Outsourcing firm iGate has been slapped with class action lawsuit in the US for alleged violations of federal securities laws in view of its sacked CEO Phaneesh Murthy’s “improper relationship” with a subordinate employee.

The suit has been filed on behalf of persons or entities who purchased or acquired securities of iGate between March 14, 2012 and May 21, 2013.

The New York-Based law firm, Pomerantz Grossman Hufford Dahlstrom & Gross LLP, filed the class action lawsuit against US-based iGate Corporation and some of its officers in the US District Court of Northern District of California on June 14.

According to the law firm, the complaint has alleged that throughout the class period, defendants (iGate) had made materially false and misleading statements regarding its business, operational and compliance policies.

“Specifically, defendants made false and/or misleading statements and/or failed to disclose that” (i) the company’s Chief Executive Officer and President ‘Murthy’ was involved in an improper relationship with a subordinate employee in violation of iGATE’s explicit policies to the contrary.

“(ii) Murthy’s improper conduct created a risk that he would be terminated from the company, jeopardising the company’s future success.”

iGate had sacked Mr Murthy on May 20 for allegedly failing to report a relationship with a subordinate employee.

The suit has been filed to recover damages against the firm and some of its officers and directors on account of alleged violations of the federal securities laws pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under.

When contacted, an iGate spokesperson said: “We believe that this claim has no merit, and we intend to vigorously defend this action. No other similar claims have been filed.”

On being asked whether there was a lapse on its part in hiring Murthy, who was earlier involved in a similar controversy, the spokesperson said iGate investigated the sexual harassment claims made against him before his joining.

“Murthy was part of the management team acquired with the Quintant acquisition. Prior to the acquisition, iGate conducted due diligence into the prior sexual harassment claims made against Mr Murthy. A subsequent investigation was conducted by one of our major shareholders,” he added.

iGate share price fell after the announcement of Murthy’s termination as the CEO was made last month, said the law firm, which has offices in New York, Chicago, Florida and San Diego.

It said that on May 20, iGate disclosed that its board of directors terminated employment of Murthy following an internal investigation, which revealed he had a relationship with a subordinate employee and a claim of sexual harassment in violation of its policies and his employment contract.

On May 22, iGate further revealed that the termination of the CEO was ‘for cause,’ and Murthy is not entitled to severance payment under the terms of his Employment Agreement with the company, it said.

The firm is already facing an investigation by another law firm, Bronstein, Gewirtz & Grossman, to ascertain whether the company and its employees violated federal securities laws.

iGate Corporation scrip was at USD 15.22 at the NASDAQ yesterday.

More In: Industry | Business