Apple has agreed to a $490 million settlement to resolve a class-action lawsuit accusing CEO Tim Cook of misleading investors regarding a sharp decline in iPhone sales in China, resulting in a significant adjustment to the company’s revenue forecast.
The preliminary settlement, filed in federal court in Oakland, California, stems from a shareholder lawsuit that scrutinised Apple’s communication regarding the performance of iPhone models released in September 2018 in China, a key market for the company.
Despite Cook’s initial positive remarks during an investor conference call in early November 2018, the situation took a drastic turn on January 2, 2019, when Cook issued a warning that Apple’s revenue for the previous quarter would fall $9 billion below management’s forecast, primarily due to weak demand in China.
The announcement marked the first instance in which Apple had reduced its revenue guidance since the launch of the iPhone in 2007.
This revelation caused a significant reaction in the stock market, with Apple’s stock price plummeting by 10% in the following day of frantic trading. This decline resulted in the loss of over $70 billion in shareholder wealth.
Apple vigorously denied accusations that Cook misled investors regarding iPhone sales in China between early November and early January.
The Cupertino-based company maintained its position in the settlement documents, asserting that it opted to make the payment after more than four years of legal disputes to avoid an “overly burdensome, expensive, and distracting” process.
The settlement was facilitated through a mediator after U.S. District Judge Yvonne Gonzalez Rogers turned down Apple’s motion to dismiss the case and scheduled a trial date for September 9. Gonzalez Rogers will now review the settlement during a hearing slated for April 30.
Thousands of shareholders who purchased Apple stock in late 2018 may qualify for compensation from the settlement, which will be distributed from a pool that will amount to less than $490 million after attorney fees are deducted.
The attorneys involved in the case intend to seek up to one-fourth, or about $122 million, of the settlement.
The $490 million payment constitutes less than 1% of the $97 billion profit that Apple accumulated during its last fiscal year, which concluded in September.
Meanwhile, shareholders who retained their shares have experienced a surge in wealth.
Apple’s stock price has surged by more than four times since Cook’s warning about China, resulting in an additional $2 trillion in shareholder wealth.
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