Class action suit alleges 'misleading' Apple financial statements amount to securities fra...

Posted:
in General Discussion edited April 16
A new class action lawsuit takes Apple to task over an always rosy outlook on future financials, claiming company executives made materially false statements concerning the health of its main business, iPhone, leading up to a revenue guidance correction in January.

Cook Maestri


In a class action lodged with the U.S. District Court for the Northern District of California, the City of Roseville Employees' Retirement System, filing on behalf of all Apple stockholders, seeks redress for violation of federal securities laws.

Listed among the defendants are CEO Tim Cook and CFO Luca Maestri, who are alleged to have made false and misleading statements regarding iPhone sales, performance in the Chinese market and earnings forecasts. Those statements caused Apple's stock price to artificially inflate in the last calendar quarter of 2018, leading to material losses when share prices fell after the company released a guidance revision in January.

The period in question begins on Nov. 2, 2018, a day after Apple reported earnings for its fourth fiscal quarter. During an ensuing conference call, Cook and Maestri recapped the report and reiterated record-breaking guidance for the important holiday quarter, which at the time was pegged to fall between $89 billion to $93 billion.

"It's the strongest lineup that we've ever had," Maestri said at the time, as noted in the complaint. "And our guidance range, by the way, represents a new all-time quarterly revenue record."

Apple ultimately generated $84.3 billion in revenue for the first quarter of 2019, a miss blamed in large part on a 15% downtick in iPhone sales.

Plaintiffs allege Apple and its executives "lacked a reasonable basis in fact" when issuing revenue guidance for the coming fiscal quarter and making statements on the health of its business. Statements from the defendants regarding a range of financial topics were either false or misleading because they knew and failed to disclose key facts that would negatively impact the company's stock price, the plaintiffs claim.

Starting with Apple's bread-and-butter iPhone, the document notes Cook said the two most recently released models, iPhone XR and XS, "got off to a really great start." Cook and company also misrepresented or failed to mention a slowdown in iPhone replacements, a phenomenon catalyzed by a battery replacement program instituted in late 2017. It was later learned that Apple replaced 11 million iPhone batteries under the program, some 9 million more than what the company expected.

Executives also failed to reveal cuts in iPhone production orders as a result of a slowdown in demand, according to the complaint.

China, a major growth market for Apple, is also a bone of contention. Fielding a question from analysts during the fourth quarter call, Cook maintained Chinese demand was strong. The suit, however, claims Apple was being undercut by local manufacturers offering devices that were both more innovative and less expensive than the increasingly pricey iPhone.

Further, Apple downplayed U.S.-China tensions resulting from a brewing trade war. Asked about U.S. tariffs and their potential effect on iPhone demand, Cook said Apple was seeing pressure only in emerging markets with weakening currencies.

"In relation to China specifically, I would not put China in that category. Our business in China was very strong last quarter," Cook said, according to the suit. "We grew 16%, which we're very happy with. iPhone, in particular, was very strong double-digit growth there."

Finally, plaintiffs argue Apple attempted to mask slowing iPhone sales by ending reportage of unit sales. For its part, Apple maintains that the number of units sold does not necessarily represent the relative health of a product's underlying business, a reasoning based on rising average selling prices.

Whether commentary from Cook and Maestri, as well as the report from Apple, are admissible in court is unclear, as the presentation was proffered under a disclaimer of forward looking statements. Apple in its earnings report includes the mandatory Securities and Exchange Commission disclaimer, something also noted by the call's operator prior to introducing the executives. Maestri himself prefaced his comments with a caution that they include forward looking statements.

Plaintiffs seek determination of a proper class action, unspecified damages and court fees.

Comments

  • Reply 1 of 18
    DuhSesameDuhSesame Posts: 478member
    Are those statements based on fact or they simply feels like it?  How the heck someone use the term “innovate” without complete understanding it?
    edited April 16 chasm
  • Reply 2 of 18
    The parties filing these lawsuits are fools and idiots!  If anyone is to blame for their financial losses it might be their fund managers or themselves!
    baconstangdanhracerhomie3zeus423iGlowEarthDAalsethwozwoz
  • Reply 3 of 18
    They're business executives, not clairvoyants.
    If you lose money investing in AAPL, you suck at investing.
    edited April 16 chasmiGlowEarthradarthekatwozwoz
  • Reply 4 of 18
    JWSCJWSC Posts: 388member

    Absolutely frivolous crap!  The law requiring publicly traded companies to update investors on a quarterly basis is one of those ‘road to hell paved with good intentions’ things.  It was made to sound like it protects investors like you and me, but the reality it’s that it enables financial traders on Wall Street to batter around stock to their short term advantage and it enables frivolous law suits.  Short term financial management is a losing way to manage long term investment and growth.

    The law governing fiduciary responsibilities has had the perverse effect of incentivizing companies to devise annual bonus plans that are tied to stock market performance.  Managers who’s annual bonuses are tied to stock performance will do anything to make their numbers, regardless of the impact to the business down the road.

    edited April 16 chasmradarthekatwozwozjony0
  • Reply 5 of 18
    chasmchasm Posts: 1,421member
    1. The stock is presently higher than it was before the earnings warning.
    2. These people quite clearly have no understanding of the market, economics, and they appear to have a bad lawyer to boot.
    3. I assume they’re also going to sue the hell out of Samsung, which is reporting a 60 percent drop in operating profits for the quarter just ended ... Apple’s drop (just for comparison) was 10 percent ...

