Asia's second-largest IT services firm Infosys is apparently headed for more trouble as India's stock market regulator opens probe into allegations raised by a whistleblower group against the top management. Securities and Exchange Board of India (Sebi) will look into the alleged unethical audit practices of Chief Executive Officer Salil Parekh and chief financial officer Nilanjan Roy, reports say.
A further worry for the company, whose shares have tanked in the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), is the possibility of the US Securities and Exchange Commission (SEC) launching an inquiry into the charges. The whistleblower group has reportedly sent the allegations to SEC as Infosys is listed on New York-based bourse Nasdaq, a report on the Business Standard website says.
Our next course of action could depend on the findings of the probe at the company."
Infosys shares that closed at Rs 767 last week (on Friday, October 18) on NSE was trading at Rs 652 on Thursday morning while sectoral index Nifty IT was trading 0.15 percent higher at 14,855 points, up from the previous close at 14,833. On Tuesday, Infosys shares had crashed 16 percent, eroding over Rs 53,000 crore in market capitalisation. The Infosys share was trading at $9.01 on Nasdaq at close on Wednesday after having opened the day at $9.19, market reports show.
News reports say Sebi has received the whistleblower's letter along with voice recordings and emails supporting his claims. "The allegations are serious in nature. A proper inquiry into the matter is needed. We have taken up the matter for a preliminary inquiry," the report said quoting a source in Sebi.
Next course of action
The anonymous letter calling for an "immediate investigation" accuses Parekh and Roy of indulging in unethical practices. It accuses the top management of changing investment and accounting policies for short-term profits. It also accuses the management of bypassing the board and auditors to escape scrutiny, the report says. Infosys' own audit committee has also started consultations with independent internal auditor, Ernst & Young (EY). The company has also appointed law firm Shardul Amarchand Mangaldas for a separate probe into the case. Sebi may direct Infosys to share the probe report with it. "Our next course of action could depend on the findings of the probe at the company," the report quotes a regulatory official as saying.
Sebi and SEC could invoke the International Organization of Securities Commissions' multilateral memorandum of understanding on cooperation and information sharing to take the probe forward. The two regulators are signatories of the MoU. The BSE has sought the explanation of Infosys on why the company failed to make disclosures with respect to the whistleblower complaint.