Judge rejects Apple's bid to throw out China sales comment class-action lawsuit

Jump to First Reply
Posted:
in General Discussion

Apple has not succeeded in overturning a lawsuit that alleges CEO Tim Cook defrauded shareholders by withholding knowledge of falling demand in China.




The lawsuit references Apple's November 2018 analyst call, in which Cook said that Apple was seeing what he described as sales pressure in some markets. However, he then stated, "I would not put China in that category."

U.S. District Judge Yvonne Gonzalez Rogers said jurors could reasonably infer that Cook was discussing Apple's sales outlook in China, not past performance or the impact of currency changes. according to Reuters.

Rogers also noted that Apple knew China's economy had slowed, and data suggested that demand could fall. Failure to disclose the data would have unnecessarily put investors at risk.

In late 2020, the shareholders were told they could bring a class-action suit against Apple over Cook's comments.

The lawsuit officially gained class action status in February of 2022. Shareholders, including Norfolk County Council, believe the revised guidance was too late, and that Apple should've foreseen the issue, given that it took action to deal with it in China just days after Cook's remarks.

After being informed in November 2020 that the shareholders could bring a proposed class-action suit over accusations the company concealed falling sales demand, the group's proposal was granted.

At the time, Judge Yvonne Gonzalez-Rogers advised Apple had failed to dismiss the council's efforts to turn the lawsuit into a class-action suit, referring to Apple's arguments on the matter as "distortions."

Norfolk County Council is involved as it runs the Norfolk Pension Fund, valued at multiple billions of pounds. In the original lawsuit, it was claimed the fund lost close to $1 million over the comments.

The change to a class action suit does more than enable more shareholders to join in against Apple, as it also reduces the standard of proof required by claimants. Under a "presumption of reliance," the council wouldn't need to demonstrate that it made trading decisions after hearing Cook's analyst call comments.

According to Apple, Cook's comments were a statement of opinion, and therefore protected. The claim "fails to plead any actionably false or misleading statement," according to Apple's attorneys.

It's not yet clear when the trial will take place.

Read on AppleInsider

Comments

  • Reply 1 of 15
    netroxnetrox Posts: 1,578member
    That is so ridiculous. As long as shareholders are making money, what's the problem???? 


    ronnwatto_cobra
     2Likes 0Dislikes 0Informatives
  • Reply 2 of 15
    williamhwilliamh Posts: 1,048member
    Unless the investment fund was trading really short term options, they could only have lost money if they sold stock.  Why would an investment fund sell based on that information?
    ronnstompywatto_cobra
     3Likes 0Dislikes 0Informatives
  • Reply 3 of 15
    red oakred oak Posts: 1,123member
    This is ridiculous.   That comment was 100% appropriate 
    ronnchasmiOS_Guy80stompy
     4Likes 0Dislikes 0Informatives
  • Reply 4 of 15
    gatorguygatorguy Posts: 24,769member
    JP234 said:
     Tim Cook was right then, he's right now, and I hope he stays at the helm for a long time!
    IMO, by this time next year, he will be retired from Apple. 

    I also agree with you that, on the surface, this lawsuit seems to be silly. There are of course a lot of facts we just don't know, so it's no more than an uneducated opinion that the lawsuit is without merit. 
    muthuk_vanalingambeowulfschmidt
     2Likes 0Dislikes 0Informatives
  • Reply 5 of 15
    chasmchasm Posts: 3,778member
    I’m neither a lawyer nor an investor in Apple at this time, but the key sentence there is pretty clearly to me — as a person whose only qualification to weigh in is that I have ears that listened to the investor call in question — Cook expressing an opinion there. It could also be construed as a “forward-looking statement,” since he was also expressing what seems pretty obviously to be a longer-term view, and forward-looking statements are specifically exempted from being entirely accurate at the very start of the call.

    If Apple can find some better lawyers to represent itself, I predict this case won’t go too far. That said, Judge Gonzalez Rogers has a history with Apple, and she doesn’t seem entirely unbiased towards them, if my memory serves.
    williamhronnFileMakerFellerstompywatto_cobra
     4Likes 0Dislikes 1Informative
  • Reply 6 of 15
    netrox said:
    That is so ridiculous. As long as shareholders are making money, what's the problem???? 


