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back to article IBM hid China's reaction to NSA spying 'cos it cost us BILLIONS, rages angry shareholder

An IBM shareholder is suing Big Blue, accusing it of hiding the fact that its ties to the NSA spying scandal cost it business in China – and wiped billions off its market value. The Louisiana Sheriffs' Pensions and Relief Fund has filed the suit in New York, claiming that Big Blue "misrepresented and concealed" that its …

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Roo
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"The Louisiana Sheriffs' Pensions and Relief Fund has filed the suit in New York, claiming that Big Blue "misrepresented and concealed" that its association with the NSA"

No doubt the next suit filed will be by the pension holding Sheriffs claiming that the pension fund has pissed their savings up the wall fighting IBM... I really can't see how that suit could succeed given that corporations are not allowed to reveal that they even have dealings with the NSA in the first place.

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From reading the article it appears that they are not being sued for cooperating with the NSA but for failing to reveal relevant information in a timely manner. I.e. that their business in China was or had, taken a big hit.

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Roo
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"From reading the article it appears that they are not being sued for cooperating with the NSA but for failing to reveal relevant information in a timely manner. I.e. that their business in China was or had, taken a big hit."

My point is that I don't think they *could* reveal the information in a timely manner without breaking US law. Suing someone for not breaking the law seems to be something that only the Lawyers can benefit from. We'll see how it pans out eventually. It's an interesting case. :)

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Anonymous Coward

The information they didn't reveal was the drop in china sales. They didn't have to go into why, but they are on the hook for being able for reasonably foresee it. If I'm reading this correctly, it wasn't that IBM was forced to handover data unwillingly, they were apparently willing partners.

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Roo
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"The information they didn't reveal was the drop in china sales. They didn't have to go into why, but they are on the hook for being able for reasonably foresee it."

One of the quotes from the article suggest the plaintiffs are asserting that the lost sales occurred as a side effect of Snowden's leaks - which I personally don't think IBM could be reasonably be expected to foresee.

Shareholders have a right to an explanation as to why sales are lost (the SEC require reasons in their filings), IBM would be breaking the law if they were to publish the real reason and they would be guilty of filing false reports with the SEC if they didn't tell the whole truth. I am not in the business of making excuses for IBM, but I think it's fair to say that they have been put in an impossible situation by the NSA. :)

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@Roo

You've nailed the core of the issue. IBM will argue they erred on the side of National Security concerns and the government will back them up. One of the advantages of being a primary vendor (lackey, toady, etc...) to your home government is nuisance cases like this go away. Letting shareholder lawsuits have negative impacts on a 'Proud US based company doing its Patriotic Duty' sets a really bad precedent. If it actually goes to trial I will be shocked.

More locally, Louisiana state law enforcement as a whole has been on the federal governments shitlist since hurricane Katrina. So much sketchy business and bookkeeping went on and it was funded with Federal tax dollars. A horribly botched Federal disaster response was made even worse by missing money, misallocated funds and open corruption. A lot of powerful people were embarrassed even more than they already were. Rubbing salt in those kinds of wounds never gets the results you're looking for.

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So they couldn't reveal to US law enforcement that they were losing business in China - because China discovered they were spying on them - in case the Chinese find out about

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There are a lot of things they could have said without overstepping the mark:

1) They could have said their Chinese business had taken a tumble - with no explanation.

2) They could have said "due to concerns after accusations made by Snowdon". They don't have to make a statement as to whether the NSA statements were correct or not.

As for breaking the law or not... if it is being held before a jury, they just have to paint a picture that makes IBM and NSA look bad enough for the jury to award damages.

This case is going to raise some interesting issues because it links the NSA secrecy to damage of a capitalist darling.

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"The information they didn't reveal was the drop in china sales. They didn't have to go into why, but they are on the hook for being able for reasonably foresee it."

Well, if they made more from the NSA than the Chinese sales were worth then they're in the clear. Not to mention the long-term shareholder value that derives from just generally maintaining a good relationship with the US government.

