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Apple has agreed to pay $490 million to settle a class-action lawsuit accusing CEO Tim Cook of misleading investors in 2018 by overstating demand for the iPhone in China.
Investors claimed that Cook overestimated demand for Apple products in the country in a November 2018 earnings call, only for the company's stock to fall nearly 10 percent in January 2019 when it said it would miss its revenue guidance by as much as $9 billion.
Apple declined to comment on Friday. It denied violating US securities law.
The settlement still requires approval by the federal judge in California overseeing the case. According to data from Deutsche Börse-owned Institutional Shareholder Services, this represents the largest class-action settlement of a US securities fraud lawsuit for Apple.
The years-long securities lawsuit, led by Norfolk County Council in the UK, followed a rare and unexpected warning issued by Apple about Chinese sales in January 2019. It was Apple's first cut to its revenue forecast in 16 years and sent its shares tumbling.
At the time, China's overall economic growth was slowing amid a trade war with the US administration of Donald Trump. Investors who sued Apple claimed Cook downplayed concerns about China, citing a “strong” recent quarter in the region.
They also claimed that in the same call Cook overestimated the success of new iPhone models, only to begin cutting production days later.
The settlement highlights the legal risks companies face when issuing revenue guidance. Since the COVID-19 pandemic, Apple has not provided formal guidance in its quarterly earnings statements, and its general approach to disclosures has drawn some criticism for a lack of transparency with investors.
Last month, two of Apple's largest shareholders backed a proposal requiring it to disclose more details about its work in artificial intelligence and the risks arising from it. The proposal failed to pass.
“Apple has a pattern of increasingly opaque disclosure practices, and we rank it worst in class for quality of disclosure among major technology platforms,” said Nicholas Rodelli of CFRA Research, referring to Apple's decision to stop disclosing iPhone unit sales. to Apple's decision to stop disclosing iPhone unit sales. In 2018.
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Gene Munster of Deepwater Asset Management said he was surprised by Apple's decision to settle the case, given that companies typically provide commentary on market trends. Such lawsuits act as an additional disincentive for companies like Apple to provide forward-looking guidance: “I think ultimately it's a win for a small number of investors and a loss for the entire market,” he said.
The settlement comes as Apple once again faces uncertainty over iPhone sales in China amid geopolitical tensions between the United States and China and growing competition for smartphones from Huawei.
