US market regulator SEC begins probe into Infosys saga

SEC, MCA launch probe; DIIs unhappy with non-disclosure

US market regulator Securities and Exchange Commission (SEC) has launched a probe into the alleged financial impropriety at Infosys.

"The company has been in touch with the SEC regarding the anonymous whistle-blower complaints and has learnt that the SEC has initiated an investigation into this matter," the company said in a BSE filing.

Even as the company did not disclose what counts the SEC is investigating, experts suggest that SEC is likely to investigate three counts — material misrepresentation to investors, accounting violations and "book and records" and "internal controls" violations.

"The most common SEC enforcement actions concerning accounting violations are related to inaccurate representations of revenue, which include enforcement actions for fraudulent reporting of fictitious sales, improper timing of revenue recognition, and improper valuation of revenue," said Ari Yampolsky, a lawyer with Constantine Cannon LLP, a law firm based out of California.

Back in India, the government on Thursday asked the National Financial Reporting Authority (NFRA) to look into the alleged accounting irregularities at the IT major in the wake of whistle-blower complaints, according to sources.

Separately, the company's institutional investors have also said that they have been concerned over the complete non-disclosure of the whistle-blowers' complaints during the quarterly results.

"They have been speaking to investors also regularly — but nothing specific as such. We have also given our feedback. Ideally, it should have come from the company itself," said executives from one of the institutional investors with Infosys.

The investors are also unhappy with the fact that there is no clarity on whether the company had informed its auditors about the whistle-blowers' letter before signing the financials.

Meanwhile, in response to a clarification sought by stock exchanges over the non-disclosure of the whistle-blower letter, Infosys said that till the conclusion of the investigation of 'generalised allegations', there is no need for disclosure under Regulation 30 of LODR Regulations.

"Before the conclusion of the investigation of the generalised allegations in the complaints, a disclosure under Regulation 30 of LODR Regulations was not required. The disclosure made on October 22, 2019, was to respond to multiple media inquiries and reports. The Company undertakes to continue making timely disclosures as required under Regulation 30 of LODR Regulations," the company said.

However, stock exchange sources suggested that they will be taking a call on further course of action in coming the days. "We (BSE and NSE) will discuss the company's reply and decide what should be the next course of action," a source added.