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Anonymous Coward

Dear god, you people are morons

Is it really this hard to process? Can none of you read? I'll break this down so its real simple for you:

The issue is about the timing of IBM revealing its massive loss of business. It lost the business because of the Snowden leaks. There was nothing stopping it revealing the loss of business. The fact of it working with the NSA and lobbying for them may or may not have been secret, but the loss of business was purely from Snowden's accusations, which are clearly public knowledge.

The reason people are angry and suing is because there was a period of several months between the Snowden leaks causing the loss of business and them finally admitting the loss, and people who bought the shares DURING THAT PERIOD were paying significantly more than they should have done because IBM was concealing material information that would have affected that price, causing their shares plummet in value when the info was finally revealed.

Note that this is NOT an ordinary risk of share ownership. Prices can indeed go up and down as shit happens (which is why anyone who bought shares BEFORE the snowden leaks can't sue), but IBM was legally obligated to reveal the effects of the leaks in a timely manner AFTER they happened, and didn't. That's an SEC violation, and they can and should get buttfucked for it.

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Option 1 isn't really an option. Any time you start taking big hits you have to explain.

Option 2 might be cutting a little close to the mark with regards to any FISA court order that may be in place.

Unfortunately the NSA put IBM in a really bad position where they were going to be sued no matter what they said/didn't say.

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Big Brother

NOW THE "FALLOUT" BEGINS....

...GO! Sheriffs.....IBM don't deserve Punishment, they deserve GUNishment!

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Holmes

You would have thought

They would have invested in McDonald s and Dunkin Doughnuts given the amount of customer base they are reputed to represent.

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Sounds like someone might be getting fired for buying IBM

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Gives rise to the question (sorry, couldn't resist...)

Just how blue is "Big Blue"?

$15B wipeout blue? Or, is $15B wiped insignificant to IBM if allocated across the next 8 years? Maybe the investors don't want to wait 8 years or 5, or 10 for IBM to recoup this after this all blows over (IBM might sell China tech and hardware to spy better on the domestic populace, and suddenly be back in bed panting and rejoicing with the Party), but IBM probably can wait.

Things happen in cycles. Somebody might get fired for NOT buying IBM before the tide goes back in IBM's favor...

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Alien

It seems reasonable with me.

If big blue wants business parties that want to remain shadowy the least its business managers should do is to ensure shareholder interest is not compromised?

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IBM supports the NSA

"I really can't see how that suit could succeed given that corporations are not allowed to reveal that they even have dealings with the NSA in the first place."

It isn't about that. It's about 1) IBM failing to reveal their horrible sales drop in a timely manner.

2) (per the article) "IBM lobbied the government in favour of a bill that would allow it to share customers' data with the NSA,"

I think they are taking the piss with #1, if IBM had revealed months ago their sales had plummeted, the stock would have just dropped then instead of now. #2 is a valid complaint though, IBM is effectively being hostile towards their customers with a move like this, and therefore hostile towards shareholders.

Given this information, I would never buy an IBM product -- I know "everyone" is probably tied in with the NSA, but I really don't need to support companies that actively lobby for further NSA involvement.

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Big Brother

Re: IBM supports the NSA

If I remember correctly, the lobbying was less "We want to give info to the NSA" it was more "The NSA is bending us over and making us give them data, can you write a law that complying with them won't get us sued/arrested?"

Although, all right-thinking people believe they should have lobbied for the bill to make the NSA stop screwing the data out of them.

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Roo
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Re: IBM supports the NSA

"2) (per the article) "IBM lobbied the government in favour of a bill that would allow it to share customers' data with the NSA,""

Not wishing to stick up for IBM here... But consider this, they have *no* choice but to co-operate with the NSA whether they like it or not, however this forced co-operation (as you assert) can be "hostile towards their customers", which could well lead to legal action by those same customers - and the horrible irony is that they can't defend themselves by saying the NSA made us do it. With that in mind it seems logical that IBM would lobby for legislation that removes any ambiguity from the situation.

I'm not condoning IBM's actions, but in fairness to them it looks like the NSA & Shrub's War on Everything legislation have put them and every other American vendors over a barrel (and not just IT related guys).

