Sebi starts probe against Infosys over whistleblower charges
After two days of turmoil following a whistleblower complaint alleging financial irregularities, markets regulator Securities and Exchange Board of India (Sebi) has launched its probe into alleged non-disclosure of price-sensitive information by Infosys' management. The regulator will also investigate corporate governance lapses and examine possible insider trading in the company's securities.
After two days of turmoil following a whistleblower complaint alleging financial irregularities, markets regulator Securities and Exchange Board of India (Sebi) has launched its probe into alleged non-disclosure of price-sensitive information by Infosys' management. The regulator will also investigate corporate governance lapses and examine possible insider trading in the company's securities.
The regulator has already asked the stock exchanges to collate trading data of Infosys' shares as well as about derivative positions, while details are being sought about alleged non-disclosure of key information, people aware of the development said.
Huge build up of short position at Infosys is likely to have raised alarm bells at Sebi. It may also summon the company's top management and others, while information might be sought from some board committees including those dealing with audit and other financial matters at the company depending on progress in the investigation, the sources added.
Role of independent directors may also come under scanner in case it is found they did not press for timely disclosure and other necessary actions after receipt of the whistleblower complaint.
In another development, BSE on Wednesday asked Infosys to explain why it did not make a disclosure about a whistleblower complaint which alleged that the company's top executives were following "unethical practices" to shore up profits through irregular accounting ways.
The development comes after the whistleblower letter alleging wrongdoing by Infosys CEO Salil Parekh and CFO Nilanjan Roy took the stock down by 17 percent on Tuesday.
An unnamed whistleblower, acting on behalf of Infosys employees, wrote to the US-based office of the Whistleblower Protection Programme on October 3, alleging willful misstatement of accounts for the last two quarters in a bid to inflate numbers.
A series of allegations have been levelled in the letter around the steps taken by Parekh. Resorting to unethical practices to boost short term profit and downsizing expenses by not recognising the visa cost completely are two of the allegations levelled in the letter.
The letter states: "Critical information is hidden from the auditors and board. In large contracts like Verizon, Intel and JVs (joint ventures) in Japan, ABN Amro acquisition, revenue recognition matters are forced, which is not as per the accounting standards.’’
The letter adds that the company management put immense pressure on employees to not recognise reversals of Rs 353 crore of upfront payment in First Tier, Downstream and Related Entities (FDR) contracts, as it would slash profits for the quarter and negatively affect the company's stock, a step the whistleblower complaint said is against fair accounting practices.
Sebi may question Infosys about the company not informing the exchanges upon the receipt of whistleblower complaint dated September 30. Sebi may also investigate the whistleblowers' action in order to ensure there is no vested interest involved.
In a statement on Monday, Infosys said that the whistleblower complaint had been placed before the audit committee as per the company norm. Additionally, Infosys chairman Nandan Nilekani has said that the whistleblower complaints are being dealt in an objective manner and will be probed to the fullest.
With inputs from agencies.
First Published: Oct 23, 2019 8:23 AM IST
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