Apple to Pay $490M to Settle Class Action Lawsuit Over Comments by CEO Tim Cook

Apple will settle a class action lawsuit that alleges CEO Tim Cook defrauded company shareholders by making a misleading statement about sliding demand for the iPhone in China.

The Cupertino firm has agreed to settle the lawsuit for $490 million, which is less than one day’s revenue for the iPhone maker — about 16 hours of sales, according to the site EverySecond.io.

A Reuters report said Apple made a court filing detailing the settlement earlier this week. US District Judge Yvonne Gonzalez Rogers in California will need to approve the proposed settlement.

The lawsuit stemmed from comments Cook made during Apple’s November 1, 2018 earnings call, where he said Apple was indeed facing pressure in some emerging markets that were saddled with weakening currencies. While Cook specifically mentioned Turkey, India, Brazil, and Russia in his comments, he did not mention China.

The emerging markets that we’re seeing pressure in are markets like Turkey, India, Brazil, Russia. These are markets where currencies have weakened over the recent period. In some cases, that resulted in us raising prices and those markets are not growing the way we would like to see.

Cook then said he would specifically not include China on the list:

In relation to China specifically, I would not put China in that category. Our business in China was very strong last quarter. We grew 16%, which we’re very happy with. iPhone in particular was very strong, very strong double-digit growth there. Our other products category was also stronger, in fact, a bit stronger than even the overall company number.

However, in January 2019, Apple published a letter to investors where Cook admitted that Apple’s fourth-quarter revenue would be around $84 billion, which was considerably less than the iPhone maker’s original revenue guidance of $89 billion to $93 billion for the quarter. On January 29, 2019, Apple reported quarterly revenue of $84.3 billion.

Between November 1, 2018, and January 31, 2019, Apple’s share price dropped precipitously, losing around 25% of its value.

In the letter to investors, Cook admitted that Greater China’s slowing economy was to blame for the quarter’s revenue shortfall:

While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.

In the letter, CEO Cook also admitted that lower-than-anticipated iPhone revenue, primarily in Greater China, was the reason for the decline:

“Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline.”

The class action lawsuit by investors alleged that Cook was aware of the falling demand for the iPhone in China during the November 2018 earnings call, but failed to admit it.

For its part, Apple has denied the lawsuit’s allegations and, as is typical for such settlements, the company does not admit to any wrongdoing, noting it’s agreed to the settlement merely to avoid additional legal costs and to save the time that would be involved with litigation.