IBM sued by shareholders over role in NSA's PRISM programme

IBM is being sued by its own shareholders for not disclosing the risks to its business posed by cooperation with the covert PRISM programme run by the American National Security Agency (NSA).

The Louisiana Sheriffs' Pension and Relief Fund is suing the technology giant's CEO Virginia Rometty and CFO Mark Loughridge for keeping secret just how much the company's business could suffer if disclosures about its role in the spying scandal were ever made public.

This comes in the wake of Cisco Systems blaming a 10 per cent fall in revenue on the damage done to its reputation in emerging markets like China, Brazil, Mexico, and India, due to involvement in PRISM.

The lawsuit claimant alleges that IBM's cooperation with the agency led to the Chinese government to abruptly cut ties with the company when the spying programmes were made public by former NSA contractor Edward Snowden.

It claims that this led IBM to post disappointing third-quarter results on 16 October, including drops in China of 22 per cent in sales and 40 per cent in hardware sales. While quarterly profit managed to rise 6 per cent, revenue dropped 4 per cent and fell well below forecasts.

IBM shares plummeted 6.4 percent on 17 October, amounting to a $12.9 billion (£7.9 billion) loss in market value.

The NSA spying scandal has caused governments' trust in technology companies to hit an all-time low. In September, the Brazilian government began proceedings to mandate all technology companies to deal with Brazilian data within the country, and Germany also mulled creating a "walled garden" Internet to protect against foreign spying.

The US government, meanwhile, has banned Chinese telecoms firm Huawei from operating on American soil, after allegations that it spied for Chinese intelligence services. However, it was deemed no threat by UK members of parliament. The beleaguered smartphone maker BlackBerry also had an acquisition by Chinese firm Lenovo blocked by the Canadian government, citing national security concerns.

While the fallout of the spying revelations is still settling over the technology world, we might see more cases of this kind brought against companies who cooperated with the NSA's out-of-control snooping, and suffered the reputational damage.