Infosys to investigate whistle-blowers’ complaints

Indian IT major Infosys has taken cognisance of the anonymous whistle-blower complaints of alleged unethical practices that it received on October 21 and has initiated an investigation. The investigation is being carried out by the company’s audit committee.

“The Audit Committee has now retained the law firm of Shardul Amarchand Mangaldas & Co. (October 21, 2019), to conduct an independent investigation,” read a statement from Infosys on Tuesday. The company’s share price tanked 16.21% to end the day at ₹643.30 a piece.

According to a report by Credit Suisse, the whistle-blowers have accused the company’s CEO Salil Parekh and CFO Nilanjan Roy of procedural lapses and aggressive accounting practices. The three main allegations are: aggressive accounting, such as spreading out costs and up-fronting revenue recognition on some contracts; pushing for higher risk-taking by the treasury function to boost ‘other income’; biased and incomplete reporting in investor presentations and annual reports.

“One Board member received two anonymous complaints on September 30, 2019 one dated September 20, 2019 titled ‘Disturbing unethical practices’ and the second undated with the title, ‘Whistleblower Complaint’. The undated whistleblower complaint largely deals with allegations relating to the CEO’s international travel to the U.S. and Mumbai,” said Nandan Nilekani, chairman of Infosys. “At the appropriate time we will provide a summary of the investigations results. The Board is committed to uphold the highest standard of corporate governance and protect the interests of all stakeholders,” added Nilekani.

Meanwhile, U.S.-based Rosen Law Firm, which specialises in investor rights, said that it is investigating potential securities claims on behalf of shareholders of Infosys. “Rosen Law Firm is preparing a class action lawsuit to recover losses suffered by Infosys investors,” the law firm said in a release dated October 21.

The last time Infosys was mired in such a controversy was in 2017 when whistle-blowers alleged that the then CEO, Vishal Sikka, overpaid for a couple of acquisitions. While nothing was proven against the company, it resulted in Sikka’s exit and the exit of other senior management.

Given the nature of the allegations, the report by Credit Suisse says, “If proven, this can lead to the CEO and CFO being fired with potential SEC investigations against them. Even if these are not proven, this can kick-start a period of potential uncertainty amidst management ranks and clients.”