    So it is OK to put out materially false information as long as that misinformation successfully increases the stock price?
    FileMakerFellerNotSoMuch
     2Likes 0Dislikes 0Informatives
  • Reply 7 of 15
    ronnronn Posts: 707member
    chasm said:

    If Apple can find some better lawyers to represent itself, I predict this case won’t go too far. That said, Judge Gonzalez Rogers has a history with Apple, and she doesn’t seem entirely unbiased towards them, if my memory serves.
    Bingo! I think Apple will settle this case as the Judge has no love for Apple. It's basically a nuisance that needs to go away.
    watto_cobra
     1Like 0Dislikes 0Informatives
  • Reply 8 of 15
    williamh said:
    Unless the investment fund was trading really short term options, they could only have lost money if they sold stock.  Why would an investment fund sell based on that information?
    It's not about whether or not they sold, it's about their expectations while trading. If the CEO says that a major market isn't seeing any sales pressure, the reasonable assumption is that the stock price won't be affected by that particular factor. So "investment" decisions were made based on information that the CEO provided when contrary information was plausibly available. I haven't listened to the investor call, but if Tim Cook did not make a disclaimer that Apple was about to review the sales information from China and would issue an update about any material changes then he might still be held liable based on court precedent.

    It doesn't seem reasonable to me, but what is reasonable and what the courts rule to be legal are two separate things.
    watto_cobra
     1Like 0Dislikes 0Informatives
  • Reply 9 of 15
    chadbagchadbag Posts: 2,032member
    While I tend to agree that Cook shouldn’t have said that as it does make implications that he, as CEO, would have had the confidential data to really know about, it’s curious that they (the council) claimed they lost $1M but then pressed for class action status, which allows them to avoid having to show they made any losses.  How convenient.   Unless they made actual trades (presumably sold) in the near immediate time afterwards they didn’t lose a thing.  Paper value fluctuates.  You don’t have a real gain or loss until you trade. 

    Under a "presumption of reliance," the council wouldn't need to demonstrate that it made trading decisions after hearing Cook's analyst call comments.


    stompyFileMakerFellerwatto_cobra
     3Likes 0Dislikes 0Informatives
  • Reply 10 of 15
    flydogflydog Posts: 1,149member
    netrox said:
    That is so ridiculous. As long as shareholders are making money, what's the problem???? 


    Thanks for that absurdly illogical and generic comment. 

    First, the stock dropped 30% during the period in question. Whether Apple stock went up 3 years later is irrelevant to those who sold at a loss.

    Second, to the extent that someone was able to mitigate that loss by "making money" over the long term, that would a question of damages, not whether any misleading statements were made. 

    Third, even if the shareholders at issue were "making money," the question is whether they would have made more money. 


    FileMakerFeller
     1Like 0Dislikes 0Informatives
  • Reply 11 of 15
    flydogflydog Posts: 1,149member

    JP234 said:
    netrox said:
    That is so ridiculous. As long as shareholders are making money, what's the problem???? 


    So it is OK to put out materially false information as long as that misinformation successfully increases the stock price?
    It wasn't misinformation. It was an informed opinion, which turned out to be correct. Don't see the problem, except for a few short sellers, who got kicked in the nuts when they didn't believe it.
    Framing something as an "opinion" doesn't transforom if from false to truthful. The question is whether person who stated the "opinion" knew that it was false or was negligent in forming that opinion. Moreover, according to the ruling, Apple knew that it was facing economic headwinds in China in November 2018, and not only failed to disclose it until early 2019, but told investors that he would not put China in the "category" of other regions where there was sales pressure.  This was not merely an "opinion," it was a statement of fact made to investors.



    edited June 2023
    FileMakerFeller
     1Like 0Dislikes 0Informatives
  • Reply 12 of 15
    It's possible to read the transcript of the earnings call (I know, crazy, right?) and get more context for the comment. Here are two paragraphs of Tim Cook's response which reads bit different than how it is presented in the article. I think this is enough context but my understanding is that the tools for finding this information are available to all so you can get even more context if you would care to.

