A group of shareholders is taking legal action against Ericsson over its alleged failure to disclose vital information with regard to an internal investigation into its business practices in Iraq.
The shareholders are seeking damages of $175-$300 million over claims the failure resulted in significant financial losses for the shareholders. As of 4th August 2023, 37 claimants have filed their case against Ericsson and more are expected to follow.
The controversy began in February 2022 when portions of the internal investigation report were leaked to the International Consortium of Investigative Journalists (ICIJ), forcing Ericsson to acknowledge its existence and provide limited details about its contents.
This admission led to a dramatic 25 percent drop in the company’s share price. Notably, the report had been completed over two years and two months before the public disclosure.
The crux of the lawsuit is based on the Market Abuse Regulations (MAR) of the EU, which require issuers to promptly inform the public of inside information relevant to the company.
According to Article 17.1 of the MAR, companies must make relevant inside information readily accessible to the public—enabling a complete and accurate assessment at the appropriate time. The claim argues that Ericsson violated the MAR by withholding crucial information about its actions in Iraq for an extended period.
The report allegedly contained evidence of severe compliance violations, including corruption, tax offences, and even payments to the terrorist organisation IS in Iraq. Additionally, it was purported that Ericsson paid bribes and used an alternative transport route through IS-controlled territory to circumvent Iraqi customs duties, all in violation of local laws.
Ericsson had conducted an extensive internal investigation, resulting in a comprehensive 79-page report. However, the company chose to keep this information concealed, failing to publish the report or its contents despite its significance.
Notably, the Swedish court case is separate from previous actions taken by US authorities. On 6th December 2019, Ericsson entered into a Deferred Prosecution Agreement (DPA) with the US Department of Justice (DoJ) due to violations of the US Foreign Corrupt Practices Act over several years. This agreement involved a hefty fine of approximately SEK 10.1 billion ($954M).
Subsequently, on 2nd March 2022, Ericsson revealed that the DoJ had found the company in breach of its obligations under the DPA for insufficiently providing information about the Internal Investigation.
Ericsson reached a new settlement with the DoJ, incurring an additional fine of approximately $200 million. However, the US settlement does not address the actions related to Iraq, which remain under ongoing investigation by the DoJ.
Ericsson’s legal woes have cast a shadow over the company, with shareholders seeking accountability and compensation for the alleged damages caused by the company’s delayed disclosure of crucial information.
As the legal battle unfolds, the company’s reputation and financial standing could face further scrutiny. Shareholders will be closely watching the outcome of the lawsuit, which could have significant implications for Ericsson.
Source: Telecoms
