Infosys says US-based The Schall Law Firm released its press statement, which asked potential plaintiffs to contact it, to apply for a lead plaintiff status in an existing lawsuit
A day after a US law firm filed a class-action lawsuit against Infosys, accusing it of giving “false” and “misleading” statements to the market, the tech services giant said there were no additional complaints against the company other than the initial ones. Infosys said Thursday’s press communication by US-based The Schall Law Firm was done to apply for lead plaintiff status in the already-existing suit. “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,” Infosys said.
In a statement yesterday, The Schall Law Firm accused Chief Executive Salil Parekh of avoiding standard reviews of mega deals to avoid scrutiny. It alleged that Infosys used improper recognition of revenue to boost short-term profits. The law firm also said Infosys’ finance team was pressurised to hide details on these deals from auditors. “In fact, the company’s finance team was pressured to hide details of these deals and other accounting matters from auditors and the company’s board of directors,” the statement said.
The company’s public statements were false and materially misleading throughout the class period, it said, adding that when the market learned the truth about Infosys, investors suffered damages. The Schall Law Firm has also invited investors with losses over $100,000 to contact the firm. The lawsuit has been filed for violations of 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the US Securities and Exchange Commission, the company said.
This lawsuit comes amidst the allegations of “unethical practices” against Parekh and Chief Financial Officer Nilanjan Roy. The letter written by an anonymous group of employees said they both were engaged in forced revenue recognition from large contracts, not adhering to accounting standards. The complaints were placed before the audit committee on October 10, and to the company’s non-executive board members on October 11, also the day when Infosys announced its second-quarter results.
Though Infosys has appointed two law firms — its auditors Deloitte and EY — to investigate the allegations, the lawsuit could make matters worse for the tech services major. The company last month had said that it had not found any evidence to corroborate anonymous whistleblowers’ complaints that alleged “unethical practices” by the company’s top officials. Infosys Non-executive Chairman Nandan Nilekani also said that Infosys had “very strong” processes and that even “God can’t change the numbers of the company”.
US market regulator SEC (Securities and Exchange Commission), which had also received a copy of the letter, has already initiated a probe into the matter, while Securities and Exchange Board of India (Sebi) recently sought additional information as part of its probe into the allegations. The National Financial Reporting Authority (NFRA) – part of the corporate affairs ministry – is also looking into alleged accounting lapses.