IBM faces lawsuit over NSA scandal

PUBLISHED : Saturday, 14 December, 2013, 2:27am
UPDATED : Saturday, 14 December, 2013, 2:49am

IBM has been sued by a shareholder who accuses the computer giant of concealing how its ties to the NSA spying scandal reduced business in China and ultimately caused its market value to plunge more than US$12 billion.

IBM lobbied Congress 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 program known as Prism that let the NSA spy on that country through technology companies such as IBM.

The pension fund in the southern US state 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 October 16 to post disappointing third-quarter results, including drops in China of 22 per cent in sales and 40 per cent in hardware sales. While quarterly profit rose 6 per cent, revenue dropped 4 per cent and fell well below analyst forecasts.

IBM shares fell 6.4 per cent on October 17, wiping out US$12.9 billion of the 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 sooner the risks of its lobbying and its NSA ties.

"These allegations are ludicrous and irresponsible and IBM will vigorously defend itself in court," IBM spokesman Doug Shelton said in an e-mail.