The fallout from Ericsson’s alleged dodgy dealings has taken a new turn, with CEO Börje Ekholm (pictured) named in a class action lawsuit, and one of its biggest shareholders agitating for change.

A filing in the District Court for the Eastern District of New York late last week alleges that Ekholm and CFO Carl Mellander “made materially false and misleading statements regarding the company’s business, operations, and compliance policies”. The plaintiffs argue that investors were harmed when subsequent revelations about Ericsson’s historical misconduct in Iraq came to light, tanking its share price.

Last week the US Department of Justice (DoJ) informed the Swedish kit maker it had breached the terms of its Deferred Prosecution Agreement (DPA), which is legalese for the $1 billion deal it reached with the government in late 2019 pertaining to corrupt business practices in multiple markets between 2011 and 2019. The DoJ accused Ericsson of making insufficient disclosures about the internal investigation into Iraq ahead of that settlement. It also claimed that Ericsson failed to make subsequent disclosures relating to the investigation after the settlement was agreed. It came after a report by the International Consortium of Investigative Journalists (ICIJ) revealed in detail the scale of the corruption in which Ericsson allegedly engaged in Iraq.

The class action lawsuit alleges that Ekholm and Mellander would have known about the adequacy or otherwise of any relevant disclosures including SEC filings and press releases, and had the authority to correct them both before and after publication.

“The individual defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public, and that the positive representations being made were then materially false and misleading. The individual defendants are liable for the false statements and omissions,” the lawsuit said.

“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages.”

It isn’t just individual shareholders who are angry. One of Ericsson’s biggest single investors, Sweden-based Cevian Capital, wants to overhaul the company’s internal governance.

According to a MarketWatchreport late last week, Cevian said changes need to be made to restore Ericsson’s credibility. Chief among them is Ericsson’s shareholding structure. Ericsson has Class A and Class B shares, with the former carrying much greater voting weight. It means that shareholders with smaller ownership stakes can actually exert greater control over the company.

Indeed, a quick look at Ericsson’s shareholder information shows that its largest shareholder, Investor AB, owned 7.68 percent of the company at the end of 2020, while Cevian was its second-largest with a stake of 5.45 percent. However, Investor AB holds a much larger proportion of Class A shares compared to Cevian, so when it comes to voting rights, Investor AB has a 22.81 percent share, while Cevian only has 3.25 percent. Similarly, AB Industrivärden only owns a 2.61 percent stake in Ericsson, but thanks to its Class A shares, it has 15.14 percent of the voting rights. This disproportionate voting power also affords Investor and Industrivärden dual deputy chairmanship of  Ericsson’s board.

Cevian wants to change all that. It wants Ericsson to introduce clauses that encourage shareholders to convert their Class A shares into Class B, and to remove the dual deputy chairmanship, making Ericsson’s board less beholden to Class A shareholders. It would of course also give Cevian greater say over how Ericsson does business. Cevian also wants Ericsson’s head of internal audit to report only to the board’s audit and compliance committee, not to management. It also called on Ericsson to make public all information concerning corruption investigations, unless it poses a safety risk to those involved. In addition, Cevian said Ericsson’s board should initiate share buy backs to prove it is confident the company has turned over a new leaf, and that the recent sell-off was unwarranted.

Cevian said in the report it didn’t doubt the good intentions of Ericsson’s board and management to handle the scandal, but that “it is clear that significant change is needed.”

Telecoms.com has contacted Ericsson for its response to the lawsuit as well as the reported statements from Cevian Capital, and will update the story if and when it does.

UPDATE – 13:00, 7/3/22: An Ericsson spokesperson directed us to the following update to the press release announcing the recent publication of Ericsson’s 2021 annual report. We’re not expecting any further comment at this time.

“Update – legal proceedings

After the annual report was finalized on March 3, 2022, Ericsson learned that Telefonaktiebolaget LM Ericsson and certain officers of Ericsson were named as defendants in a putative class action filed in the United States District Court for the Eastern District of New York. The complaint alleges violations of United States securities laws, in connection with allegedly false and misleading statements principally concerning the Company’s adherence with its compliance and disclosure policies and obligations and the conduct of its business in Iraq.”