Apple to settle claims on misleading investors

Apple has agreed to settle a class-action lawsuit by paying $490 million, following allegations that CEO Tim Cook misled investors regarding a significant decline in iPhone sales in China. The settlement, filed in federal court in Oakland, California, stems from a shareholder lawsuit concerning Apple’s communication about the performance of iPhone models released in September 2018, particularly in China.

During an investor conference call in early November 2018, Cook reportedly conveyed optimism about the new iPhones’ performance. However, on January 2, 2019, Cook issued a warning, stating that Apple’s revenue for the previous quarter would fall $9 billion short of forecasts, primarily due to weak demand in China. This announcement, the first revenue guidance cut since the iPhone’s debut in 2007, led to a 10% drop in Apple’s stock price, erasing over $70 billion in shareholder value.

While Apple denied allegations of deception, it chose to settle the lawsuit after over four years of legal proceedings to avoid further complications. The settlement was reached through mediation after a US district judge rejected Apple’s request to dismiss the case and set a trial date for September 9.

The settlement, subject to approval by the court, could benefit thousands of shareholders who purchased Apple stock in late 2018. However, after deducting legal fees, the payout from the $490 million settlement fund may be lower. Attorneys involved in the case plan to seek up to one-fourth of the settlement amount.

Although the $490 million payment is a significant sum, it represents less than 1% of Apple’s $97 billion profit in its last fiscal year. Moreover, Apple’s stock price has surged since the China warning, quadrupling and generating over $2 trillion in additional shareholder wealth.

As a result of the settlement, which is subject to approval by the court, thousands of shareholders who acquired Apple stock in late 2018 could potentially receive compensation. However, after the deduction of legal fees, the final payout from the $490 million settlement fund might be lower than anticipated. Attorneys involved in the case are expected to request up to one-fourth of the settlement amount for their services.

Despite the substantial sum of $490 million, this payment constitutes less than 1% of Apple’s staggering $97 billion profit in its last fiscal year. Moreover, the value of Apple’s stock has soared since the warning about declining iPhone sales in China, increasing more than fourfold and resulting in an additional $2 trillion in shareholder wealth.

The resolution of this lawsuit underscores the complexities and risks involved in communicating financial information to investors, particularly in volatile markets like China. It also highlights the importance of transparency and accountability in corporate governance, as well as the potential repercussions for companies when such principles are called into question.

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