IBM Sued Over Claim Spy Program Cooperation Hurt Sales

An International Business Machines Corp. (IBM) shareholder sued the company over claims its cooperation with a National Security Agency eavesdropping program caused a drop in sales in China, hurting investors.

The Louisiana Sheriffs’ Pension and Relief Fund, in a complaint filed yesterday in Manhattan federal court, accuses IBM of defrauding investors by concealing that sales slowed after Edward Snowden disclosed the company was cooperating with the NSA.

In June, documents released by Snowden revealed the NSA’s “Prism” surveillance program, which used information from technology companies such as IBM, the pension fund said. IBM also lobbied in favor of a bill that would allow it to share customers’ personal data, including data from users in China, with the NSA, according to the complaint.

“The company knew but misrepresented or concealed from investors that the disclosures of its lobbying and its association with the Prism and NSA spying scandal caused businesses in China as well as the Chinese government to abruptly halt doing business with IBM, leading to an immediate, and precipitous decline in sales,” the pension fund said in its complaint.

China Sales

On Oct. 16, IBM, the largest computer-services provider, reported a 22 percent drop in sales in China compared with the previous quarter as a result of the Snowden disclosures, according to the Louisiana fund, which said it pays retirement, death and disability benefits to more than 20,000 active and retired employees of sheriff’s offices throughout the state.

The suit is “pushing a wild conspiracy theory,” IBM’s general counsel, Robert Weber, said in a statement today. “This lawsuit seeks to confuse IBM’s support for a U.S. cybersecurity legislative proposal -- which has yet to be enacted -- with the completely unrelated NSA surveillance program called PRISM,” Weber said in the statement. “Even a cursory reading of the legislative proposal, known as CISPA, makes clear that it has nothing to do with the recently disclosed NSA surveillance program.”

The pension fund is seeking to represent a class of investors who bought IBM stock from June 25 to Oct. 16.

The case is Louisiana Sheriffs’ Pension & Relief Fund v. International Business Machines Corp., 13-cv-08818, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

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