US SEC initiates probe into Infosys whistleblower complaints

“The company has been in touch with the US SEC regarding the anonymous whistleblower complaints and has learnt that the SEC has initiated an investigation into this matter,” Infosys said in an exchange filing, adding that “the company will cooperate with the SEC’s investigation.”
Infosys’ shares are listed on US’ Nasdaq stock market. “The company will provide the information as per SEBI’s request,” it said.

Meanwhile, Rosen Law Firm, a global investor rights law firm, has filed a class action lawsuit on behalf of purchasers of the securities of Infosys from July 7, 2018 and October 20, 2019. “The lawsuit seeks to recover damages for Infosys investors under the federal securities laws,” the firm said in a statement.

In a class action lawsuit, a group of people with the same or similar injuries or damages caused by the same product or action sue the defendant as a group.

Infosys said it is aware of the securities class action lawsuit that has been filed against it in federal court in the US based on the generalised allegations in the anonymous complaints. “The company intends to defend itself vigorously in such a lawsuit,” it said.

Sebi and the stock exchanges have started looking into alleged non-disclosure of price-sensitive information by the Infosys management, in the wake of serious allegations levelled by whistleblowers. The regulator is also understood to be examining possible insider trading in the company’s shares. It also sought details about the delay in disclosure of key information by Infosys.

Defending the delay of almost three weeks in disclosing details about the complaints to the exchanges, Infosys said, “As disclosed in the company’s stock exchange filings made on October 22, the anonymous whistleblower complaints have been placed before the audit committee which has retained the law firm of Shardul Amarchand Mangaldas & Co to conduct an independent investigation. Before conclusion of the investigation of the generalized allegations in the complaints, a disclosure under Regulation 30 of LODR Regulations was not required.”

“Consistent with the company’s practice and whistleblower policy, complaints are presented to the audit committee of the board and thoroughly reviewed and appropriately dealt with. While dealing with these complaints, the company evaluates the requirements of various regulations including disclosures under Regulation 30 of SEBI (LODR) Regulations, 2015, as amended.

“The disclosure made on October 22 was to respond to multiple media inquiries and reports. The company undertakes to continue making timely disclosures as required under Regulation 30 of LODR Regulations,” it said. Infosys’ shares had fallen 16.2 per cent, erasing over Rs 50,000 crore of market capitalisation, when the firm told bourses about the complaints on October 22.

According to the lawsuit filed by Rosen law Firm, defendants throughout the Class Period made false and/or misleading statements and/or failed to disclose that the company improperly recognised revenues to inflate short-term profits and the company’s CEO Salil Parekh bypassed reviews and approvals for large deals to avoid accounting scrutiny.

The management pressured Infosys’ finance team to hide information from auditors and the company’s board of directors and, as a result, defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times, a statement by the firm said. “When the true details entered the market, the lawsuit claims that investors suffered damages,” Rosen Law Firm said.

Infosys’ American depository receipts (ADRs) had fallen over 12 per cent on the Nasdaq on October 22, leading to huge losses for investors. On Thursday, its shares fell another 2.36 per cent to end at Rs 635.40 on the BSE.