Whistleblowers sting Infosys; ADRs tank

Amid allegations of financial impropriety by Infosys CEO Salil Parekh, the American Depository Receipts (ADR) of the IT major on Monday witnessed a severe drubbing on the New York Stock Exchange (NYSE).

A group of whistleblowers from the finance department of Infosys alleged that Parekh had been fudging the company’s financials and inflating profits, margins and revenues in the recent quarters. There were also allegations that Parekh made racist and misogynistic comments against various members of the board.

READ: Infy Dy CFO's exit conveys something is 'rotten': R-Sec

The ADR opened 15.4% lower on NYSE at $8.94 apiece. At the time of filing this copy (9 pm IST), the ADR was trading 14.38% lower at $9.05 apiece. In the pre-open trade, the company’s ADR dipped by almost 18%.

An ADR is a negotiable certificate issued by a US depository bank representing a specified number of shares — or as little as one share — investment in a foreign company’s stock. The ADR trades on markets in the US as any stock would trade. In the case of Infosys, one equity share held in India is equivalent to one ADR held on NYSE.

The shares of Infosys on Indian equity markets are likely to dip by 10-15% on Tuesday. The markets remained closed on Monday owing to elections in Maharashtra.

In response to the anonymous complaint, the company said it is investigating the issue. “The whistle-blower complaint has been placed before the Audit Committee as per the company’s practice and will be dealt with in accordance with the company’s whistle-blowers policy,” Infosys said in a statement.

“We have high respect for board members, and bring to your notice unethical practices of the CEO in the recent quarters… In the last quarter, we were asked not to fully recognise the costs like visa costs,” the letter in possession of DH said.

The letter also alleges that during the current quarter, there is a pressure of not recognising $50 million of the costs incurred by the company. The employees who wrote the letter also claim to have the audio recordings of the same.

The letter also says that there have been irregularities in large deal signings. “The CEO is bypassing reviews and approvals and instructing sales (team) not to send email for approvals. He directs them to make wrong assumptions to show margins,” the letter said.

It also alleges that the company’s CFO Nilanjan Roy has collaborated with Parekh in fudging the numbers.

The letter also says Parekh made racist remarks against two board members — D N Prahlad and D Sundaram — and misogynist comments against another independent director Kiran Mazumdar-Shaw.

“These two Madrasis (Sundaram and Prahlad) and Diva (Kiran) make silly points, you just nod and ignore them,” the letter quotes Parekh as telling the company’s management.

Meanwhile, top executives from two of the domestic institutional investors who have large stake in Infosys told DH that they want to sell their holdings in Infosys.

“It is a grave allegation. We have parked a lot of money in the company. We want to sell it, but the selling pressure is very heavy even in the pre-market trade,” executives from one of the fund houses said.

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