Infosys faces class-action suit

The suit is intended to recover losses suffered by Infosys’ investors; the IT giant’s scrips settled nearly 17 per cent lower, wiping out investor wealth worth nearly Rs. 53,000 crore

IT major Infosys, reeling under the onslaught of a whistle-blower complaint about "unethical practices" by the company’s CEO and CFO, saw its worst day on the bourses in over six years on Tuesday.As jittery investors pulled out their funds, the IT behemoth’s scrips settled nearly 17 per cent lower, wiping out investor wealth worth nearly Rs. 53,000 crore. Even on the New York Stock Exchange, Infosys ADRs fell 15% to $8.95 in early trading on Monday.

In a day of fast-paced developments, Rosen Law, a global investor rights law firm, said it is preparing a class action lawsuit to recover losses suffered by Infosys’ investors.

The New York-based law firm said in a statement it is investigating potential securities claims on behalf of shareholders of Infosys resulting from allegations that Infosys may have issued “materially misleading business information to the investing public."

Such notices are common in the case of US-listed stocks when there is material negative news that leads to a drop in the stock price.

The upheaval came despite assurances from Infosys chairman Nandan Nilekani that the two anonymous complaints have been placed before the company's Audit Committee and the non-executive members of the board.

The anonymous letters have accused the CEO and the CFO of fudging financial data

"These complaints are being dealt with in an objective manner," he said, but failed to allay misgivings.

The complainants, who call themselves 'ethical employees', have said they had been instructed not to share critical information from the auditors and board. Another complaint largely deals with allegations relating to the CEO's international travel to the US and Mumbai.

A series of whistle-blower complaints over the past two years have wrought havoc at Infosys - Asia's second-most valuable IT services firm - triggering the exit of Vishal Sikka as CEO after a confrontation with co-founder Narayana Murthy.

The alleged "unethical practices" pertain to conduct of the company’s Chief Executive Officer Salil Parekh and Chief Financial Officer Nilanjan Roy. They had been indulging in these practices for several quarters and there are e-mails and voice recordings of their conversations to prove the same, it is claimed. The anonymous letters accuse Parekh and Roy of fudging financial data related to company operations, including inflating profits, in recent quarters. There are also allegations of passing racist and misogynistic comments at many executives of the company.

An interesting sidelight was the headlines that swamped the Wall Street Journal's stock pages hours before Asian markets opened on October 22. One such header said: The Schall law firm is investigating claims against Infosys Limited and encourages investors with losses in excess of $100,000 to contact the firm!

It's nearly impossible to know how accurate the claims are, but Wall Street usually sells first and asks questions later.