(CN) – A public pension fund lost its bid to reinstate a lawsuit accusing Apple of concealing its practice of backdating stock options. The 9th Circuit ruled that shareholders failed to establish that share dilution amounted to economic loss.
The New York City Employees’ Retirement System claimed that Apple, through 14 officers and directors, issued a “false and misleading proxy” that failed to mention backdating or its effects on competition and share prices.
Backdating occurs when a company issues stock options dated on an earlier date, usually when the stock price was lower.
The fund claimed that from 1996 through 2005, investors “‘unwittingly” authorized Apple to issue 205 million shares, or 20 percent of the company’s stock.
The proxy statement allegedly told investors that in 2003, Apple CEO Steve Jobs canceled his outstanding options in exchange for 10 million shares of restricted stock. But the proxy didn’t disclose that some of those canceled options were backdated, giving Jobs 630,000 extra shares worth more than $50 million, the fund claimed.
The district court dismissed the case, determining that the claim was derivative, not direct, and that stock dilution alone does not establish economic loss.
The three-judge panel in San Francisco agreed that the fund failed to show economic loss, even though it disagreed with the lower court’s ruling that the claim was derivative.
“NYCERS’ dilution theory of economic loss is unsupported in caselaw and, as the district court recognized, economic loss does not necessarily accompany dilution, so such conclusory assertions of loss are insufficient, Judge David Thompson wrote.