IBM executives artificially inflated stock price by reclassifying earnings, claims in lawsuits

In a new securities class action lawsuit, the plaintiffs allege that IBM made false and misleading statements to the market and moved billions of dollars in revenue from its non-strategic mainframe operations to its strategic business segments: namely Strategic Imperatives and Cloud, Analytics. , Mobile , Security and Social (CAMSS).

The lawsuit, filed April 5 in federal court in southern New York, alleges IBM violated the Securities Exchange Act of 1934, which was created to ensure greater financial transparency and reduce fraud.

The plaintiffs also go a step further: The petitioners cite not only IBM, but many current and former executives, including former CEO Ginni Rometty, current CFO James J. Kavanaugh, current CEO Arvind Krishna, and former CFO (and now CEO of IBM) . spin-off Kyndryl) Martin J. Schroeter as defendants.

Investors who bought or acquired IBM stock between April 4, 2017 and October 20, 2021 are represented in the promotion.

The case allegedly stems from years of allegedly illegal and unethical business activities, such as revenue shifting, unfair layoffs and sales commission manipulation, all done to inflate executives’ bonuses.

According to the lawsuit, IBM made false statements to the market and fraudulently inflated the revenues and growth of its strategic imperatives and CAMSS, as well as other relevant business metrics, by reclassifying non-strategic revenues.

The plaintiffs allege that IBM misled the market by portraying the financial performance and future prospects of its Strategic Imperative unit more favorably than they actually were. When the truth came to light, the company’s investors suffered losses.

IBM released its third quarter 21 results after the market closed on October 20 last year, reporting total revenue of $17.6 billion for the quarter; a $191.8 million deficit based on analyst estimates.

More than 42 percent of the shortfall was attributed to IBM’s Cloud & Cognitive Software business, which has traditionally received the bulk of the strategic revenue generated by the fraudulent scheme and misclassification of sales from non-strategic to strategic.

The lawsuit also details how IBM executives and even sales personnel were “motivated” to participate in this behavior by the bonus and commission system, which was linked in part to Strategic Imperatives’ earnings.

Multiple lawsuits against the company in recent years, alleging age discrimination and capped sales commissions, can be explained by executives’ motivation to maintain IBM’s stock price to maximize payouts.

In February, internal IBM documents released by a US district court revealed how IBM senior executives discussed plans to downsize the company’s older workforce and replace them with millennial employees.

The documents were unsealed in an age discrimination lawsuit brought against the company by former IBM employees in 2018 after thousands of employees over the age of 40 were laid off.

According to the filing, IBM executives expressed dissatisfaction with the company having a smaller percentage of millennials on its workforce than a rival company, saying the situation would change after the layoffs.

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