys can charge fees of up to 25% of the settlement amount.
Apple’s stock price has more than quadrupled since January 2019, bringing its market value to $2.6 trillion.
The settlement payment equals less than two days of profits for the company, which had net profits of about $97 billion in its most recent fiscal year.
Information for this report was obtained in part from Reuters and The Associated Press.
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