Cognizant Strikes $95M Deal To Resolve Investors’ Bribery Claims

Cognizant Technology Solutions has reached a $95 million settlement to resolve a class action suit alleging the IT services company defrauded shareholders by concealing bribes to officials in India for permits to build facilities in an area where they’d enjoy labor benefits and tax breaks.

CognizantPhoto Credit: Shutterstock

In the motion for preliminary approval, class counsel detailed how Cognizant can dispense $95 million in cash on behalf of all defendants, which include two of the company’s former executives. The funds would then be deposited in an escrow account within 20 business days of the preliminary approval date.

Class counsel also stated in the 33- page motion that they intend to seek up to 20% of the settlement fund, almost $19 million, to cover attorney fees. They also applauded the proposed settlement, acknowledging the risks ahead with continued litigation.

“Lead Plaintiffs would have had to prevail at several stages of litigation, including at summary judgment and trial — and then again on the appeals that would likely have followed,” the attorneys wrote in their motion.

“Each of these stages posed meaningful risks and, even if Lead Plaintiffs were successful, would likely have taken years to complete,” they continued.

Cognizant’s investors claim that the company’s stock price fell by more than 13%, or $7.29 per share, when the company told them it was investigating whether it violated the federal Foreign Corrupt Practices Act in connection with its facilities in India.

All defendants, including former president Gordon Coburn and former chief legal officer Steven Schwartz, denied wrongdoing in agreeing to settle. Cognizant said it expected insurers to cover a significant majority of the settlement payment.

The U.S. Securities and Exchange Commission and federal prosecutors in their own suit have stated the one-time executives authorized a contractor to pay a government official in Tamil Nadu, India, to secure a planning permit needed for construction of Cognizant’s 2.7 million-square-foot office campus in Chennai.

U.S. prosecutors also charged Coburn and Schwartz with FCPA and other violations. Those criminal cases remain pending. The SEC action has been paused until those cases are resolved, and a limited stay of discovery in the investors’ suit was granted in July pending the resolution of the criminal charges.

“The formula to apportion the Net Settlement Fund among Settlement Class Members was developed by Lead Counsel in consultation with Lead Plaintiffs’ damages expert and is based on an estimated amount of artificial inflation in the price of Cognizant common stock during the Class Period related to Defendants’ alleged misconduct,” the motion said.

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