Shares of telecom equipment maker Nokia dropped more than 8 percent last Friday after the company revealed that it is investigating potential compliance problems at its Alcatel-Lucent unit, which it acquired in 2016.
The Finnish company disclosed the investigation into certain transactions of the unit in its annual report, which it filed with the Securities and Exchange Commission last Thursday, but it declined to go into specific detail in the report. Here is the statement it included in the 10K filing:
“During the course of the ongoing integration process, we have been made aware of certain practices relating to compliance issues at the former Alcatel Lucent business that have raised concerns. We have initiated an internal investigation and voluntarily reported the matter to the relevant regulatory authorities, with whom we are cooperating with a view to resolving the matter. The resolution of this matter could result in potential criminal or civil penalties, including the possibility of monetary fines, which could have a material adverse effect on our business, brand, reputation or financial position.”
After the disclosure caused the stock price to decline during trading Friday, Nokia issued an additional statement, including the following comments:
“We have seen no evidence that would suggest that criminal penalties would apply in this case, and we believe it is highly likely that any penalties that might apply would be limited and immaterial.
“Nokia wishes to clarify that the context of this disclosure is the risk factors section of its annual report on Form 20-F where the company lists various risks which could potentially have a material impact on it. However, the disclosure does not reflect Nokia’s assessment of the expected or likely impact of the investigation on Nokia… For audit purposes, the overall group materiality is defined as EUR 125 million as disclosed in Nokia’s annual report for 2018.”
That statement may say more about how companies fulfill the requirement to state risk factors than about Nokia’s particular situation. In other words Nokia may have been covering its butt with a catch-all statement in its risk factors, but when investors took it at face value, Nokia was forced to clarify.
Large electronic companies, such as Siemens, Chinese company Huawei, Panasonic, Ericsson, and others have been the subject of bribery allegations and violations of the Foreign Corrupt Practices Act, although Nokia did not say that it was investigating the transactions for potential connection to bribery or FCPA violations. 