Three U.S.-based shareholders have launched separate investigations into Indian banking and financial services company HDFC over potential violations of U.S. security laws. This comes after it was reported earlier this year that there was an internal probe by the bank into alleged irregular payments.
HDFC Bank’s American Depositary Receipts (ADRs) are listed on the New York Stock Exchange, bringing the lender under U.S. securities disclosure rules. However, the investigations are in a preliminary stage, and do not amount to a lawsuit or regulatory action against HDFC.
The firms launching the investigations include Law Offices of Howard G. Smith, the Law Offices of Frank R. Cruz, and Glancy Prongay Wolke & Rotter. Each firm issued its own statement saying it is examining whether HDFC Bank may have breached U.S. federal securities laws.
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The firms say that they are looking into whether HDFC Bank or certain executives made materially misleading statements or failed to disclose information that investors should have known.
The investigations reportedly trace back to a report published by The Indian Express on May 27. This report alleged that HDFC Bank paid around ₹45 crore ($4.68 million) to the Maharashtra State Road Development Corporation (MSRDC) to attract large institutional deposits. It further claimed that the payments were recorded as marketing expenses and that the bank’s Chief Executive Officer was aware of them.
HDFC bank rejected the allegations. The bank told CNBC-TV18 that such notices were common in the U.S., after a decline in the company’s stock price.
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According to reports, the law firms are examining the matter from the perspective of investors who own HDFC Bank’s American Depositary Receipts (ADRs), which are traded in the United States. The ADR price fell after the May 27 report was published.
The U.S. firms have invited investors who believe they suffered losses in HDFC Bank ADRs to contact them. The firms are trying to determine whether the available evidence justifies legal action under U.S. securities laws.
HP Ranina, the senior advocate of at the Supreme court of India, said the investigations are a preliminary exercise to assess whether there is sufficient evidence to approach the court. He said that a media report and a fall in prices is not enough and law firms need tangible evidence of wrongdoing. Ranina also said HDFC would also have an opportunity to present its position if a case is filed.