Hedge fund star David Einhorn wants to force Apple Inc to share some of its huge cash reserves with investors, but his lawsuit rests on a U.S. securities rule that has little legal precedent. Einhorn's Greenlight Capital sued the iPad and iPhone maker in U.S. District Court in Manhattan on Thursday to try to prevent Apple from eliminating preferred stock from its charter. The suit is part of Einhorn's bid to pressure Apple to use some of its $137 billion in cash to issue perpetual preferred shares that pay dividends to existing shareholders.
The suit contends Apple violated Securities and Exchange Commission rules that prohibit companies from "bundling"unrelated matters into a single proposal for a shareholder vote.
Establishing that Apple violated the rules could be tricky. Little to no case law exists on the question and the SEC's own rule is relatively general with little guidance, legal experts said.
Still, James Cox, a professor at Duke University School of Law, thinks Einhorn "has a hell of good case."
"I think he's got Apple in the crosshairs," he added, saying that it "strikes me as a fairly dramatic case of bundling."
The hedge fund manager is seeking an injunction to block a Feb. 27 shareholder vote on the proposal, saying Apple violated Section 14 of the Securities Exchange Act of 1934. Arguments are to be heard before U.S. District Judge Richard Sullivan on Feb. 22. Apple has until Feb. 15 to file a response with the court.
The proxy proposal at issue, Proposal No. 2, seeks to amend Apple's articles of incorporation in three ways: by providing for majority voting for directors, establishing a par value for Apple stock and eliminating its ability to issue preferred stock.
Einhorn is represented by law firm Akin Gump Strauss Hauer & Feld, Greenlight's long-time outside counsel. No lawyer for Apple is yet listed on the court docket and a representative declined to say who would represent Apple in the case.
On Friday, the California Public Employees Retirement System, the biggest U.S. public pension fund and owner of 2.7 million Apple shares, and influential proxy voting firm ISS Proxy Advisory Services both urged investors to vote in favor of the shareholder proposal in question.
"All shareholders should have a vote," Anne Simpson, CalPERS Senior Portfolio Manager and Director for Corporate Governance said on CNBC. "We don't want the board cutting a deal on the side with a hedge fund out of fear of a