Nokia hit with suit over weak smartphone transition

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UPDATED: Nokia has hit a rough patch as it tries to resurrect its smartphone business around Microsoft’s Windows Phone platform , with disappointing¬†first quarter Lumia sales and lowered guidance for the coming quarter. But does that constitute fraud on the part of Nokia’s leadership, which has been preaching a turnaround based on the Windows Phone strategy? That question is being tested by a new class action lawsuit filed in New York, alleging that Nokia misled investors on how well it would do with its Lumia smartphones.

Plaintiff Robert Chmielinski alleges that Nokia and its CEO Stephen Elop and CFO Timo Ihamuotila deceived the market by issuing false claims about how well the company’s migration to Windows Phone was going. The defendant bought shares of Nokia following Nokia’s launch of the Lumia smartphone in October. But shares of Nokia dropped 16 percent on April 11 after the company said first quarter performance was worse than expected and it lowered second quarter guidance.

The plaintiff said the defendants perpetrated fraud because they either knew they were offering misleading information or acted with reckless disregard for the true information known to them. The lawsuit is looking to represent all Nokia shareholders who were affected during the class action period. Here’s a quote from the complaint:

During the Class Period, defendants had both the motive and opportunity to conduct fraud. They also 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 participated in a scheme to defraud and committed acts, practices and participated in a course of business that operated as a fraud or deceit on purchasers of Nokia securities during the Class Period.

I’m not sure how far a lawsuit like this can go. Companies are always going to be bullish about their prospects and are going to represent themselves in the best light. The results don’t always track with expectations. But the lawsuit is trying to get at the idea that Nokia knew more about the true performance of its smartphone business and didn’t share that information in order to make it seem like its Windows Phone strategy was doing better than it actually was.

That could be hard to prove. But it adds another headache for Nokia, which lost $1.7 billion last quarter and has seen its credit rating slashed to junk status. Nokia has a lot of catching up to do and the early struggles are just going to prompt more people to wonder why it made the leap to Windows Phone. At this point, Nokia has to just focus on getting back on track with its smartphone business. If it fails to do that, a lawsuit will be the least of its worries.

UPDATE: Nokia has responded to the lawsuit saying it will defend itself. “Nokia is reviewing the allegations contained in the complaint and believes that they are without merit.”

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