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IBM faces shareholder lawsuit over cooperation with NSA

Lawsuit accuses the company of concealing that involvement with a controversial surveillance led to loss of sales and stock price decline.

Declan McCullagh/CNET

IBM's cooperation with a National Security Agency surveillance program caused sales in China to "abruptly halt" and the company's stock price to decline, a shareholder lawsuit claims.

In a complaint filed Thursday in Manhattan federal court, the Louisiana Sheriffs' Pension and Relief Fund accused the company of defrauding investors by concealing its involvement in the agency's PRISM program, leading to a dramatic drop in sales in China. The program, which was revealed in classified documents leaked to the press by former NSA contractor Edward Snowden, allowed the agency to collect and process foreign intelligence that passed through servers belonging to US tech companies.

The disclosure of the program led China to sever its business relationship with IBM and a handful of other companies, resulting in IBM reporting a 22 percent drop in sales in China for the third quarter. The lawsuit also accuses IBM of lobbying for Cyber Intelligence Sharing and Protection Act (CISPA), which would allow IBM to share customer data with the NSA.

"The company knew but misrepresented or concealed from investors that the disclosures of its lobbying and its association with the Prism and NSA spying scandal caused businesses in China as well as the Chinese government to abruptly halt doing business with IBM, leading to an immediate, and precipitous decline in sales," the pension fund said in its complaint.

IBM said the lawsuit is "pushing a wild conspiracy theory."

"This lawsuit seeks to confuse IBM's support for a U.S. cybersecurity legislative proposal -- which has yet to be enacted -- with the completely unrelated NSA surveillance program called PRISM," IBM general counsel Robert Weber said in the statement. "Even a cursory reading of the legislative proposal, known as CISPA, makes clear that it has nothing to do with the recently disclosed NSA surveillance program."

The pension fund is seeking to represent investors who bought IBM stock between June 25 and October 16.