Tuesday, October 20, 2020

Cognizant investors want bribery case fully investigated; lawsuit puts spotlight on former execs channelling payments to L&T

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A group of investors in Cognizant have asked a New Jersey court to deny an effort by the company and two of its former top executives – former president Gordon Coburn and former chief legal officer Steven E Schwartz – to stop any further investigation into the bribery charge related to a facility in Chennai and reverse the actions taken by the US Securities & Exchange Commission (SEC) and courts.

Cognizant made a $25 million settlement with the SEC. Coburn and Schwartz have been indicted on 12 counts in the bribery case.

A fresh lawsuit filed on July 27 puts the spotlight on how Coburn and Schwartz channelled payments to L&T, the construction company responsible for the KITS campus on Old Mahabalipuram Road in Chennai. The lawsuit alleged that to disguise Cognizant’s repayment to L&T of the bribes the latter paid to government officials, Schwartz and Coburn agreed that L&T would submit many fraudulent change order requests at the end of the project totalling $2 million.

When TOI contacted Cognizant on the litigation, it said it had no comments on the matter. An email to L&T did not elicit a response till the time of going to press.

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“The fact that Coburn had sole authority to approve large change orders was key to the execution of defendants’ scheme. Coburn was to use that authority to approve payment of the phony change order requests to effectuate disbursement of the bribe monies, thus causing the repayment to be falsely recorded in Cognizant’s books and records as bona fide construction costs,” the investors said in the latest court submission accessed by TOI.

RelatedCognizant to pay USD25 mn to settle India bribery charges

The progress of the campus – an SEZ that would provide significant tax benefits and looser regulations – was seen to be critical for Cognizant. But it was getting delayed on account of a statutory approval that was due and for which an official with the Chennai Metropolitan Development Authority was allegedly asking for a $2 million bribe, according to the lawsuit.

The plan was to secure L&T’s cooperation in the scheme to pay the bribe. “Coburn directed the VP of administration (of Cognizant) to tell L&T that Cognizant would withhold future payments related to the KITS Campus construction until it delivered the bribe to the Indian government official, and to notify L&T that its future business with Cognizant was in jeopardy unless it complied,” the lawsuit said.

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The suit alleges that L&T paid the bribe and then filed false change order requests for reimbursement of “unanticipated construction costs.”

The bribery scheme, the suit said, exposed the company to serious civil and criminal liability, in connection with which it has had to pay $25 million in penalties and disgorgement, as well as incur $79 million more in costs related to its internal investigation.

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