SEBI SET TO PROBE INFOSYS IRREGULARITIES
Markets regulator to look into allegations of unethical practices by the IT services company
MUMBAI: The markets regulator is set to order a forensic audit into Infosys Ltd’s books following whistleblowers’ allegations that its top executives were involved in financial irregularities, two people with direct knowledge of the matter said.
The Securities and Exchange Board of India’s (Sebi’s) decision comes after Infosys’s internal audit committee on January 10 concluded that the charges made by the whistle-blowers were substantially without merit. The findings of the internal audit were shared with the regulator.
“The findings that it has come to is immaterial on Sebi’s probe. The regulator’s investigation so far has in fact warranted a deeper analysis. Sebi is in the process of appointing a forensic auditor for a thorough examination of the allegations of unethical practices,” said the first of the two people cited above, requesting anonymity.
Infosys’s efforts to move beyond the controversies that have dogged the company over the past few years have failed to yield desired results. In the latest controversy, anonymous whistleblowers, in a letter to the company’s board, alleged that chief executive Salil Parekh and the company’s chief financial officer indulged in “unethical practices” to boost revenue and profits. The whistleblower complaint, which was also sent to the US Securities and Exchange Commission on 30 September, became public on 21 October. Sebi took suo motu cognizance of the issue after the complaint became public.
A spokesperson for Infosys declined to comment on speculation, but added that the company would continue to cooperate with regulatory authorities.
On 8 November, Sebi chairman Ajay Tyagi had indicated that its probe was independent of statements made by Infosys.
“The investors, if they want, can take comfort from Infosys’s statement, but our probe is still on. This is all I can tell you,” Tyagi said, adding that people wishing to check Infosys’s financial figures should “ask god”. This came after Infosys chairman Nandan Nilekani defended the sanctity of the company’s numbers, saying even “god can’t change the numbers”.
An email sent to a spokesperson for Sebi was not answered immediately.
Sebi is also investigating a huge build-up of derivatives positions in the stock before allegations of accounting malpractices were made public.
Exchange data showed that huge put positions, or the option to sell shares at an agreed price on or before a particular date, were accumulated in the November series contracts of Infosys at a strike price of ₹740.
“In the prelim analysis, the regulator has found that these positions were fully hedged, making it difficult to pinpoint whether there was any insider trading,” said the second of the two people cited earlier.
Subsequently, Infosys told stock exchanges in October that it had referred the complaint to its audit committee.
Excerpts of the findings of the audit committee, which was assisted by law firm Shardul Amarchand Mangaldas and Co., and Pricewaterhousecoopers Pvt. Ltd, were made public along with the company’s fiscal third quarter earnings. The committee gave a clean chit to the company on anomalies such as visa costs, large deals, reversal of certain provisions and non-disclosure of key information.