It comes as no great surprise to learn US authorities have opened a formal investigation into its historical activities in Iraq, but its shares still took another hit on the news.
It was fair to assume the consequences of Ericsson admitting corrupt behaviour by its representatives in Iraq was already priced into its shares but this latest development seems to have spooked investors further. The company issued a short announcement, confirming the US Securities and Exchange Commission has started an investigation, and its shares were down four percent.
Here’s the full statement: ‘As previously announced, Ericsson (NASDAQ: ERIC) has been engaged with authorities regarding the review and investigation of the Company’s conduct in Iraq. The United States Securities and Exchange Commission (SEC) has notified the Company that it has opened an investigation concerning the matters described in the company’s 2019 Iraq investigation report. It is too early to determine or predict the outcome of the investigation, but Ericsson is fully cooperating with the SEC.’
One reason for the further hit could be speculation that resulting fines could amount to hundreds of million of dollars. The Svenska Handelsbanken analyst quoted by Bloomberg noted that this shouldn’t come as any great surprise but it seems the confirmation of the news, however much it was expected, still tested the nerve of the stock markets.
This matter is especially delicate for Ericsson because the US seemed to let it off lightly following a previous probe into dodgy business dealings, on the understanding that it promised to mend its errant ways. In the eyes of US authorities Ericsson was effectively on probation and this new admission would appear to violate its terms.
All Ericsson can do now is fully cooperate and throw itself on the mercy of the US, which has once more appointed itself world police. If all that results from this SEC probe is another fine then the company may, once more, feel it has dodged a bullet. But it had better make triple sure there are no further skeletons in its closet because, in America, it’s three strikes and you’re out.
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