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Infosys faces class action suit in US as regulators step up pressure

The exchange has asked the Bengaluru-headquartered company to provide an explanation on not making disclosures citing Sebi regulations even as Infosys braces for an inquiry by the US Securities and Exchange Commission (SEC).

Updated: Oct 24, 2019, 11.20 AM IST
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Infosys
In his statement on Tuesday, Nilekani had indicated the board had not been provided any voice recordings or emails containing evidence of alleged wrongdoing.
A US law firm filed a lawsuit seeking damages on behalf of Infosys investors in a New York court on Wednesday, posing fresh challenges for the embattled IT company that is facing increased regulatory scrutiny on whistleblower charges of financial malfeasance by top executives.

In India, the BSE has asked Infosys to explain why it did not make appropriate disclosures about the receipt of the whistleblower complaint in late September.

The exchange has asked the Bengaluru-headquartered company to provide an explanation citing Sebi regulations even as Infosys braces for an inquiry by the US Securities and Exchange Commission (SEC).

Meanwhile, news agency PTI reported that Sebi has begun a probe into the matter. ET could not independently verify this.

SEC Likely to Take Note: Legal Experts
The class action lawsuit filed by Rosen Law Firm has demanded a jury trial and accused Infosys of making false and misleading statements, besides failing to make appropriate disclosures, according to a statement by the firm.

Infosys did not immediately reply to emails seeking comment on the lawsuit.

Earlier in the day, a representative of the IT company had said there were no “further updates” beyond the statement issued to stock exchanges on Tuesday.

After the sharpest single-day fall in six years on Tuesday, Infosys shares recovered slightly on Wednesday, closing 1.16% higher at Rs 650.75 on the BSE.

In a statement to regulators, Infosys non-executive chairman Nandan Nilekani had announced the appointment of law firm Shardul Amarchand Mangaldas to look into the whistleblowers’ charges and said the executives who had been implicated — CEO Salil Parekh and CFO Nilanjan Roy — had been recused from the investigation.

“The board in consultation with the audit committee will take such steps as may be appropriate based on the outcome of the investigation,” Nilekani said. The board discussed the charges made by the whistleblowers on October 11, but the company did not immediately inform the regulators or investors.

The whistleblowers, in their letters to the SEC as well as the Infosys board, had alleged malfeasance in the way the company was calculating revenue and margin. The group, which termed itself “ethical employees”, claimed to have shared emails and audio recordings to support its charges. ET has reviewed a copy of the letter.

‘SEC MAY BE INTERESTED’
Legal experts are of the view that the SEC would likely take notice of the charges.

“From what I have seen of the letter, the allegations appear to be from credible, well-placed whistleblowers. (They) are making allegations of current misbehaviour that includes C-suite executives,” Erika Kelton, a Washington DCbased lawyer at the firm Phillips & Cohen, told ET. “These are the types of cases that the SEC is very interested in.”

In his statement on Tuesday, Nilekani had indicated the board had not been provided any voice recordings or emails containing evidence of alleged wrongdoing.

Governance experts said the whistleblowers would have shared such evidence with American regulators to establish greater credibility for their charges.

“If the recordings and mails have been sent to the US SEC, there could be a shade of credibility in the allegation… with the US SEC, the speed of decision-making and pressure created (could be factors). In the US, there are multiple class action lawsuits, whereas in India there are hardly any,” said JN Gupta, managing director of Stakeholders Empowerment Services — a proxy advisory firm.

Recording audio without permission is an infringement of privacy in India, said Ashish Pyasi, associate partner at law firm Dhir and Dhir Associates. “The people whose privacy has been infringed upon can sue those who have made the recordings for damages,” he added.
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