Apple Hit with Class Action Lawsuit Alleging It Committed Securities Fraud

A Customer Looks At Apple's New Iphone Xs After It Went On Sale At The Apple Store In Tokyo Credit: REUTERS/Issei Kato
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Apple has been hit with a class action lawsuit that claims the company committed securities fraud by not being forthcoming about negative information concerning its iPhone sales.

The lawsuit, which was filed by the City of Roseville employees’ retirement fund in the Northern District of California, alleges that Apple made false statements and failed to disclose a drop in iPhone demand. The complaint claims that Apple’s handling of the situation led to an inflated stock price.

More specifically, the lawsuit highlights Apple’s Q1 2019 earnings guidance. It claims that Apple knew iPhone sales were down back in November 2018, but did not inform investors of the drop.

In January, Apple gave a rare revenue guidance revision to reflect the fact that substandard sales in China, the company’s battery replacement program and other factors adversely impacted the firm’s global iPhone sales in the first quarter of 2019.

That announcement also impacted the firm’s stock price. After the guidance revision, Apple’s price-per-share fell $15, or around a 9 percent decline.

The suit also alleges that Apple CEO Tim Cook made “materially false and misleading statements” during its Q4 2018 earnings call in November 2018. Specifically, it mentions that, when asked about a decline in iPhone sales in certain markets, Cook said that he would “not put China in that category.” Along with Cook, Apple CFO Luca Maestri is also named as a defendant.

As further evidence of its claim, the complaint also cites cut supply chain orders and lower iPhone prices. It also calls Apple’s surprise decision to stop reporting product unit sales a way for the company to “mask declines in unit sales of the company’s flagship product.”

Essentially, what the suit is claiming here is that Apple knew that its iPhones sales were down much sooner than the January guidance revision — even during its November 2018 earnings call — but failed to report it to investors.

The lawsuit, which is seeking class action status, aims to recover damages on behalf of anyone who purchased Apple stock between Nov. 2, 2018 and Jan. 2 2019. It suggests that “hundreds of thousands of investors” may have suffered economic losses.

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