America may well have screwed the pooch with respect to selling gear that is made in China back to China...

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Joke

If the "Louisiana Sheriffs' Pensions and Relief Fund " don't get satisfaction...

There going to be taking some folks down to the bayou for a little "gator watching."

No doubt with a special emphasis on "Feeding habits."

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Roo
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Re: If the "Louisiana Sheriffs' Pensions and Relief Fund " don't get satisfaction...

I suspect that many of IBM's Lawyers have Alligator skin brief cases. ;)

Have an upvote. :)

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Re: I suspect that many of IBM's Lawyers have Alligator skin brief cases.

That will not help them, the alligators eat almost anything.

Now oddly enough, I live in Louisiana and there's nothing about this case in the local papers. I think that the case has legs because if it had been any other reason for the sales drop (e.g. system delivery problems, manufacturing problems etc) that caused the fall in income , then IBM would have had to report this to the shareholders in a timely manner.

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Re: I suspect that many of IBM's Lawyers have Alligator skin brief cases.

Whoa... At first I read "alligator skin BRIEFS", hahahaha

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Black Helicopters

I hope that Lousiana Sheriffs Pension and Relief Fund members...

Are not among the law enforcement agencies who are surreptitiously supporters of the NSA. "You guys better send over some more of those warrentless wiretap transcripts. Turns out I won't be able to retire next week like I thought I would."

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The real problem for IBM and US business generally is that the rest of the world has a new rule.

Do not do business with US companies!

Trust is essential in a business relationship and if trust is broken it is hard to repair.

US big business is well aware of the damage already done and has no real idea how to deal with it.

The effect could be damaging for a long time but businesses elsewhere may do better business.

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Roo
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"US big business is well aware of" the damage already done and has no real idea how to deal with it."

Open source and flexible & efficient manufacturing + sensible pay structures (current ones are so distorted that competent technicians hit a pay ceiling within a couple of years of joining a company) + wasting less money on private jets, junkets, whores and hotels for the execs & salesmen would be a start. I do understand that goes directly against current western business culture - but ultimately it's the only way they're going to be able to go toe to toe with the rest of the world in the future.

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Not doing business with US companies sounds like a good idea, but that's simply bad business.

Everybody knows the spying goes on, because everyone does it. That was never the issue, getting caught was the issue. There will be repercussions, sure, but it won't be 'not doing business' with them.

Export limitations and tariffs will be renegotiated, low/no cost loans from national banks are made available for you and your allies (perversely, we lend China massive amounts of money for major purchases), long term service agreements will cost significantly less than they did before, those big systems you've ordered will be delivered in six weeks, not six months, product road maps will be shared early and the lots of compatible tie-in businesses will sprung up in the injured countries and be quickly acquired or deep integration partnerships will be formed. There's no advantage in no longer doing business with someone over these sorts of scandals.

That's how things work in diplomatic theater. You make a big fuss and act suitably aggrieved and hand over your list of demands and things return to normal. That's the way it has always worked and that's the way it still works. It's best just to assume that if you're a citizen your only purpose is whatever you pay in taxes and beyond that you are disposable to your government, unless there's a way to use citizens as leverage, which is what governments are doing right now. They're trading away your rights.

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"getting caught was the issue"

I beg to differ here.

We know the NSA, GCHQ, etc, are spies, that is their jobs. And if they occasionally asked for secret 'favours' of big companies in their home lands we would not be terribly surprised either, nor be calling for action.

No the big point here, and I mean BIG POINT, is the sheer scale of their involvement and apparent contempt for the spirit of the law (even if they can wriggle out of prosecution).

Basically they treat us all as criminals and have weakened or subverted the very standards that were supposed to protect us. It time we are sure to find organised crime, or other nations, using those same flaws against us.

It is good to see IBM and other major US companies taking a multi-billion dollar hammering, as money sadly is only thing that seems to make politicians act these days.

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Roo
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Re: "getting caught was the issue"

"It is good to see IBM and other major US companies taking a multi-billion dollar hammering, as money sadly is only thing that seems to make politicians act these days."

