A class action lawsuit against Apple claims that the company hid news of declining iPhone demand in China, thereby triggering billions of dollars lost on the part of investors.
The case, brought against Apple by a UK pension fund, has been given the go-ahead by U.S. District Judge Yvonne Gonzalez Rogers. It concerns comments made by Tim Cook during an investor call back in 2018.
At the time, Cook was discussing the challenges Apple was facing in some emerging markets. He said that, “I would not put China” in this category. By January 2019, Apple cut its quarterly revenue guidance by $9 billion. This was, Cook said, partly because of the situation in China, associated with the then-burgeoning trade issues with the U.S.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in greater China,” Cook wrote in a January open letter to shareholders. Shares of Apple fell 10 percent as a result, which removed $74 billion off the company’s market cap.
Did Apple mislead investors?
In her decision, U.S. District Judge Yvonne Gonzalez Rogers writes that shareholders have a plausible argument that Cook’s comments on China were false and misleading. She said that it “strains credibility” that he wouldn’t have known about the possible impact trade tensions would have on China and, as a result, Apple.
The plaintiffs say that Tim Cook “did not act innocently or with mere negligence” when he made the comments.
Despite the damaging impact of the revised earnings guidance, it’s worth noting that Apple stock has recovered from that initial plunge. In early January 2019, the adjusted stock price of Apple (accounting for this year’s stock split) was around $37. At time of writing, it’s trading at $117.67. Apple’s current market cap stands at $2 trillion.