Infosys Says Looking Into "Unethical Practices" Alleged In Letter

Marco Green
October 21, 2019

Infosys (NYSE:INFY) says it received a whistleblower complaint accusing the company of "certain unethical practices" to boost short-term revenue and profits. The whistleblowers comprise an anonymous group of alleged staff that calls itself 'ethical employees.' In a letter dated September 20, to the board of directors of the Bengaluru company, they said: "We have high respect for all of you and bring to your notice the unethical practices of CEO in recent quarters".

Salil Parekh, CEO and MD, Infosys. "Large deals have irregularities".

"Please ask auditors to check deal proposals, margins, undisclosed upfront commitments made and revenue recognition", the employees added in the letter.

The employees alleged that in the quarter under review of fiscal 2020, the management put enormous pressure on them to not recognise reversals of $50 million upfront payment in FDR (fixed depository receipts) contract, as it will slash profits for the quarter and negatively affect the company's stock price. The whistleblowers allege that the contracts that regulators should investigate involve large companies such as Verizon, Intel and ABN AMRO, as well as joint ventures in Japan, according to the letter. "All information is not shared with auditors", the employees wrote.

The group alleged that Chief Executive Officer Salil Parekh was bypassing reviews and approvals for large deals, the ET report said. "We have voice recordings of these conversations", claimed the letter. "He directs them to make wrong assumptions to show margins", recalled the unnamed Infoscions.

Alleging that the CFO (Roy) was hand in glove with the CEO (Parekh), the insiders said the former complied with unethical practices, restraining ethical employees from showing large deal issues to the board during presentations. In its complaint to the Infosys board, the group said they have enclosed the copies of proof, seeking "immediate investigation".

In response, the company in a statement on Monday said the whistleblower complaint had been placed before the audit committee as per the company's practices.

The complaints follow a strong quarterly show by Infosys, which raised the lower end of its annual revenue forecast on upbeat demand for its digital services from Western clients. Sanghrajka, who had been made interim CFO following CFO MD Ranganath's exit in November last year, has spent around 14 years in Infosys over two stints.

He had rejoined the company in December 2012 as vice president and corporate financial controller.

Biocon chairperson Kiran Mazumdar-Shaw is an independent director on the Infosys board. "This is a huge negative for the company, and bad news especially because the company is so widely held", said Harit Shah, analyst for information technology at brokerage Reliance Securities.

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