Apple must face shareholder lawsuit over CEO Cook's China sales comments
Apple and Cook have said there was no proof they defrauded or intended to defraud the plaintiffs
(Reuters) - Apple Inc. has been ordered to face a proposed class-action lawsuit by shareholders who accused chief executive Tim Cook of concealing falling demand for iPhones in China, resulting in billions of dollars of investor losses.
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In a decision on Wednesday, U.S. District Judge Yvonne Gonzalez Rogers said shareholders led by a U.K. pension fund can sue over Cook’s comment on a Nov. 1, 2018, analyst call that while Apple was facing sales pressure in some emerging markets, “I would not put China in that category.”
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Apple told suppliers to curb production a few days after Cook spoke, and on Jan. 2, 2019, unexpectedly cut its quarterly revenue forecast by up to $9 billion, which Cook blamed in part on pressure on China’s economy from U.S.-China trade tensions.
The lowered revenue forecast was the first by Cupertino, California-based Apple since the iPhone’s launch in 2007. Shares of Apple fell 10% the next day, erasing $74 billion of market value.
Apple and Cook have said there was no proof they defrauded or intended to defraud the plaintiffs. The company did not immediately respond on Thursday to requests for comment.
In a 23-page decision, Rogers said shareholders plausibly alleged that Cook’s statements on the analyst call about China were materially false and misleading.
She said that while Cook might not have known specifics about “troubling signs” in China that the company had begun seeing, it “strains credulity” he would have been in the dark about the trade tensions and their possible impact on Apple.
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The plaintiffs raised a “strong inference” that Cook knew about the risks when discussing China on the analyst call, and a “cogent and compelling inference that Cook did not act innocently or with mere negligence,” Rogers wrote.
Rogers, who works in Oakland, Calif., also dismissed claims related to demand for the iPhone XS and XS Max.
The plaintiffs are led by the Norfolk County Council as Administering Authority of the Norfolk Pension Fund, located in Norwich, England.
The case is In re Apple Inc Securities Litigation, U.S. District Court, Northern District of California, No. 19-02033.