Infosys probing alleged 'unethical practices' by CEO, CFO; shares tank
IT services giant Infosys Ltd on Tuesday said it is investigating claims by anonymous whistleblowers accusing CEO Salil Parekh of "unethical practices" to shore up profits through irregular accounting, sending its shares to their worst intra-day fall in over six years. Chairman and co-founder Nandan Nilekani pledged a full probe, saying the complaint had been placed before the audit committee on October 10 and before the non-executive members of the board the next day.
A September 20 letter, signed by "Ethical Employees", had alleged that Parikh as well as Chief Financial Officer Nilanjan Roy engaged in forced revenue recognition from large contracts not adhering to accounting standards. Infosys shares plunged nearly 17 percent, the most since April 2013. The scrip tanked 16.21 percent to close at Rs 643.30 on the BSE.
The sharp fall in the scrip wiped out Rs 53,450.92 crore from the company's market valuation which now stands at Rs 2,76,300.08 crore. It's American Depositary Receipts were trading nearly 2 percent down on the New York Stock Exchange on Tuesday.
US-based Rosen Law Firm has said it is preparing a class-action lawsuit to recover losses suffered by Infosys investors. In a statement, Rosen Law Firm said it is "investigating potential securities claims on behalf of shareholders of Infosys Ltd resulting from allegations that Infosys may have issued materially misleading business information to the investing public". "Rosen Law Firm is preparing a class-action lawsuit to recover losses suffered by Infosys investors," the statement added.
The letter - dated September 20 - addressed to the board claimed that recent big deal wins carried negligible margins and that Roy directed certain people to make wrong assumptions to show margins. The latest allegations came just two years after Infosys endured an internal turmoil that saw its then head Vishal Sikka resigning from the company.
In a statement to stock exchanges, Nilekani said the audit committee has begun consultation with independent internal auditors EY and has retained law firm Shardul Amarchand Mangaldas & Co to conduct an independent investigation. He said one board member had received two anonymous complaints on September 30, 2019 - one dated September 20, 2019, titled "Disturbing unethical practices" and an undated note with the title "Whistleblower Complaint".
He said both had been placed before the audit committee on October 10, 2019, and before the non-executive members of the board the following day. "Post the board meeting of October 11, 2019, the audit committee began consultation with the independent internal auditors (Ernst & Young) on terms of reference for their prima facie investigation. The audit committee has now retained the law firm of Shardul Amarchand Mangaldas & Co (October 21, 2019) to conduct an independent investigation," Nilekani noted in his statement.
The board, in consultation with the audit committee, will take such steps as may be appropriate based on the outcome of the investigation, he added. The whistleblower complaint by a group that calls itself "ethical employees" had alleged CEO Salil Parekh and CFO Nilanjan Roy were indulging in "unethical practices" to boost short-term revenue and profits.
"We have high respect for all of you and bring to your notice the unethical practices of CEO in recent quarters. The same measures are taken up in the current quarter also to boost short term revenue and profits," the letter addressed to the board of directors dated September 20, read. The whistleblowers said they have emails and voice recordings on these matters.
Infosys on Monday had said the whistleblower complaint has been placed before the audit committee as per the company's practice, and that it will be dealt with in accordance with the company's whistleblower policy. Nilekani, in his statement on Tuesday, said the company was made aware of another letter (dated October 3) that was purportedly written to the Office of Whistleblower protection program, Washington DC. This letter referred to the September 20, 2019, complaint, and to emails and voice recordings in support of the allegations.
"These complaints are being dealt with in an objective manner. The undated whistleblower complaint largely deals with allegations relating to the CEO's international travel to the US and Mumbai," Nilekani pointed out. "Although we have not been provided any of the emails or voice recordings, we will ensure that the generalized allegations are investigated to the fullest extent. Additionally, to ensure independence in these investigations, the CEO and CFO have been recused from this matter," Nilekani added.
He also noted that Infosys' statutory auditors, Deloitte, India, have been "completely updated" on this matter post the October 11 Board meeting. In 2017, Infosys had witnessed a protracted stand-off between its high profile founders and the previous management over allegations of governance lapses and issues relating to severance package doled out to former executives, including ex-CFO Rajiv Bansal.
Following the tussle, the then CEO Vishal Sikka quit followed by some board members. Infosys co-founder Nandan Nilekani was then brought in as Chairman to steer the company. Parekh joined the company in January last year as the CEO. Infosys has also settled with Sebi the case of alleged disclosure lapses regarding a payment made to Bansal earlier this year. It paid Rs 34.34 lakh to the market regulator to settle the case.
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