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Nokia Investors Claim Fraud Over False Turnaround Promises

Nokia Investors Claim Fraud Over False Turnaround Promises

Nokia has been sued for allegedly misleading investors about its turnaround prospects in regard to its deal to produce Windows Phone handsets with Microsoft. However, given that Nokia made the switch to Windows Phone less than a year ago, it could be a little too early to allege that Nokia has failed to deliver.

By Richard Adhikari
05/04/12 2:50 PM PT

The chain of troubles plaguing Nokia grew longer this week with news that class-action litigation giant Robbins Geller Rudman & Dowd has filed suit against the firm alleging violations of the Securities Exchange Act of 1934.

The complaint can be summed up thusly: Nokia said its shift to Windows Phone 7 would halt its slide in the smartphone market, but that hasn't happened. Also, its Lumia 900 smartphone had a glitch that saw the company compensating owners by giving them $100, driving its share price down more than 16 percent in one day.

Robbins Geller filed the suit on behalf of one Robert Chmielinski and is seeking a lead plaintiff.

Nokia spokesperson Karen Lachtanski referred the E-Commerce Times to a statement the company made regarding the lawsuit and declined further comment.

Darren Robins, who is acting as plaintiff's counsel for Robbins Geller, did not respond to our request for comment.

What the Lawsuit Alleges

The complaint was filed Thursday in the United States District Court for the Southern District of New York on behalf of purchasers of Nokia shares between Oct. 26, 2011 and April 10, 2012.

It names Nokia, company CEO and president Stephen Elop, and company CFO and vice president Timo Ihamuotila as defendants.

The complaint alleges fraud on the part of the defendants. It claims they had the motive and opportunity to conduct fraud, and had actual knowledge of the misleading nature of the statements they made or acted in reckless disregard of the true information known to them at the time. In so doing, the defendants are claimed to have participated in a scheme to defraud and participated in a course of business that operated as a fraud or deceit on purchasers of Nokia securities during the class period.

Alleged false and misleading statements cited as proof include Elop's statement at the unveiling of the Lumia 800 and 710 in October that Nokia's driving innovations throughout its entire portfolio.

Nokia said the allegations are without merit and it will defend itself.

Trying to Clean Nokia's Clock?

Given that Nokia made the switch to Windows Phone less than a year ago and the first Nokia devices running this operating system were only unveiled less than eight months ago, it could be a little too early to allege that Nokia has failed to deliver on the promised turnaround.

"The bottom line is, some stakeholders in Nokia see the company failing, and instead of complaining about it, they see the opportunity to make some money," Carl Howe, a vice president of the Yankee Group, told the E-Commerce Times.

Nokia's Pain

In the first quarter of 2012, Nokia's Symbian smartphone shipments declined sharply as demand plummeted in key emerging markets such as China, IDC said in its Worldwide Quarterly Mobile Phone Tracker report, issued earlier this week. It's critical for Nokia to transition quickly to the Windows Phone OS, IDC suggested.

In April, Nokia announced that it lost about $1.2 billion in the first quarter of the year because of a 29 percent drop in sales. The news sent Nokia shares falling 3.8 percent to $3.82. However, the Lumia line is selling well, with 2 million purchased in the first quarter of this year, Nokia said.

Moody's Investor Service downgraded Nokia's debt ratings after the company issued its earnings report and questioned its ability to transition successfully to the Windows Phone OS. Standard & Poor's also downgraded Nokia's credit rating by one notch and warned it might reduce the rating further unless the company's performance improves.

Nokia responded to Standard & Poor's move by stating that it's in the middle of a transformation program.


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