Infosys Warns of Adverse Consequences of Feds' Criminal Investigation

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In a routine filing today with the U.S. Securities and Exchange Commission, Infosys acknowledged that the company and some of its employees are targets of the U.S. government's criminal investigation of alleged visa fraud, and warned that the potential for sanctions and penalties could materially and adversely affect its business operations.


The Form 6-K, "Report of Foreign Private Issuer," is a standard form that has to be filed by foreign companies that issue stock in the United States (Infosys trades on NASDAQ). In the form, companies cover their hind quarters, so to speak, by listing risk factors that exist in the course of doing business. Infosys' 6-K for the quarter ending Dec. 31, 2011, highlighted the U.S. government's criminal investigation, which was sparked by the lawsuit filed by Infosys employee and whistleblower Jay Palmer:

On May 23, 2011, the Company received a subpoena from a grand jury in the United States District Court for the Eastern District of Texas. The subpoena requires that the Company provide to the grand jury certain documents and records related to the Company's sponsorships for, and uses of, B1 business visas. The Company is complying with the subpoena. In connection with the subpoena, during a recent meeting with the United States Attorney's Office for the Eastern District of Texas, the Company was advised that the Company and certain of its employees are targets of the investigation. The Company intends to have further discussions with the U.S. Attorney's [Office] regarding this matter, however, the Company cannot predict the outcome of the investigation by, or discussions with, the U.S. Attorney's Office.

It's noteworthy that Infosys was unable to contend that it doesn't expect these proceedings to have an adverse effect on the company, as it claims is the case with the other legal problems it's facing:

In addition, the Company is subject to other legal proceedings and claims which have arisen in the ordinary course of its business. The Company's management does not reasonably expect that these legal actions, when ultimately concluded and determined, will have a material and adverse effect on the results of operations or the financial position of the Company.

In my previous post, "With Options Limited, Infosys Tries Dismissal Tack in Palmer Case," I pointed out that Infosys is facing potentially catastrophic consequences as a result of the feds' criminal investigation, which is why it's doing everything in its power to delay responding to questions and releasing documents in the Palmer case. The nightmarish problem Infosys is facing is that Palmer and his attorney, Kenny Mendelsohn, are cooperating fully with the federal authorities conducting the investigation. Last month, Infosys filed a motion with the court for a protective order to try to keep discovery information confidential, which would have meant that Palmer wouldn't be able to share it with the feds (see my Dec. 13 post, "Court Order: Infosys Whistleblower Free to Cooperate with Feds"). Mendelsohn filed an objection to that motion, insisting that Palmer's hands not be tied in providing information to the federal authorities, and the court agreed. It added this caveat to the protective order:

However, nothing in this order shall be construed as prohibiting the plaintiff from providing truthful testimony before a grand jury, or giving truthful information to legitimate law enforcement investigative authorities.

Elsewhere in today's Form 6-K filing, meanwhile, Infosys underscored the problem:

As of December 31, 2011, the majority of our technology professionals in the United States held either H-1B visas (approximately 10,211 persons, not including Infosys BPO employees or employees of our wholly owned subsidiaries), which allow the employee to remain in the United States for up to six years during the term of the work permit and work as long as he or she remains an employee of the sponsoring firm, or L-1 visas (approximately 1,958 persons, not including Infosys BPO employees or employees of our wholly owned subsidiaries), which allow the employee to stay in the United States only temporarily. In the event that the United States government or any other government undertakes any actions which limit any visa program that we utilize, or imposes sanctions, fines or penalties on us or our employees, this could materially and adversely affect our business and results of operations.

You bet it could. And it will. The only question is what sanctions and penalties will be imposed. Whatever they are, my suggestion is that they include forfeiture of Infosys' H-1B privileges. Infosys' arrogance and its blatant disrespect for this country's laws demand that it should no longer be allowed to profit from any of our visa programs.