    Tim Cook-

    Sure. Great question. Starting with emerging markets. The emerging markets that we are seeing pressure in our markets like Turkey, India, Brazil, Russia. These are markets where currencies have weekend over the recent period, in some cases that resulted in us raising prices and those markets are not growing the way we would like to see. To give you a perspective at some detail, our business at India in Q4 was flat. Obviously, we would like to see that'd be a huge growth. Brazil was down somewhat compared to the previous year, and so I think at least the way that I see this is each one of the emerging markets has a bit of a different story. And I don't see it as a some sort of issue that is common between those for the most part. In relation to China specifically, I would not put China in that category. Our business in China was very strong last quarter. We grew 16%, which we're very happy with. iPhone in particular was very strong. Very strong double-digit growth there. Our other products category was also stronger, in fact a bit stronger than even the company, overall company number.
    The App Store in China, we have seen a slowdown or a moratorium to be more accurate on new game approvals. There is a new regulatory setup in China and there are not moving the way they were moving previously. We did see a few games approved recently, but it's very far below the historic pace. And as you've probably seen some of the larger companies there that are public have talked about this, as they've announced their earnings as well. We don't know exactly when this will, the approvals will sort of return to a normal pace. So I would not want to predict that. I do not view -- just for avoidance of doubt here, I don't view that issue has anything to do with the trade related discussions between the countries. I think that is strictly a domestic issue in China.

    ronnJP234FileMakerFellerwilliamhmuthuk_vanalingambadmonkgatorguy
     1Like 0Dislikes 6Informatives
  • Reply 13 of 15
    It's possible to read the transcript of the earnings call (I know, crazy, right?) and get more context for the comment. Here are two paragraphs of Tim Cook's response which reads bit different than how it is presented in the article. I think this is enough context but my understanding is that the tools for finding this information are available to all so you can get even more context if you would care to.

    Tim Cook-

    Sure. Great question. Starting with emerging markets. The emerging markets that we are seeing pressure in our markets like Turkey, India, Brazil, Russia. These are markets where currencies have weekend over the recent period, in some cases that resulted in us raising prices and those markets are not growing the way we would like to see. To give you a perspective at some detail, our business at India in Q4 was flat. Obviously, we would like to see that'd be a huge growth. Brazil was down somewhat compared to the previous year, and so I think at least the way that I see this is each one of the emerging markets has a bit of a different story. And I don't see it as a some sort of issue that is common between those for the most part. In relation to China specifically, I would not put China in that category. Our business in China was very strong last quarter. We grew 16%, which we're very happy with. iPhone in particular was very strong. Very strong double-digit growth there. Our other products category was also stronger, in fact a bit stronger than even the company, overall company number.
    The App Store in China, we have seen a slowdown or a moratorium to be more accurate on new game approvals. There is a new regulatory setup in China and there are not moving the way they were moving previously. We did see a few games approved recently, but it's very far below the historic pace. And as you've probably seen some of the larger companies there that are public have talked about this, as they've announced their earnings as well. We don't know exactly when this will, the approvals will sort of return to a normal pace. So I would not want to predict that. I do not view -- just for avoidance of doubt here, I don't view that issue has anything to do with the trade related discussions between the countries. I think that is strictly a domestic issue in China.

    Thank you for doing AppleInsider's work for them. This is something that should have been in the article.
    williamhwatto_cobrabadmonk
     3Likes 0Dislikes 0Informatives
  • Reply 14 of 15
    mac_dogmac_dog Posts: 1,109member
    Funny, when Bloomberg spreads lies about Apple, thereby influencing stock price, they’re never taken to court. 
    watto_cobrabadmonk
     2Likes 0Dislikes 0Informatives
  • Reply 15 of 15
    gatorguygatorguy Posts: 24,769member
    ronn said:
    chasm said:

    If Apple can find some better lawyers to represent itself, I predict this case won’t go too far. That said, Judge Gonzalez Rogers has a history with Apple, and she doesn’t seem entirely unbiased towards them, if my memory serves.
    Bingo! I think Apple will settle this case as the Judge has no love for Apple. It's basically a nuisance that needs to go away.
    And you are correct. 

    Yesterday Apple made an offer of roughly half a $Billion to settle it, and now waiting on the judge's approval, 
    edited March 2024
     0Likes 0Dislikes 0Informatives
Sign In or Register to comment.