Infosys firms up after clarification

Infosys was up 0.95% to Rs 708.55 after the company issued clarification regarding US law firms class-action lawsuit.

Dec 13, 2019 07:12 IST capital market

Infosys in an exchange filing during market hours today, 13 December 2019, said that it was aware of several media stories referencing an additional securities class action lawsuit against Infosys. The company clarified that is not aware of any additional complaints, other than the initial complaint, which was disclosed on 24 October 2019.

It added that it is not uncommon for plaintiffs lawyers to issue press releases or other media communications asking potential plaintiffs to contact them in order to apply for lead plaintiff status in an existing lawsuit. It appears that the press communications by the Schall Law Firm is soliciting potential lead plaintiff applicants.

The Schall Law Firm, a US-based shareholder rights litigation firm, announced the filing of a class action lawsuit against Infosys in a US court. According to the Complaint, Infosys made false and misleading statements to the market. Infosys used improper recognition of revenue to boost short-term profits. CEO Salil Parekh skipped standard reviews of large deals to avoid accounting scrutiny. In fact, the companys finance team was pressured to hide details of these deals and other accounting matters from auditors and the companys board of directors. Based on these facts, the companys public statements were false and materially misleading throughout the class period. When the market learned the truth about Infosys, investors suffered damages, the law firm said in a statement.

On 21 October, an anonymous whistleblowers accused the chief executive officer (CEO) Salil Parekh and chief financial officer (CFO) Nilanjan Roy of unethical practices. The National Stock Exchange (NSE) sought clarification from the company on 22 October 2019 with reference to whistleblower complaints.

On 22 October, the IT majors stock plummeted 16.21% on the BSE.

Infosys in its statement to the bourses on 2 November 2019 said that the anonymous complaints make certain allegations. There is no supporting evidence to substantiate the allegations. Two of the anonymous complaints were received on 30 September 2019. On 16 October 2019, the company was made aware of a letter that refers to 30 September 2019 complaint purportedly written to the office of whistleblower protection program, Washington D.C.

The anonymous complaints were placed before the audit committee and the non-executive members of the board, in accordance with the whistleblower practice of the company.

The companys chairman, Nandan Nilekani, on 6 November 2019, stated that these speculations are appalling and seem to be aimed at tarnishing the image of some of the most accomplished and respected individuals. I have deep regard for the life-long contribution of all our cofounders. They have built this institution and have served this company selflessly and even today, remain committed to the long-term success of Infosys.

The audit committee has appointed an external law firm to conduct an independent investigation into the allegations made in the complaints. The firm will share the outcome of the investigation at the relevant time with all stakeholder.

The allegations took a toll on the companys stock price. Infosys has tumbled 14.55% in three months as compared to a 3.83% fall in Nifty IT index.

On a consolidated basis, Infosys net profit rose 4.55% to Rs 3,971 crore on a 3.78% increase in total revenue from operations to Rs 22,629 crore in Q2 September 2019 over Q1 June 2019.

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