BENGALURU: Investigations into a would be class-security fraud at Infosys by multiple law firms are not likely to have any serious impact on the beleaguered IT company, as industry watchers say this is a classic case of ‘ambulance chasing’.
Under US Tort law, a lawyer can work on ‘contingency’ in which they get a cut of any award or settlement and do not get paid otherwise. The term ‘ambulance chasers’ comes from lawyers who used to follow accident victims asking them to sue a wide-range of individuals who could have caused the accident in the hopes of receiving a settlement.
“These guys sue everyone,” R Ray Wang, Principal Analyst & Founder at Constellation Research, told ET. With 226 new security fraud suits, class action filings in the US hit a record high in the first half of 2017.
In a recent report published by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, Rosen Law Firm was ranked second in the US for the number of Securities Class Action Settlements in 2016.
Four investor rights law firms in the US — Bronstein, Gewirtz & Grossman, Pomerantz Law Firm, Goldberg Law PC, and Rosen Law Firm — have initiated investigations against NYSE-listed Infosys for security fraud and issuance of misleading business information to public shareholders by directors.
The class-action investigation “feels like ambulance chasing but it will depend on what institutional investors line up behind the lawyers”, Wang said. “If you see a lot of institutional investors follow suit, then there will be some substance behind the law suits.”
“Many retail investors are angry so it (the four law firms) might get support from them. Not sure if it will be enough to become a class-action suit,” said Pareekh Jain, managing director India, HfS Refresh.
The investigations were launched a day after former CEO Vishal Sikka resigned after repeated “personal attacks” from cofounder Narayan Murthy raising questions on the dwindling corporate governance standards at the company he founded. Under the US law, shareholders of a listed firm can file classaction suits if they suspect security fraud in the company they have invested in.
The happenings at Infosys “is not a common occurrence as the situation in the boardroom is not common. When your story is spilled out into the public in the manner that has happened, it creates a situation,” Wang said, adding, “However, the lawyers here are classic ambulance chasers. They are up there in prestige with activist investors.”
“There is a legislative threshold that the shareholders need to cross before the class-action goes to court or before there is a trial,” said Suhas Tuljapurkar, Managing Partner at independent law firm Legasis partners, adding, “The threshold under the applicable laws in the US goes beyond merely a prima facie proof “.