Infosys Warns Shareholders After DHS Finds Rampant Non-Compliance

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In its most recent quarterly filing with the U.S. Securities and Exchange Commission, Infosys was compelled to inform its shareholders that the Department of Homeland Security had discovered errors in a "significant percentage" of the government forms it is required to fill out to verify the employment eligibility of its thousands of employees in the United States.


DHS made the discovery of the rampant non-compliance as part of the U.S. government's criminal investigation of Infosys being conducted in cooperation with Infosys employee and whistleblower Jay Palmer. Infosys warned that it couldn't estimate the potential loss that might result from the non-compliance, bad news for shareholders that they wouldn't be hearing if Infosys had only taken action to rectify the illegal activity that Palmer and a second whistleblower brought to the company's attention 18 months ago.


The form in question is the I-9, the U.S Citizenship and Immigration Services form that employers are required to fill out for every employee, citizen and non-citizen alike, to verify that the employee is eligible to work in the United States. In its Form 6-K for the quarter ending March 31, 2012, Infosys repeated the warning it provided to shareholders in its 6-K for the quarter ending Dec. 31, 2011, regarding the U.S. government's ongoing criminal probe (see my post, "Infosys Warns of Adverse Consequences of Feds' Criminal Investigation"). This time, it was in the unfortunate position of having to spell out some of what the feds found:

In addition, the U.S. Department of Homeland Security ("DHS" or the "Department") is undertaking a review of our employer eligibility verifications on Form I-9 with respect to our employees working in the United States. In connection with this review, we have been advised that the DHS has found errors in a significant percentage of our Forms I-9 that the Department has reviewed. In the event that the DHS ultimately concludes that our Forms I-9 contained errors, the Department would likely impose fines and penalties on us. At this time, we cannot predict the final outcome of the review by, or the discussions with, the DHS or other governmental authority regarding the review of our Forms I-9.


In light of the fact that, among other things, the foregoing investigation and review are ongoing and we remain in discussions with the U.S. Attorney's Office regarding these matters, we are unable to make an estimate of the amount or range of loss that we could incur from unfavorable outcomes in such matters.


In the event that any 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.

What must make this pill especially hard for Infosys' employees, customers and shareholders to swallow is that Palmer and Linda Manning, the second whistleblower who worked in Infosys' human resources department, since 2010 have repeatedly warned the company about the rampant I-9 violations. Palmer even raised the issue last July in his testimony before the Senate Judiciary Subcommittee on Immigration, Refugees and Border Security (see my post, "Infosys Whistleblower Provides Hard-hitting Testimony to Senate Hearing").


But it was to no avail. As you may recall, in response to Palmer's damning testimony, Infosys Chief Marketing Officer Paul Gottsegen issued a statement dismissing Palmer's testimony as being "full of inaccuracies, exaggerations and falsehoods," and snidely accusing Palmer of being "obviously intent on spreading his falsehoods about Infosys and our business practices as broadly as possible in order to advance his objective of getting as big of a payout as he can from the Company." As the DHS and other government agencies continue the process of methodically verifying every statement Palmer made in his testimony and in his lawsuit against Infosys, one can only imagine how Gottsegen must be struggling to devise a face-saving means of backtracking on his ill-advised strategy to brand Palmer as a liar.


Manning, meanwhile, was sitting in the middle of the I-9 firestorm as an Infosys human resources associate who had years of experience in immigration matters. As I reported in my Aug. 3 post, "Second Infosys Whistleblower Documented 'Illegal' Activity, Pleaded for Action," Manning spelled out the I-9 violations in explicit detail:

When I started working for Infosys in April 2008 I was immediately aware that there were problems with I-9 compliance. When I continued to bring up the issue to my manager I was told "don't worry, this is the responsibility of the Immigration department" (which takes direction out of India) and "what we don't know won't hurt us." If ICE were to come into the [Infosys] Plano [Texas] office and actually view the I-9 forms and also the electronic storage system, the fines for incorrectly completed forms and forms with incorrect documentation would be astronomical. Should ICE or the USCIS conduct an audit at any of the Infosys offices or arrive at our client sites across the US -- the question will be to the employee -- Did the person who signed your I-9 form actually see your documents? In many cases the answer will be no.

I spoke about all this on Saturday with Palmer's attorney, Kenny Mendelsohn, who expressed the view that the development is only going to fortify any action the SEC may be inclined to take against Infosys:

I still think Infosys has some serious, serious SEC problems, because that's something they should have disclosed months and months ago. This is all unfolding just like we said it would. They should have disclosed this to their stockholders, and now the stock has plummeted. They knew they had these I-9 problems a year and a half ago, and they're just now reporting it to their stockholders. This is something Jay Palmer has been talking about for a long time. They haven't been keeping their stockholders apprised of the seriousness of the violations-the I-9s, the B-1s, the H-1Bs-none of that has been fully disclosed.