Apple will part with a fraction of a day's earnings to resolve a class action lawsuit, which accused Tim Cook of not being truthful with investors about declining sales in China, settling for $500 million. Nearly six years after Tim Cook, in a late 2018 earnings call, denied that China was among the countries experiencing a dip in iPhone sales, it emerged that Apple had instructed suppliers to cut production shortly thereafter.
Early in 2019, Apple unusually adjusted its revenue forecasts downwards, attributing this to reduced iPhone sales in China. Leading the lawsuit was the UK's Norfolk County Council, asserting that Cook and Apple could have anticipated the economic downturn impacting iPhone sales in the area. The claim was that Cook intentionally omitted crucial information, resulting in significant investor losses as Apple's stock value plummeted by $74 billion. Reuters reported that Apple had agreed to a $490 million settlement for investors who purchased stock between Cook's remarks and the company's subsequent financial guidance revision.
Apple maintained that Cook's statements were merely opinions. Despite this, in 2020, US District Judge Yvonne Gonzalez Rogers found grounds for the lawsuit, challenging the notion that Cook was unaware of the sales impact in China. By 2022, the lawsuit had achieved class action status.
Attempts by Apple in 2023 to dismiss the lawsuit were unsuccessful, with Judge Gonzalez highlighting the company's "distortions." The proposed $490 million settlement awaits Judge Gonzalez's approval, with shareholder lawyers potentially seeking up to $122 million in fees. Cook's controversial eight-word statement thus cost Apple approximately $61 million per word, surpassing his annual salary by 7.8 times. The settlement amount equates to around 16 hours of Apple's sales revenue.
Despite leading Apple to a $2 trillion market cap, Cook is unlikely to face internal repercussions or further judicial proceedings. Apple's denial of liability aims to circumvent trial costs and distractions. While Apple insists Cook was truthful, shareholders argue otherwise, with their representative lauding the settlement as "exemplary."
The rapid adjustment of supply orders post-earnings call does prompt questions about Apple's response timing to declining sales. However, given Apple's tendency to minimize forward-looking statements in earnings calls, it's improbable that Cook aimed to deceive investors.