The problem with IBM (or any corp) taking a hammering is that they are just corporations, it is people make the decisions and it is (little) people who take the consequences of the bad decisions.The execs behind these decisions won't actually get any meaningful punishment (they may get to feel a bit uncomfortable in court while on paid gardening leave), but ultimately any punishment they receive will be minimal to zero so there will be no incentive to change their behaviour or lessen for them to learn. Soon enough they will be given a job by their friends/family/school mates and they'll carry on as though nothing happened. The folks who will get hit in the wallet are the grunts (who will lose their jobs to make an exec look better), the hostage-type customers who will pay more for the same old guff to help shore up the profit margins, and of course the Taxman who will get less income tax. The taxman will pass that cost onto the rest of the taxpayers over the long run so no skin off their nose.

Until execs are actually held responsible for their decisions in a meaningful way business will continue to operate this way. Also, given that the judges, lawyers, politicians & execs are drawn from the same pool of people I very much doubt that you will see the politicians passing laws that hold their friends & family fully accountable for their screw ups.

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Stop

Re: "getting caught was the issue"

I'm not saying I'm Ok with, or give any approval to the spying. I think it's all awfully stupid and a huge waste of resources. But as Roo notes, it is the little people (that's us) who take the hits, not governments or corporations. We don't matter to either of those groups beyond our taxes.

Since the little people are out of the equation, it doesn't make sense for big business to change the way it is done, and it won't change. After the crocodile tears and the righteous indignation have been properly expressed and duly noted, concessions from a few US companies and updated trade agreements with the US government, like I was talking about, will be the only outcomes of any of this. Everybody except the little people like things the way they are.

If you think I'm wrong, I challenge you to look into who Brazil is already talking to about who will build and manage any new developments from the privacy changes they're lobbying. Sure, the data is going to stay in Brazil, but it's US companies who are going to be building and running the infrastructure... The Japanese, their big trade partner and tech supplier have already been sidelined. You're just nuts if you think it's going to be different in China.

There is far too much advantage to be had in 'dealing with the devil' to let the complaints of a few citizens change the way international relations and business are done. The way it has been is the way it is going to be for a very, very long time to come. You're a fool if you think that anyone involved in this is truly upset, they're just playing their parts in the big circle jerk that is diplomacy.

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Stop

Que?

So, the fact that IBM shifted the lines it sold most units in to Lenovo, and other Chinese companies started making kit at prices much lower than IBM's, that had no bearing on the sales slump what so ever? I beg to differ. Then there's also the way Americans have questioned the use of Chinese products as "insecure" and liable to be backdoored - what, you think the Chinese would just take the insults lying down? The NSA line is just a convenient excuse for IBM's failings in the Chinese market. Have there been equivalent slumps in Dell and hp share?

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Roo
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Re: Que?

"So, the fact that IBM shifted the lines it sold most units in to Lenovo, and other Chinese companies started making kit at prices much lower than IBM's, that had no bearing on the sales slump what so ever? I beg to differ."

That definitely happened and would have accounted for a fair chunk of lost business, the lawsuit seems to be talking specifically about lost business that happened more recently. That said it's a fair point, IBM dropped a lot of business in Lenovo's lap.

"The NSA line is just a convenient excuse for IBM's failings in the Chinese market"

Could well be, but in practice the NSA being caught with both hands in the cookie jar is a lovely piece of ammunition for competitors to use against American vendors. History suggests Don Jefe is right when he says that business will continue over the long term - albeit with lower margins I'm not so sure myself.

I think most people guessed that the NSA et al were happily intercepting anything they wanted to, I'm fairly sure the Chinese would have expected it given their domestic capabilities. Despite that I think the majority of people expected that their activity would be lost in the noise or simply out of scope for the NSA et al. Snowden's leaks have shown that the scope of the NSA's activity is comprehensive and their traffic is not lot in the noise thanks to the advances in "big data" tooling...

With that in mind I think anyone making a large commercially or politically sensitive procurement would give serious consideration to adopting an "anything but American" stance right now.

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