Apple, executives face another class action over misleading financial statements

AppleInsider

Apple's almost universally positive financial outlook, offered in investor conference calls following quarterly earnings reports, are again under scrutiny as a class action complaint takes issue with comments made by CEO Tim Cook and CFO Luca Maestri in the quarter leading up to a revenue guidance correction in January.

The complaint, lodged with the U.S. District Court for the Northern District of California, homes in on forward-looking statements regarding Apple's business in China -- specifically iPhone -- for the important holiday quarter of 2018.

In forecasts presented during a conference call last November, both Cook and Maestri touted a strong product lineup expected to fuel first fiscal quarter sales between $89 billion and $93 billion. Riding high on a new slate of iPhone XS and XR handsets, which were at the time already up for sale, Apple told investors to anticipate a record-breaking quarter.

Beyond reiterating prepared guidance, Cook and Maestri emphasized a positive outlook in fielding questions from analysts. Specifically, Cook dismissed concerns of "macroeconomic uncertainty" in emerging markets like China, citing Apple's "very strong" performance leading into the holiday season. The executives also failed to recognize the brewing U.S.-China trade war.

That take was ultimately proven incorrect, as economic headwinds in the burgeoning Chinese market contributed to what would result in quarterly revenue of $84.3 billion, well below initial guidance.

The suit also claims Apple failed to account for knock-on effects of its iPhone battery replacement program, instituted in 2017 to allay concerns of handset throttling. It was later learned that Apple replaced some 11 million iPhone batteries, up to 11 times more than anticipated, allowing users to hold on to their smartphone instead of buying a new model.

Apple's decision to halt reportage of unit sales is also a bone of contention, with plaintiffs claiming the move was designed to mask declines of the company's flagship product.

The rosy outlook proffered by Cook and Maestri caused Apple's stock price to artificially inflate during the class period starting Nov. 2, a day after the company released earnings for the last quarter of 2018, until a guidance revision was released in early January, the suit alleges. Shareholders were consequently impacted by the "false and misleading statements" when the revision down was announced and Apple shares fell.

Citing violations of the Securities and Exchange Act, the complaint seeks class status, unspecified damages and legal fees.

Today's class action filing is similar in scope to two complaints lodged in April, which also claim Apple misled investors with largely positive forward looking statements.

Class Action for Violation of Federal Securities Laws by Mikey Campbell on Scribd

fred stein

Failing to predict the future actions that stimulated the trade war is not the same as deliberately misleading. At the time of the earnings call, the XR has only been available for 2 weeks. It's likely that demand exceeded supply at that point in time. Also Tim Cook clearly acknowledged that they did not anticipate the need to lower the price of the XR in China quickly enough. In the next quarter they lowered the price and demand increased. A casual look at AAPL, or nearly any publicly traded asset, shows that the market tends to excess to the upside or downside. That is exactly what happened with AAPL. Investor need to think like Warren Buffett who buys stocks to hold for five years or more, and ignore volatility.

JWSC

Rent seekers of the world unite.  😕

iOS_Guy80

That is why it is called investing. There are always risks. Nothing is written in stone no matter who you listen to. 

EsquireCats

These only stick if the operators either already knew about the challenges or misreported facts. Neither of these could be satisfactorily proven, but very easily defended, especially as the downturn affected the entire industry. (With Apple proportionally less affected than other vendors.)

Even just this week we have observed increased trade tensions between the US & China. This will likely have a run on effect to some of Apple's products. The difference now is that Apple have begun to factor the risk of international trade disputes into their guidance.

Prior US/China relations had significantly more stability. Instability here will be the new normal for quite some time. We can anticipate Apple to further develop their operations outside of China. (E.g. India)

tzeshan

Lawyers are very profitable business. They just won two billion dollars for a client. 

DAalseth

Suits like this remind me why I view the business world as basically unethical. So they invested on the best advice available. Did they lose money? No, not of they held onto their stock. They just see an opportunity, like with most of the suits filed against Apple, to try to extract a pound of flesh at little or not risk to themselves. The Ferengi were only slight exaggerations.

lkrupp

Realize that this is a private lawsuit. The SEC has not investigated or made any accusations against Apple executives regarding their statements leading up to the guidance correction. Warren Buffet is not part of this lawsuit. That alone should tell you something.

jungmark

Predicting the future is difficult especially when you don’t control most of the factors. 

