US law firms initiate investigation against Infosys over securities law violation

US law firms initiate investigation against Infosys over securities law violation [ad_1]

NEW DELHI: Four US law firms have said they are investigating potential claims on behalf of Infosys investors on whether the Indian company and some of its officials and directors have violated federal securities laws.

The development comes a day after the IT major, which is also listed in the US, saw its CEO Vishal Sikka resign citing slander by founders, led by NR Narayana Murthy.

7 things NR Narayana Murthy and other co-founders 'attacked' Vishal Sikka and Infosys for

7 things NR Narayana Murthy and other co-founders 'attacked' Vishal Sikka and Infosys for

After months of tussle with the co-founders, Infosys CEO Vishal Sikka has resigned. During his three-year tenure as CEO, Sikka faced several salvos from NR Narayana Murthy and other co-founders. The most recent being in a letter, dated August 9, where Murthy is said to have raised questions over Sikka's leadership. Earlier too, Murthy has publicly criticised Infosys over lapses in corporate governance, allegations that the company firmly denied repeatedly. Here are some of the things that NR Narayana Murthy and other co-founders 'attacked' Vishal Sikka and Infosys for over the last several months.

Using chartered planes to meet clients

Murthy is said to have criticised him for chartering private planes to meet clients.

Questioned pay hike given to Vishal Sikka

The founders questioned the pay hike given to Sikka. In February last year, the board decided to give Sikka a 55% pay hike to $11 million. The sharp increase in his salary is said to have been a big issue of disagreement.

Only 23.57% of promoter voted in Sikka's favour

Only 23.57% of promoter votes are reported to have been cast in favour of reappointing Sikka as managing director and CEO in April 2016.

Severance payout given to former CFO Rajiv Bansal

The co-founders also slammed the size of the severance payout given to former CFO Rajiv Bansal. Infosys board had approved Rs 17.38 crore severance payment for Bansal. In its defence the company said that the employment contracts of key members of the executive team include a severance clause, and such clauses are guided by the complexity of the role as well as country-specific regulations.

Vishal Sikka "not CEO material"

According to a report in business daily Mint, Narayana Murthy in an email quoted some independent directors as saying that Vishal Sikka was more chief technology officer (CTO) material than chief executive officer (CEO) material. "All that I hear from at least three independent directors, including Mr Ravi Venkatesan (co-chairman), are complaints about Dr Sikka. They have told me umpteen times that Dr Sikka is not a CEO material but CTO material. This is the view of at least three members of the board, and not my view since I have not seen him operate from the vantage point of an Infosys board member," Murthy reportedly said in the email.

Questioned the company's Panaya acquisition and some other decisions

The company conducted an independent valuation into the $200 million acquisition of Panaya after claims of inconsistencies in the deal. The investigation aimed to find out if any company executive benefitted from the acquisition.

The US law firms are: Bronstein, Gewirtz & Grossman; Rosen Law Firm; Pomerantz Law Firm and Goldberg Law PC.

The first non-founder CEO of Infosys, Sikka had the company's support but was forced to leave following what its Board termed as a "misguided" campaign by Murthy.

Rosen said in a statement that it is investigating "potential securities claims" on behalf of Infosys shareholders resulting from allegations that the firm may have issued materially misleading business information to the investing public.

It added that it is "preparing a class action lawsuit to recover losses suffered by Infosys investors".

Bronstein said its investigation concerns whether Infosys and certain officers and/or directors have complied with federal securities laws.

Pomerantz said its investigation is to ascertain whether Infosys and some of its officers/directors have engaged in securities fraud or other unlawful business practices.

On similar lines, Goldberg said its investigation focuses on whether Infosys and its officers/directors had violated federal securities laws.

The equity shares of Infosys are listed on BSE and NSE in India, while its American Depositary Share (ADS) is listed on the New York Stock Exchange.

Following Sikka's resignation, Infosys' ADS dropped as much as $1.43 per share, or nearly 9%, during intra-day trading on August 18, the day Sikka suddenly quit as CEO.



In India too, the company's stocks plummeted nearly 10 per cent on the BSE, with its market valuation falling by over Rs 22,518 crore.



Separately, the Infosys board today approved a share buyback plan of up to Rs 13,000 crore.



Among other things, Infosys said that given the significant shareholding of the US residents through ADS' and equity shares, it was necessary to obtain exemptive relief from the American market regulator US SEC on certain aspects of the tender offer procedures.

This is due to conflicting regulatory requirements between Indian and US laws for tender offer buybacks and the same has been obtained, it explained.

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