Mexican mobile operator Iusacell sues IBM for $2.5B, alleging fraud

Big Blue takes stock hit after announcing poor first-quarter financials

Iusacell, Mexico's third largest mobile phone operator, is suing IBM for $2.5 billion, alleging that Big Blue made fraudulent claims that caused Iusacell to lose that amount in profits, Reuters reports.  

The controversy involves a contract that IBM entered into with Iusacell under which IBM's Mexican unit made investments in Iusacell's business operations to beef up the operator's IT infrastructure in exchange for payments.

"Events subsequent to the execution of the agreement have revealed that IBM both knowingly misrepresented and wrongfully concealed from Iusacell material facts both before and during the parties' relationship," Iusacell's complaint stated, quoted by Reuters.

In response, IBM said that the Iusacell lawsuit, made in a federal district court in New York, was an effort by the mobile operator's owners Grupo Salinas and Grupo Televisa to avoid their contractual obligations. "Despite major improvement to Iusacell's information technology infrastructure and growth in Iusacell's revenues, Iusacell has failed to pay IBM Mexico what it is owed under the contract," IBM said in a statement quoted by Reuters.

IBM's Mexican unit had previously filed an arbitration claim against Iusacell to enforce the terms of the contract prior to Iusacell's lawsuit.

The news of the lawsuit did not help IBM's stock price, which was on the way down after Big Blue reported Wednesday its lowest quarterly revenue total in five years, the Wall Street Journal reports. IBM's shares dropped 4 percent in after-hours trading on Wednesday to $188.20, the newspaper notes.

The firm's first-quarter revenue dropped 4 percent to $22.5 billion, with the hardware, software and services businesses all failing to perform. Its net income contracted 21 percent to $2.38 billion, while its net margins declined to 10.6 percent from 13 percent.

For more:
- read the Reuters' report
- check out the Journal's article

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