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Lawsuit accuses IBM of hiding China risks amid NSA spy scandal


NEW YORK: IBM Corp has been sued by a shareholder who accused it of concealing how its ties to what became a major US spying scandal reduced business in China and ultimately caused its market value to plunge more than US$12bil (RM38.82bil).

IBM lobbied Congress hard to pass a law letting it share personal data of customers in China and elsewhere with the US National Security Agency, in a bid to protect its intellectual property rights, according to a complaint filed in the US District Court in Manhattan.

The plaintiff in the complaint, Louisiana Sheriffs’ Pension & Relief Fund, said this threatened IBM hardware sales in China, particularly given a programme known as Prism that let the NSA spy on that country through technology companies such as IBM.

The Baton Rouge pension fund said the revelation of Prism and related disclosures by former NSA contractor Edward Snowden caused Chinese businesses and China’s government to abruptly cut ties with the world’s largest technology services provider.

It said this led IBM on Oct 16 to post disappointing third-quarter results, including drops in China of 22% in sales and 40% in hardware sales.

While quarterly profit rose 6%, revenue dropped 4% and fell well below analyst forecasts.

IBM shares fell 6.4% on Oct 17, wiping out US$12.9bil (RM41.75bil) of the Armonk, New York-based company’s market value.

The lawsuit names IBM, chief executive Virginia Rometty and chief financial officer Mark Loughridge as defendants, and says they should be held liable for the company’s failure to reveal the risks of its lobbying and its NSA ties sooner.

IBM spokesman Doug Shelton did not immediately respond to requests for comment.

The Louisiana fund is represented by Bernstein, Litowitz, Berger & Grossmann, a prominent class-action specialist. It seeks class-action status on behalf of shareholders from June 25 to October 16, 2013, and damages for shareholder losses.

Loughridge is retiring as CFO this month at age 60, which IBM calls its traditional retirement age.

Martin Schroeter, who has been IBM’s head of global finance, is replacing him.

— Reuters

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