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Law firms circle their wagons round Ericsson over Iraq scandal

Borje Ekholm Ericsson CEO
Ericsson

US law firms are competing for business with threatened class action lawsuits against Ericsson and its senior executives

US law firms are competing for business with threatened class action lawsuits against Ericsson and its senior executives.

Their announcements follow last week’s response by the US Department of Justice (DoJ) to allegations that the vendor was involved in “years of bribery and fraud” in Iraq.

Ericsson in 2019 reached a deferred prosecution agreement with the DoJ under which it paid US$1.06 billion in civil and criminal penalties for bribery in China, Djibouti, Egypt and Vietnam – but the company did not reveal that its own investigation had uncovered details of involvement with the terrorist organisation ISIS in Iraq.

Since then the Ericsson share price has fallen from 116.62 Swedish kronor ($10.86) a month ago to just 80.84 kronor (€7.53) today – a drop of 30.7%.

Among the circling law firms rounding up support from aggrieved shareholders are New York-based Rosen, which says it “is dedicated exclusively to recovering investment losses for investors in public and private companies that have misrepresented material aspects of their business or whose officers and directors have breached their fiduciary duties to shareholders”.

It is looking for investors who bought Ericsson securities between 27 April 2017 and 25 February this year.

Others lining up are two New York firms – Pomerantz and Bragar Eagel & Squire – and San Diego-based Robbins.

Their action is likely to drag in the CEO, Börje Ekholm (pictured), and the CFO, Carl Mellander.

Ekholm took over in 2017 in the wake of the July 2016 dismissal of CEO Hans Vestberg following an 11% fall in sales. Mellander has been with the company since 2007, when he was CFO for northern Europe; but he earlier worked for Ericsson in financial roles from 1996 to 2003. Vestberg is now CEO of Verizon in the US.

All the law firms’ announcements are similarly worded, pointing to a report on 27 February by the International Consortium of Investigative Journalists (ICIJ) that said Ericsson had made “tens of millions of dollars in suspicious payments” over nearly a decade to keep its business in Iraq. The ICIJ report also refers to “possible bribery, money laundering and embezzlement by employees in Angola, Azerbaijan, Bahrain, Brazil, China, Croatia, Libya, Morocco, the United States and South Africa”.

Meanwhile the Financial Times reported this week that Ericsson’s second largest shareholder, Cevian Capital, wants “sweeping reforms” of the vendor’s share structure. At the moment, Investor – the investment vehicle of the Wallenberg family – has A-class shares that allows it to dominate shareholder voting.

Ericsson is waiting to hear from the DoJ what the extra penalty will be for hiding information at the time of the 2019 deferred prosecution agreement.