Ericsson Facing Investor Class Action Following Report on Alleged ISIS Bribes

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A proposed class action alleges Swedish telecom infrastructure firm Ericsson misled investors over nearly five years by overstating the extent to which it had eliminated its reliance on bribes to secure business in foreign countries, and failing to disclose that it had paid bribes to the Islamic State (ISIS) in Iraq and Syria. 

The 28-page complaint comes in the wake of a February 15, 2022 press release in which Ericsson disclosed that there had been media inquiries into its business dealings in Iraq. Although Ericsson assured investors that the company was being “transparent” with regard to the inquiries, CEO Börje Ekholm told a Swedish newspaper on February 16 that the company may have made payments to ISIS to gain access to certain transport routes into Iraq, the lawsuit, filed in New York on March 3, says. Ekholm also noted that Ericsson had identified “unusual expenses dating back to 2018” yet had not determined the final recipient of those expenses, according to the suit. 

Upon these disclosures, Ericsson’s American Depository Share (ADS) price dropped by $1.44 each, an event that was followed on February 27 by the publication of an International Consortium of Investigative Journalists (ICIJ) report that centered on Ericsson’s alleged dealings with ISIS in Iraq, the lawsuit states. 

According to the complaint, the ICIJ report cited a leaked internal investigation that revealed that Ericsson supposedly made “tens of millions of dollars in suspicious payments” over roughly a decade to keep its business in Iraq. Further, the report also alleged that “a spreadsheet lists company probes into possible bribery, money laundering and embezzlement by employees in Angola, Azerbaijan, Bahrain, Brazil, China, Croatia, Libya, Morocco, the United States and South Africa” that “have not been previously disclosed,” the case states. 

Upon this news, Ericsson’s ADS price fell $0.84 per share, injuring investors financially, the lawsuit says. 

Ericsson has a “well-documented history of using bribes to secure business” through the Middle East and Asia, the lawsuit alleges. Per the suit, Ericsson, in December 2019, was the subject of a Securities and Exchange Commission (SEC) action that alleged, among other things, that the company used third-party consultants and illicit payments from 2011 through early 2017 to access business in Djibouti, Saudi Arabia and China. The same month, the defendant entered into a deferred prosecution agreement with the U.S. Department of Justice (DOJ) for its “illicit business dealings,” the case says. 

According to the lawsuit, the SEC and DOJ actions resulted in Ericsson being fined more than $1 billion, after which the defendant, the suit says, “repeatedly assured investors” that it had a “zero tolerance” policy with regard to bribes. The case claims Ericsson disclosed on March 2 that the DOJ had determined it had breached its 2019 deferred prosecution agreement, and found that the company’s prior disclosures about its business in Iraq had been “insufficient.” 

“Following these disclosures, Ericsson’s ADS price fell $0.74 per ADS, or 8.35%, to close at $8.12 per ADS on March 2, 2022,” the suit relays. 

The complaint alleges that since Ericsson had failed to disclose that it paid bribes to ISIS in Iraq and Syria, the company was also not forthcoming about the fact that the revenues derived from its Iraq operations were, “in at least substantial part, derived from unlawful conduct and thus unsustainable.” 

The lawsuit looks to represent all individuals and entities who bought or otherwise acquired Ericsson securities between April 27, 2017 and February 25, 2022.

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