Apple Moves for Dismissal in Stock Price Suit

On December 16, Apple filed a motion to dismiss an ongoing securities lawsuit. The class action suit (City of Roseville Employees’ Retirement System v. Apple Inc., Timothy D. Cook and Luca Maestri 4:19-cv-02033-YGR) accused Apple of violating federal securities law. Apple is represented by Orrick, Herrington & Sutcliffe. Plaintiffs are represented by Robbins Geller Rudman & Dowd. The case is proceeding before the California Northern District Court.

The case was filed by an institutional investor on behalf of Apple stockholders. The complaint stated that Apple and some of its employees violated the Securities Exchange Act of 1934. It alleged that Apple made materially false and misleading statements and failed to disclose certain information. For example, Apple did not disclose that the United States-China trade war negatively impacted iPhone demand and Apple’s pricing power. Apple’s discounted battery replacements to counteract previous wrongdoing meant fewer new iPhone purchases; due to decreased demand, Apple cut production orders and reduced prices to cut inventory. It also withheld unit sales for iPhones and other devices, allegedly to cover declining sales. The withheld information was important to investors. They claim the stock price was allegedly inflated by more than $209 per share. In January, Apple announced that it would miss its quarterly revenue forecast for the first time in 15 years, due to a decrease in iPhone sales. Its first-quarter revenue was $84 billion, shy of its expected $89 to $93 billion. As a result, Apple shares decreased by 9 percent, or $15 per share, going from $157.92 to $142.19 the next day. The plaintiffs have sought to recover damages.

The motion filed by Apple seeks to dismiss the case. The motion stated that the complaint has failed to plead false or misleading statements, nor has it pled particularized facts for its claims, including that stock price declines were a result of Apple’s failure to disclose. Thus, the motion claimed they have failed to provide the elements of ‘falsity,’ ‘scienter,’ and ‘loss causation.’ It claimed that the complaint “does not claim that Defendants misrepresented the number of iPhones sold or Apple’s business results.” It never said that Apple’s statements were false, instead, they were misleading because of allegedly not disclosing about its stock and value. Further, in China, where the sales at the heart of the dispute is concerned, “Apple’s business—including its iPhone revenues and revenues from greater China—actually improved year-over-year for every quarter of the Class Period until the last quarter, Q1 of FY 2019, when the Company missed its revenue guidance for the first time in years.” Thus, the plaintiffs are misleadingly and inaccurately accusing Apple. The complaint does not mention that Apple had a large buyback program during the Class period. It spent $88 billion to buy-back its own stock. The motion states, “it would have made no sense to purchase that stock if Defendants knew that Apple’s stock price was artificially inflated due to fraud.” Apple also did not wait until the end of the quarter to inform about the revenue miss, instead of disclosing a month early.

The complaint alleged that the battery replacement program would hurt sales, which was also raised by industry analysts when the program was announced. However, Apple stock prices increased during the period after the announcement. Further, “none of the alleged misstatements ‘affirmatively create[s] an impression of a state of affairs that differs in a material way from the one that actually exists.’”

The motion stated that “accurate statements about iPhone sales being up ‘year-over-year in most markets’…or ‘upgrades for this fiscal year [being] the highest we’ve seen’ …do not state or imply anything about whether ‘iPhone demand in 2017 . . . was driven by artificially accelerated upgrade rates.’” Therefore, these are not false or misleading. The complaint “fails to allege particularized facts and corroborating details showing why the alleged misstatements were purportedly false when made.” The motion stated that this is not enough to allege false or misleading statements against Apple. The motion claimed that “none one of the alleged misstatements is affirmatively misleading about or inconsistent with the allegedly omitted information.” Therefore, the Plaintiffs have no grounds for the complaint according to the motion.

A hearing will be held on the motion in the new year.