Here’s Why David Einhorn is Suing Apple

David Einhorn is hoping to start an investor revolt against Apple’s (NASDAQ:AAPL) stock practices and announced that his Greenlight Capital fund was suing the country’s most valuable company. Einhorn said Apple needed to be more active in offering the company’s shareholders more value for their investments.

According to the fund manager, Greenlight has filed a lawsuit in a New York federal court to get Apple to change a proposal that would remove the company’s ability to issue “black check” preferred stock. According to Einhorn, such a proposal does not conform to regulatory rules. He also urged Apple shareholders to vote against the proposal during the company’s annual meeting later this month.

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“Greenlight believes that Apple’s proposal to eliminate preferred stock from its charter is an unprecedented action to curtail the board’s options,” the fund said in a statement.

In addition, the fund wrote in a filing with the U.S. Securities and Exchange Commission that it was “dissatisfied with Apple’s capital allocation strategy.”

Apple has about $137.1 billion in cash, according to its latest earning report released in Janaury, and according to Einhorn, that equates to about $145 per share. While Apple did announce the start of a dividend last year and also buys back shares, Einhorn told CNBC that shareholders would like to receive preferred stock with a 4 percent yield.

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This would pay a dividend that would be funded by “a small percentage of the company’s operating cash flow,” he added. Einhorn said he had been having discussions with the company over the past several months, but that it rejected his proposal last September.

Calling Apple shares “utterly misvalued” at current levels, the fund manager added that the company no longer needed to grow at the near-triple digit rates of the past.

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