Infosys trouble: US law firm files class-action suit; accuses Salil Parekh of avoiding accounting scrutiny

Infosys trouble: US law firm files class-action suit; accuses Salil Parekh of avoiding accounting scrutiny

Infosys used improper recognition of revenue to boost short-term profits, alleges the law firm; accuses the tech services giant of pressurising its finance team to hide details on big deals from auditors

Infosys Ltd Chief Executive Salil Parekh Infosys Ltd Chief Executive Salil Parekh

A United States-based rights litigation firm has filed a class-action lawsuit against tech services giant Infosys for making "false" and "misleading" statements to the market. The lawsuit, filed by The Schall Law Firm, accused Chief Executive Salil Parekh of avoiding standard reviews of mega deals to get rid of scrutiny. It has been alleged that Infosys used improper recognition of revenue to boost short-term profits. The law firm said Infosys' finance team 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."

Based on these facts, the law firm says, the company's public statements were false and materially misleading throughout the class period. "When the market learned the truth about Infosys, investors suffered damages," it said.

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.

Also read: Infosys Chairman Nilekani recuses CEO Parekh, CFO Roy from investigation of allegations

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".

Also read: Nandan Nilekani on 'unethical practices' charge: 'Even God can't change Infosys numbers'

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.

Infosys share was trading 2.15 per cent down at Rs 705.05 from its previous close of Rs 721.05. The stock had opened at Rs 718.45 on Thursday morning.