TECH

Apple will give up profits in less than a day to satisfy class action lawsuit

Tim Cook's commentary cost Apple $61 million per word

Class action accusing Tim Cook's case that he misled investors over falling sales in China was settled for half a billion dollars.

It's been almost six years since Tim Cook confirmed in his late 2018 earnings call that there were countries where iPhone sales had fallen, but “I wouldn't put China in that category.” However, a few days after the call, Apple allegedly ordered suppliers to cut production.

Then, in early 2019, Apple took the unusual step of revising its revenue forecast downward due to declining iPhone sales in China.

As the leader of the class action, Norfolk County Council argues that Cook and Apple should have foreseen the economic downturn that has impacted iPhone sales in the region. Consequently, the suit alleged that Cook intentionally withheld relevant information, causing investors to lose billions of dollars as the stock fell $74 billion.

According to Reuters, Apple has settled the dispute. Apple agreed to pay $490 million to investors who bought shares between Cook's comments and Apple's subsequent management overhaul.

Apple's position was that Cook's comments were solely expressions of opinion. Apple's lawyers previously argued that the lawsuit “does not contain any false or misleading statements.”

However, in 2020, U.S. District Judge Yvonne Gonzalez Rogers agreed that the lawsuit could be filed. She said Apple's argument that Tim Cook was unaware of the impact on sales in China “undermines credibility.” In 2022, the lawsuit officially received class action status.

Apple next tried to have the lawsuit thrown out in 2023, but Judge Gonzalez described the company's arguments as “distortions.”

Payment of 490 million US dollars

Preliminary settlement of 490 US dollars was filed with the court and must be approved by Judge Gonzalez. Lawyers representing shareholders could seek fees of up to $122 million, according to Reuters.

In total, Cook's eight-word comment cost Apple approximately $61 million per word. This is also 7.8 times Tim Cook's official annual salary of $63.2 million for fiscal year 2023. Then, according to the website EverySecond, the $490 million fine is equal to approximately 16 hours of Apple sales.

Hence, given that Cook helped Apple become the first company to reach a $2 trillion market capitalization, he's unlikely to have a cold HR interview.

However, the fact is that he will no longer appear before a judge. Apple continues to deny any liability and says the agreement is intended to avoid costs and distraction from litigation.

As for whether Cook lied or not, Apple, of course, continues to maintain that he did not do so. The shareholders claimed that he did this, and therefore now their representative — Shawn Williams of Robbins Geller Rudman & Daoud — called the settlement an “outstanding result.”

The fact that Apple cut supply orders within days of the earnings call in question raises questions about how quickly the company did so — or may have — responded to falling sales.

However, Apple's earnings reports are always retrospective and contain as few forward-looking statements as the company can get away with. It is therefore unlikely that Cook intentionally misled investors.

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