Tuesday, October 20, 2020

Cognizant faces new lawsuit on ‘India bribery’

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A small US pension fund is suing Cognizant‘s board and management for alleged misleading of shareholders and corporate profligacy in the wake of its India bribery settlement, adding to the swelling list of related cases against the US-listed IT services company.

The suit, filed last month, claims that Cognizant executives had misled shareholders about audits conducted into its anti-corruption practices.

“In the 2014 and 2015 sustainability reports, … the company represented….that Cognizant conducted thorough audits regarding anti-corruption practices and did not find any instance of corruption in either 2014 or 2015,” said the suit, a copy of which has been seen by ET. “…Cognizant’s anti-corruption controls were not nearly as robust as defendants falsely represented. Defendants lacked a reasonable factual basis for their positive statements in the 2014 and 2015 sustainability reports praising the company’s anti-corruption legal compliance.”

The suit, filed last month, is a shareholder derivative action filed by Josh Schaufelberger, Brian Hayden, Tim Keeley, Robert Calhoun, Glyn Ramage, Robert Green, Steven Tyler and Michael Testerman -trustees of a pension fund based in Illinois.

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The Teaneck, New Jersey-based company is facing other shareholder litigations. “Litigation of this type has been pending for more than two years before a district court in New Jersey. Cognizant will have no comment at this time regarding this litigation,” a Cognizant spokesperson told ET.

In September 2016, Cognizant informed the US Department of Justice and the US Securities and Exchange Commission that it was in violation of the US Foreign Corrupt Practices Act due to payments made relating to the company’s facilities in India.

In filings with the US SEC, Cognizant said the bribery scheme had been in place for about five years before it was disclosed. The company has since paid $25 million in fines to the US SEC related to the bribery and two of its former senior executives are facing criminal charges.

In total, the company has spent about $100 million in fines and investigation fees related to the issue. The suit claims that companies typically have to spend hundreds of millions of dollars to investigate claims of corruption as defined by the US Foreign Corrupt Practices Act, but that Cognizant’s management and board did not take adequate steps to protect the company.

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The suit also alleges that the company wastefully repurchased shares at higher prices before the disclosure of the bribery and that executives garnered about $80 million in “unlawful insider trading proceeds by selling shares of their personal Cognizant stock based on adverse, material non-public information.”

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