Techappletechnology SEC

David Einhorn's Hedge Fund May Succeed In Lawsuit Against Apple: Judge

Apple Headed For A Loss In Court?
Reuters
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People walk past the Apple logo at the Apple Store at Grand Central Terminal in New York ON January 25, 2013. Apple shares slid about 12 percent on January 24 after the tech giant posted record profits and sales of its iPhones and iPads but offered a disappointing forecast for the coming months. AFP PHOTO/TIMOTHY A. CLARY (Photo credit should read TIMOTHY A. CLARY/AFP/Getty Images)

By Nate Raymond

NEW YORK (Reuters) - David Einhorn's hedge fund has shown a "likelihood of success" if his legal attack against Apple Inc goes forward, a U.S. judge said, though he made no immediate ruling on fund's request to block a shareholder vote on a proxy proposal next week.

U.S. District Judge Richard Sullivan on Tuesday reserved decision on a lawsuit by the fund, Greenlight Capital, to stop a February 27 shareholder vote on an Apple proposal to end the issuance of preferred stock without investor approval.

"Candidly I do think the likelihood of success is in favor for Greenlight," Sullivan said at a court hearing in New York.

The hedge fund sued Apple earlier this month as part of Einhorn's broader attempt to get the company to send a bigger chunk of its $137 billion in cash to shareholders.

The lawsuit contends Apple improperly "bundled" three proposed amendments to its charter into one proxy proposal, a violation of regulatory rules.

Sullivan did not specify when he would rule on Greenlight's injunction request, though he cited the impending date of the vote. He said he would now focus on whether Greenlight would be irreparably harmed if the vote moves forward.

Steve Dowling, a spokesman for Apple, declined comment. A spokesman for Einhorn did not immediately respond to a request for comment.

The proxy proposal Einhorn has targeted, Proposal No. 2, would amend Apple's charter to provide for majority voting for directors, establish a par value for Apple stock and eliminate Apple's power to issue preferred shares without shareholder approval.

Mitchell Hurley, a lawyer for Greenlight, said Apple had violated U.S. Securities and Exchange rules that prohibit shareholders from voting for a proposal where they support only some but not all of the item. Einhorn says he supports two of those amendments but not the preferred stock amendment.

"In other words, it will result in precisely the kind of harm the rules were designed to prevent," Hurley said.

Apple contends Proposal No. 2 doesn't bundle material matters together or force shareholders into an unfair choice.

"The SEC had no objection and no comment" on the proposal, said George Riley, a lawyer for Apple.

While Sullivan said Greenlight may have shown it would likely succeed on the merits of the case, the judge during the hearing questioned whether an injunction was appropriate. The proposal became public in late December, yet Einhorn didn't sue Apple until February 7.

"I'm not sure that necessarily is going to get you over the hump for irreparable harm," Sullivan said.

A separate lawsuit against Apple heard at Tuesday's hearing was filed by a different investor, Brian Gralnick. The lawsuit seeks to block not just a vote on Proposal No. 2 but also an advisory "say-on-pay" vote on executives compensation.

Sullivan indicated Tuesday he would rule against Gralnick on his request for an injunction.

Apple shares ended regular trading on Tuesday down 17 cents at $459.99.

The case is Greenlight Capital LP, et al., v. Apple Inc., U.S. District Court, Southern District of New York, 13-900.

(Reporting by Nate Raymond; Editing by Gary Hill, Dale Hudson and Steve Orlofsky)

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Before You Go

7 Biggest Steve Jobs Flops
1. Apple III (1981)(01 of07)
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The successor to the very popular Apple II was focused on business users and priced accordingly. Unfortunately, the hardware was unreliable. Apple lost the business market to the IBM PC, launched the same year, and a rapidly expanding market of PC clones. (credit:Flickr:Marcin Wichary)
2. Lisa (1983) (02 of07)
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The first commercially produced computer with a graphical user interface cost $9,995 when it launched. It quickly fell into the shadow of the cheaper Macintosh, launched a year later. (credit:MediaWiki)
NeXT Computer (1989)(03 of07)
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Jobs' venture after being forced out of Apple created a computer that was in many ways ahead of its time, but in the vein of the Apple III and Lisa, it was also too expensive to catch on with mainstream users. (credit:Wikimedia Commons)
3. Puck Mouse (1998)(04 of07)
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The new iMac was the first major product created after Jobs' return to Apple in 1996, and it was a big success, despite its tiny, round mouse. Users couldn't tell which way it was oriented by feel, and it tended to disappear in the cup of the hand, making it hard to use. (credit:MediaWiki)
4. The Cube (2000)(05 of07)
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This small desktop computer was beautifully encased in a cube of clear plastic. It won design awards but was a flop in stores because of its high price. Also, it didn't really offer any functional benefits over other Macs. Apple's designs are iconic, but people aren't usually willing to pay a premium for design alone. The Cube idea lives on in the Mac Mini, a more successful but less eye-catching small Mac. (credit:MediaWiki)
5. iTunes phone (2005) (06 of07)
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It's easy to forget that the iPhone wasn't Apple's first venture into the cellphone business. It formed a partnership with Motorola Inc. to launch the ROKR in late 2005. As a phone, it was decent if unexciting, but as a music player, it fell far short of the iPod. It could only hold 100 songs, and transferring them from the computer was a slow process. It was also criticized for not allowing users to download music over the cellular network, a limitation that also applied to the first iPhone. Some even called the ROKR "the iPhone." (credit:MediaWiki)
6. Apple TV (2007) (07 of07)
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Apple's foray into the living room was an uncharacteristically half-hearted effort - Jobs later referred to the Apple TV as a "hobby." It was a small box that connected to a TV and to a Mac in the home. A tiny remote allowed the owner to play music and movies from the PC on the TV. It was expensive, at $249, and complicated to set up and use. Movies purchased from iTunes were low resolution and looked blurry on HDTV sets. In 2010, Apple introduced a much improved, cheaper Apple TV designed to connect directly to the Internet. (credit:Getty)
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