    TL;dr — this is very likely to either get thrown out or go down in flames.
    edited April 16 racerhomie3iGlowEarthradarthekatwozwozjony0
  • Reply 6 of 18
    wood1208wood1208 Posts: 1,945member
    Such nonsense must not be allowed in court otherwise Apple and Qualcomm both can sued over there CEOs misrepresentation and misinforming about there lawsuit discussion. They said they are not talking with each other about law suit settlement but apparently today's settlement shows they were.
    edited April 16
  • Reply 7 of 18
    jkichlinejkichline Posts: 1,333member
    If you want higher returns, expect higher risks. This is investment 101. Apple isn’t a bank. Deal with it.
    maestro64iGlowEarth
  • Reply 8 of 18
    maestro64maestro64 Posts: 4,529member
    Like Apple knew China would boycott iPhone over the whole tariff situation. BTW, China appears to be suffering more over tariff than the US.

    Also if the pension lose money over this, the only way you lose osx to sell, if they sold the pension hold should sue the management company so selling Apple stock. A bunch of idiots.
  • Reply 9 of 18
    This goes nowhere. Covered under the Business Judgment Rule. 
    DAalseth
  • Reply 10 of 18
    racerhomie3racerhomie3 Posts: 1,062member
    I want to sue the idiots who are suing . 
    zeus423iGlowEarthJWSC
  • Reply 11 of 18
    rob53rob53 Posts: 2,011member
    maestro64 said:
    Like Apple knew China would boycott iPhone over the whole tariff situation. BTW, China appears to be suffering more over tariff than the US.

    Also if the pension lose money over this, the only way you lose osx to sell, if they sold the pension hold should sue the management company so selling Apple stock. A bunch of idiots.
    Should adjust your comment to say Apple didn’t know Trump would impose insane tariffs on everyone causing the entire market to crash before stabilizing. 
    baconstang
  • Reply 12 of 18
    jungmarkjungmark Posts: 6,684member
    Predicting the future is hard. Apple revised the guidance when got better data. 

    They should sue the  analysts. 
    zeus423iGlowEarthJWSCbaconstang
  • Reply 13 of 18
    genovellegenovelle Posts: 913member
    maestro64 said:
    Like Apple knew China would boycott iPhone over the whole tariff situation. BTW, China appears to be suffering more over tariff than the US.

    Also if the pension lose money over this, the only way you lose osx to sell, if they sold the pension hold should sue the management company so selling Apple stock. A bunch of idiots.
    US companies are suffering because in the internet age fortunes world wide are linked. Our biggest companies providing the bulk of our high paying jobs are global companies who ends up cutting American jobs when other markets sink. 
  • Reply 14 of 18
    Sounds like a lawsuit pulling all of the random Nikkei articles that were spewing random garbage throughout the holiday quarter. Nothing about the fact that there was a massive credit crunch on China’s growing middle-class, combined with tariffs elsewhere, and an incredibly strong dollar drove iPhones to truly unobtainable prices during a time of massive economic cooling.  Frivolous lawsuit. I’m still up 13% on my $AAPL because #BTFD!
  • Reply 15 of 18
    Anyone buying even one share in a publicly held company just has to be aware that the price of that share might fall as well as rise.
    If this 'fund' bailed out of Apple at the wrong time then isn't that the fault of the people running the fund?
    Yes it is all part of portfolio risk management but that's what you pay advisors for.
    As has been reported, the price of APPL stick is higher now than before the revision in earnings forecast was made.
    This case should be kicked into the long grass and Apple awarded costs.

    I sold all my APPL stock when I had no real alternative to due to a divorce. She wanted the money there and then. If I had held onto them I would have made a lot of money but I couldn't. I'm not crying over that bit of spilt milk. What's done is done and that's life.

    baconstang
  • Reply 16 of 18
    carnegiecarnegie Posts: 720member
    It's hard to take seriously a complaint which makes assertions like this:
     
    Apple also aggressively increased the pricing of its iPhones from the $99-$399 range maintained through 2013 to a top offering price of $1,449 for the Apple XS Max with 512 gigabytes in September 2018.
    Making matters worse, in December 2017, Apple admitted that it had been intentionally degrading, or “throttling,” the performance of the batteries in older iPhones via software “updates.” This battery “throttling” had surreptitiously created artificial demand for new premium priced iPhones from consumers who believed their poorly performing iPhones were outdated and thus needed to be replaced.

    That aside, based on the actual statements which the complaint identifies and claims are materially false and misleading, I don't much merit in this action.

  • Reply 17 of 18
    carnegiecarnegie Posts: 720member

    Anyone buying even one share in a publicly held company just has to be aware that the price of that share might fall as well as rise.
    If this 'fund' bailed out of Apple at the wrong time then isn't that the fault of the people running the fund?
    Yes it is all part of portfolio risk management but that's what you pay advisors for.
    As has been reported, the price of APPL stick is higher now than before the revision in earnings forecast was made.
    This case should be kicked into the long grass and Apple awarded costs.

    I sold all my APPL stock when I had no real alternative to due to a divorce. She wanted the money there and then. If I had held onto them I would have made a lot of money but I couldn't. I'm not crying over that bit of spilt milk. What's done is done and that's life.

    The party bringing this action doesn't claim that it sold AAPL. It claims merely that it bought AAPL between November 2, 2018 and January 2, 2019 inclusive.

    For context: AAPL is up from where it was for almost all of that period. It's down a little from where it was during the first few days of that period.
    baconstang
  • Reply 18 of 18
    carnegiecarnegie Posts: 720member

    AppleInsider said:...

    In a class action lodged with the U.S. District Court for the Northern District of California, the City of Roseville Employees' Retirement System, filing on behalf of all Apple stockholders, seeks redress for violation of federal securities laws.

    ...
    To be clear, this action doesn't purport to be brought on behalf of all Apple stockholders. The asserted class includes all buyers of AAPL between November 2, 2018 and January 2, 2019 inclusive.
    gatorguy
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