Apple settles for $490m over China sales

The company denies allegations that Tim Cook misled investors about strong iPhone sales shortly before issuing a revenue warning

Apple has agreed to pay $490 million to settle a class-action lawsuit led by the UK’s Norfolk County Council. The lawsuit alleged that CEO Tim Cook misled investors about a significant decline in iPhone sales in China, which ultimately led to a sharp revision in the company’s revenue forecast. The Norfolk County Council stated that its pension fund was affected by Apple’s actions. A spokesperson for the Norfolk Pension Fund expressed pride in the recovery for investors and emphasized their role as stewards of pensions relied upon by thousands of families and individuals. They stated their commitment to taking decisive action to recover losses when participants’ investments are harmed by fraud.

The preliminary settlement, filed on Friday in Oakland, California federal court, arises from a shareholder lawsuit concerning how Apple communicated information about the performance of iPhone models released in September 2018 in China, a major market for the company.

According to the complaint, Cook expressed optimism about the new iPhones’ performance during an investor conference call in early November 2018. However, this optimism was shattered on January 2, 2019, when Cook announced a warning that Apple’s revenue for the recently completed quarter would fall $9 billion below management’s forecast, primarily due to weak demand in China. This marked the first time since the iPhone’s release in 2007 that Apple had reduced its revenue guidance, leading to a 10% drop in its stock price the following day and the loss of over $70 billion in shareholder wealth.

Apple strongly refuted allegations that Cook misled investors regarding iPhone sales in China from early November to early January. While maintaining this position in the settlement documents, the company opted to pay $490 million after more than four years of legal disputes to avoid what it described as an “overly burdensome, expensive, and distracting” legal process.

The settlement was achieved through mediation after US District Judge Yvonne Gonzalez Rogers denied Apple’s motion to dismiss the case and set a trial date for September 9.

Gonzalez Rogers will now consider approving the settlement during a hearing scheduled for April 30.

Thousands of shareholders who purchased Apple stock in late 2018 could qualify for a portion of the settlement, which will be distributed from a fund that will be less than $490 million after legal fees are deducted. The lawyers involved in the case plan to request up to one-fourth, or approximately $122 million, of the settlement amount.

The Norfolk council will receive a portion of the settlement as well.

The $490 million payment represents less than 1% of the $97 billion profit that Apple made in its last fiscal year, which ended in September. Shareholders who have retained their shares have also seen their wealth grow significantly. Apple’s stock price has more than quadrupled since Cook’s China warning, adding over $2 trillion in shareholder wealth.