Apple stock 11/2: 205
apple stock 12/31: 156
5/14: 189

Apple stock had been falling prior to reissuing guidance. I don’t get it. 

apple ][

Forecasts are just that, they're a forecast of the future, they're not written in stone. Look at the weather forecasts, they're often wrong, and they sometimes can't even predict 24 hours into the future, and they have a whole lot of data.

There are a lot of external factors and unexpected events that may come into play that has nothing to do with Apple. Apple does not control the world and neither does any other company.

Somebody should sue moronic analysts every time that they got something wrong. That would be a hell of a lot of lawsuits.

Anybody who manages to lose money in AAPL is not doing things right and that would be their problem.

anantksundaram

tzeshan said:

Lawyers are very profitable business. They just won two billion dollars for a client. 

They did no such thing. They got a judgment that will be appealed.

anantksundaram

This lawsuit won’t go anywhere.

22july2013

Apple could eliminate stockholder lawsuits if it took its $250,000,000,000 cash in the bank, borrowed another $600,000,000,000 by issuing bonds, and then bought back all of the outstanding $850,000,000,000 in pubic stock, thereby going private. Private corporations avoid having to issue quarterly reports and they don't even have to worry about the pressures of generating profits. Most people don't realize that the obligations to inform stockholders about business operations, financial conditions and management details consume a lot of resources and result in lost productivity. Not only that, but one's competitors gain a lot of insight into one's profit and they can compete better with you, reducing your profits. The private owners may still care about profits but the pressures aren't as great. Dell did it. Heinz did it. Burger King did it... twice. And they seem to be doing pretty fine now. Apple's $45,000,000,000 profit per year could easily pay the interest on a $600,000,000,000 loan, which at its bond rate of 4.25%, would be $25,000,000,000 per year in interest. That would mean Apple's profits would drop from $45,000,000,000 per year to $20,000,000,000 per year. That's a little over 50% reduction in profits, but Apple becomes private and therefore more competitive and profitable. If I had the $600,000,000,000 in spare cash, I'd consider that a wise investment.

rotateleftbyte

Shouldn't these so called investors be filing suit against the current resident of the White House? His actions wrt China have caused most Tech Stocks to drop in value by around 10%.

People really do need to understand that the value of stocks can rise and fall due to actions by 3rd parties that the company in whih they hold stock can do nothing about.

I'd love it it Apple went private. It would mean that a lot of people in parts of NYC (who generally speak out of their posterior) would have to look for new employment which can't be a bad thing now can it eh? But it won't happen at least probably not in my lifetime. If (and it is a big one) parts of the company were separated out due to legal rulings then those could be held privately otherwise we just need to accept that suits like this and incessant shorting of APPL stock is just a way of life.

studiomusic

22july2013 said:

Apple could eliminate stockholder lawsuits if it took its $250,000,000,000 cash in the bank, borrowed another $600,000,000,000 by issuing bonds, and then bought back all of the outstanding $850,000,000,000 in pubic stock, thereby going private. Private corporations avoid having to issue quarterly reports and they don't even have to worry about the pressures of generating profits. Most people don't realize that the obligations to inform stockholders about business operations, financial conditions and management details consume a lot of resources and result in lost productivity. Not only that, but one's competitors gain a lot of insight into one's profit and they can compete better with you, reducing your profits. The private owners may still care about profits but the pressures aren't as great. Dell did it. Heinz did it. Burger King did it... twice. And they seem to be doing pretty fine now. Apple's $45,000,000,000 profit per year could easily pay the interest on a $600,000,000,000 loan, which at its bond rate of 4.25%, would be $25,000,000,000 per year in interest. That would mean Apple's profits would drop from $45,000,000,000 per year to $20,000,000,000 per year. That's a little over 50% reduction in profits, but Apple becomes private and therefore more competitive and profitable. If I had the $600,000,000,000 in spare cash, I'd consider that a wise investment.

And how would you convince all of the shareholders to sell all of their shares back to Apple? At the market price today? Taking into consideration the loss of future dividends and stock price growth that a large portion of investors are wanting from their positions in AAPL.

Those other companies went private because their stock had taken a huge beating in the months/years prior to the privatization leveraging.