RiskOctober 31, 2019

Infosys Faces Class Action Securities Lawsuit

Whistleblower alleges ‘disturbing unethical practices’ by management.

Reported by Michael Katz

Infosys, an India-based IT company and its CEO are facing a class action lawsuit that alleges they made materially false and misleading statements and failed to disclose material adverse facts about the company’s business, operations, and prospects to investors.

The complaint says that the company improperly stated revenues to inflate short-term profits and that CEO Salil Parekh bypassed reviews and approvals for large deals to avoid accounting scrutiny. The suit also accuses Infosys management of pressuring the company’s finance team to hide information from auditors and its own board of directors.

On Oct. 21, Infosys disclosed that it had received a complaint from whistleblowers alleging “disturbing unethical practices” by the company’s management in an attempt to inappropriately boost short-term revenue and profit. The complaint was also sent to the company’s audit committee and the SEC. Infosys shares fell by more than 12% on the news.

The whistleblowers added that several billion dollars of deals over the last few quarters have zero margin.

“In board meetings, we are told not to present data on large deals and important financial measures as it will get board attention,” said the whistleblowers. “The CEO and the CFO are asking us to show more profits in treasury by taking up risks and make changes to policies. This will provide short-term profits.”

The whistleblowers also accused Parekh of spending only two-and-half days a week at the company’s headquarters in Bangalore, while the company covers his travel expenses to Mumbai for the remainder of the week. . They also said he avoids deducting taxes during his US travel.

The whistleblowers claim they have emails and voice recordings to corroborate their allegations.

The lawsuit says the whistleblower complaints show that the market price of Infosys securities was artificially inflated as a result of senior officers and directors withholding material information from the investing public.

“Had plaintiff and the other members of the class been aware that the market price of Infosys securities had been artificially and falsely inflated by defendants’ misleading statements,” said the complaint, “they would not have purchased Infosys securities at the artificially inflated prices that they did, or at all.”