The lawsuit claims that IBM wrongly used mainframe sales to advance artificial intelligence and cloud business

Thirteen current and former IBM executives, including CEO and Chairman Arvind Krishna and former CEO Ginni Rometty, have been sued accusing the company of securities fraud — bundling sales of mainframe hardware with sales of underperforming products in order to make It looks more profitable. than they were in reality.

The lawsuit, filed on January 13 in the US District Court for the Southern District of New York, seeks class action status for anyone who purchased IBM stock during the period April 4, 2017, to October 20, 2021.

The lawsuit alleges that the company and some of its executives “knowingly or recklessly participated in a fraudulent device, scheme, or ploy, and engaged in acts, practices, and cycles of business conduct intended to defraud investors.”

Essentially, IBM allegedly promoted its lesser-known cloud, analytics, mobile, social, and security (CAMSS) products as “growth opportunities,” allowing investors to believe they were in high demand when, in fact, they were drawn into enterprise license agreements. Three- to five-year ELAs that were popular with clients of major banks, healthcare, and insurance companies.

“The Defendants misled the market, by engaging in a fraudulent scheme to report billions of dollars in the mainframe sector and other non-strategic revenues as strategic imperatives and CAMSS [“Cloud,” “Analytics,” “Mobile,” “Security,” and “Social,”] revenue, and enabling Defendants to publicly report materially distorted sector information,” the lawsuit states. “Defendants portrayed Strategic Necessities and CAMSS as growing materially beyond actual growth, materially misrepresenting IBM’s transition away from the stagnant aging mainframe PC segment.”

According to IBM, “strategic imperatives” are products and initiatives that provide “growth and value driven by differentiation”.

IBM also allegedly reallocated revenue from the non-strategic Global Business Services (GBS) segment to the company. Watson branded AI products – A strategic necessity included in CAMSS’ product portfolio – in an effort to convince investors that the company was successfully expanding beyond its legacy business. As a result, the “trading of IBM securities at artificially inflated prices” resulted in financial damages to people purchasing the company’s stock during the period covered by the suit, according to the lawsuit.

In response to a request for comment, IBM emailed a statement that read: “IBM’s long-standing commitment to trust, integrity, and responsibility runs through all aspects of our business operations. A similar complaint has already been voluntarily dismissed.”

In fact, the same complainant who filed the lawsuit last week filed a similar lawsuit last April and then filed a notice in September requesting the voluntary dismissal of the case “without prejudice,” while retaining the ability to reconsider the lawsuit.

The reason behind the move to drop the case was a disagreement with the lead law firm at the time over how the case should be handled, according to log, which first reported the new case filed last week. The law firm filing the new lawsuit, The Rosen Law Firm, declined to comment.

The case, filed last April, alleged that IBM boosted its share price and deceived shareholders by funneling revenue from its non-strategic core business into its strategic business segments. This earlier lawsuit also alleged that by misrepresenting the true nature of CAMSS’s revenue, it allowed IBM executives to receive greater bonuses than they otherwise would have.

While this new lawsuit again alleges that IBM strategically shifted revenue, it omits the accusation regarding executive bonuses.

According to the PACER Electronic Records System, the new case has been referred to District Judge Vincent L. Briccetti, who will have to decide whether to certify class action status.

Briccetti is currently adjudicating another ongoing lawsuit against IBM. In this case filed in March last year, Gerald Hayden, a former IBM employee, accused IBM of stealing trade secrets and intellectual property. Hayden claims that while working for IBM, the company illegally used his proprietary business method – A2E – that he developed to streamline enterprise sales.

Hayden’s lawsuit alleges that IBM, after promising it would protect his trade secrets, used A2E on projects he wasn’t working on, moving some of his customers to new projects in the company’s areas including the cloud and Watson – essentially moving customers he had attracted across A2E methodology from GBS to the latest strategic projects.

According to the lawsuit, IBM has used A2E’s value proposition to drive IBM’s alleged reinvention of itself as a leader in the hybrid cloud computing industry and as an invaluable advisor to financial services. “To add insult to injury, after Plaintiff Hayden’s A2E business methodology was stolen and stripped of its customer base, IBM shortly thereafter terminated Plaintiff for “lack of work.”

(Reporting by Mark Ferrante).

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