Swedish telecommunications giant Ericsson informed the US Department of Justice about an internal investigation of misconduct, looking into payments in Iraq upon signing a Deferred Prosecution Agreement (DPA) in 2019 to settle probes into corruption, according to sources familiar with the issue.

Upon this knowledge, Ericsson's shares fell 14% on Wednesday as worries arise that the DoJ would fine the company after disclosing that the investigation found evidence of misconduct. 

The breaches include, “making a monetary donation without a clear beneficiary; paying a supplier for work without a defined scope and documentation; using suppliers to make cash payments; funding inappropriate travel and expenses; and improper use of sales agents and consultants,” according to the company's statement.

Cevian Capitol, one of Ericsson's largest shareholders, told Reuters that the company's actions were "unacceptable" after realizing that some payments deferred to Iraq reached militant organizations, including the terrorist group ISIS. 

"The information that has now emerged is serious and the company’s actions are, of course, unacceptable," said Christer Gardell, the managing partner for Cevian, to Reuters.

"As we understand the situation, the DoJ was informed about the internal investigation at the time of the so-called Deferred Prosecution Agreement, and Ericsson losing almost SEK 50 billion in market value yesterday is a strong overreaction," he said.

"Old money"?

In the past decade, Ericsson went through numerous restructuring phases, and it was subject to a US investigation for corruption.

"What has emerged with the 'Iraqi situation' is a remnant of this old mismanagement, " Cevian's Gardell said.

Two companies have a say in how the company is usually operated: Swedish investment company, Investor AB and Industrivarden, who are the largest investors in Ericsson. While Investor AB said that the company has its full support, Industrivarden declined to comment. 

"The company today takes these issues very seriously and has invested significant resources in solving the historical problems and ensuring that no new issues arise," Gardell said. "It needs to urgently address the remaining complexity and loss making businesses to help reduce such mismanagement in the future."