Infosys to cooperate with SEC investigation

Infosys has responded to the whistleblower complaints that shook the IT industry last week. Infosys has acknowledged the anonymous complaints and said that they would cooperate with the ongoing investigation.

An anonymous letter submitted to US Securities and Exchange Commission (SEC) by a group called “Ethical Employees” accused the chief executive officer (CEO) Salil Parekh and chief financial officer (CFO) Nilanjan Roy of asking them to show more profits in the treasury by “taking up risks” and “make changes to policies”.

“The Company has been in touch with the Securities and Exchange Commission (“SEC”) regarding the anonymous whistleblower complaints (“Anonymous Complaints”) and has learnt that the SEC has initiated an investigation into this matter. The Company will cooperate with the SEC’s investigation. Also, Securities and Exchange Board of India (“SEBI”) has requested additional information from the Company concerning the Anonymous Complaints. The Company will provide the information as per SEBI’s request,” said Infosys in a statement.

Furthermore, with regard to the securities class action lawsuit that has been filed against Infosys in the federal court in the United States, the company said that it intends to defend itself “vigorously” in the lawsuit.

The letter had made grave accusations that “in large contracts like Verizon, Intel and JVs in Japan, ABN Amro acquisition, revenue recognition matters are a force, which is not as per accounting standards.” The letter to the Board and the SEC had also alleged that Infosys’s senior management has focused on boosting near-term revenues and profits by: 1. way of not fully recognizing certain costs such as visa costs; and 2) revenue recognition related to some large deals not being in line with accounting standards.

According to a research report from Emkay Global Financial Services Limited, “In the near term, this newsflow should continue to dominate investor attention rather than the revenue growth catch-up of Infosys vs TCS and signs of operational stability that have been at play through the last 18 months. Further, the newsflow could support TCS’s near-term outperformance, especially after the Sep’19 quarter results in which its business performance missed expectations (led to 4-5% EPS cuts) while Infosys’s performance was largely in line, except for the disappointment around not upgrading the upper end of the revenue growth guidance.”