Apple Misled Investors on Poor iPhone Sales in China, Alleges Fraud Complaint

Apple’s top executives committed “securities fraud” when they made “materially false” statements during the holiday quarter about the robustness of iPhone sales in China, alleged a complaint (in Pacer) Tuesday in U.S. District Court in Oakland, seeking class-action status. CEO Tim Cook and Chief Financial Officer Luca Maestri misled investors by standing by their optimistic iPhone forecasts when they “knew and failed to disclose” that the U.S.-China trade war “had negatively impacted demand for iPhones and Apple’s pricing power in greater China,” alleged the Roseville (California) Employees’ Retirement System, which bought 512 shares of Apple stock Nov. 18 for $175.83 a share. Cook and Maestri also hid from investors the high rate at which Apple customers “were replacing their batteries in older iPhones rather than purchasing new iPhones,” and that it was “negatively impacting” iPhone sales growth, said the complaint. Apple’s decision to stop disclosing iPhone unit sales was designed to “mask” the declining shipments, it said. When Apple “shocked the market” Jan. 2 by finally disclosing it would miss its quarterly revenue target by up to $9 billion on the poor state of iPhone sales, especially in China, it sent the stock tumbling to a 52-week low of $142 the next trading day (see 1901030036), it said. Apple shares closed 2 percent higher Wednesday at $203.13. The “misrepresentations” alleged in the complaint “would tend to induce a reasonable investor to misjudge the value of Apple common stock,” rising to the level of fraud, it said. Apple didn’t comment Wednesday.