Class Claims IBM’s Ties to NSA Hurt Sales

(CN) - IBM hid its cooperation with the NSA's PRISM program, the disclosure of which by Edward Snowden caused China to "abruptly halt" sales and the stock price to plummet, investors claim in a class action.

The lawsuit, filed Thursday in Manhattan Federal Court, claims IBM touted itself as a market leader in the Asia-Pacific region when it knew that China "would not tolerate" its cooperation with the National Security Agency.

In June, former CIA contractor Snowden divulged the existence of PRISM, a top-secret electronic surveillance program that gives the NSA access to the servers of several major tech companies, including Google and IBM.

Former CIA and NSA Director Michael Hayden called Snowden's disclosure "the single most destructive leak of American security information in our history."

Investors say the NSA used PRISM "to spy on China and other countries," including hacking into critical network infrastructure at universities in China and Hong Kong.

IBM also lobbied vigorously in support of the Cyber Intelligence Sharing and Protection Act (CISPA), which made it easier for IBM to share its customers' data with the NSA, according to the complaint.

"In order to ensure CISPA's passage, IBM flew nearly 200 senor executives to Washington D.C. to lobby lawmakers and held 300 meetings with lawmakers and their staff over the course of two days," investors claim.

"IBM was well aware that its association with the U.S. spy program and its sharing of customers' information with the U.S. government would have immediate and adverse consequences on its business in China," the lawsuit states.

Sure enough, investors say, China retaliated by barring Chinese businesses and government agencies from buying IBM products.

Sales plummeted from $186.73 per share to $174.83 per share, despite IBM's rosy projections for the fiscal quarter "immediately following the disclosure of PRISM and related disclosures by Snowden," the lawsuit states.

Investors who bought IBM stock between June 25 and Oct. 16 seek unspecified damages for alleged violations of federal securities law.

They are represented by Gerald Silk of Bernstein Litowitz Berger & Grossman in Manhattan.

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