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Securities and Exchange Commission v. Coburn

United States District Court, D. New Jersey

November 14, 2019

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
GORDON J. COBURN and STEVEN E. SCHWARTZ, Defendants.

          OPINION

          MICHAEL A. HAMMER UNITED STATES MAGISTRATE JUDGE

         I. INTRODUCTION

         This matter comes before the Court on the United States' Motion to Intervene and for a Stay pending the conclusion of criminal proceedings in United States v. Gordon Coburn and Steven Schwartz, Crim. No. 19-120 (KM) (the “Criminal Case”). The Court has considered the parties' briefing, and heard oral argument on November 8, 2019. For the reasons set forth herein, the Court will grant the United States leave to intervene and will stay discovery. If circumstances change, either party may move before this Court to lift or modify the stay. Additionally, the Court will require that the parties submit a joint status report on or before May 15, 2019, to allow the Court to determine whether the stay should be revisited.

         II. BACKGROUND

         Defendants Gordon J. Coburn and Steven E. Schwartz are, respectively, the former President and Chief Legal Officer of Cognizant Technology Solutions Corporation (“Cognizant”), a corporation headquartered in Teaneck, New Jersey. Compl. ¶¶ 14-16, D.E. 1. Cognizant's publicly traded common stock is registered with the Securities and Exchange Commission (“SEC”). Id. ¶ 13. “Cognizant is a global provider of information technology and business process services” that utilizes “skilled workers in India to provide technical and back office support for companies in the United States and Western Europe.” Id. ¶ 23. “Although it operates in several countries, the majority of Cognizant's operations are conducted in India through its largest subsidiary, Cognizant Technology Solutions India Private Limited (“Cognizant India”).” Id. ¶ 16.

         On February 14, 2019, a federal grand jury returned a twelve-count indictment charging Defendants with violations of the Foreign Corrupt Practices Act of 1977 (“FCPA”) and the Securities Exchange Act of 1934 (“Exchange Act”) in connection with an alleged bribe to obtain permits to construct a facility in India. See generally United States v. Coburn, No. 19-cr-120, Indictment, D.E. 1. The next day, the SEC filed this civil action pertaining to the same alleged scheme. See SEC v. Coburn, No. 19-5820, Complaint, ¶¶ 1-9, D.E. 1. Specifically, the SEC alleges that, in April 2014, Defendants “authorized a contractor (“Contracting Firm”) to pay a $2 million bribe on Cognizant's behalf to a senior government official in the Indian state of Tamil Nadu (the “Government Official”) with influence over the issuance of planning and building permits to obtain a required planning permit for construction of Cognizant's KITS Campus in Chennai . . . .” Id. ¶ 2; see also Id. ¶¶ 24-31. The SEC contends that Coburn “corruptly promised and agreed to pay an additional $500, 000 to Contracting Firm for paying the bribe.” Id. ¶ 3.

         Cognizant India allegedly “paid the $2.5 million total amount to Contracting Firm in installments from its bank accounts in India between March 2015 and January 2016.” Id. ¶ 5. According to the SEC, Defendants attempted to conceal the unlawful payments through fraudulent change orders associated with the construction of the KITS Campus, which they knowingly failed to disclose to Cognizant's auditor. Id. ¶¶ 4, 38-43, 52-57. During the relevant time period, Defendants also purportedly made misrepresentations in subcertifications to management representation letters. Id. ¶ 58-60. The SEC further avers that

Coburn and Schwartz's authorization of the bribery scheme and the cover-up of illicit payments to Contracting Firm also circumvented and violated Cognizant's ethics provisions and internal accounting controls. Their conduct proceeded unchecked, in part, because they failed to implement sufficient internal accounting controls at Cognizant designed to detect and prevent such misconduct.

Id. ¶ 51.

         In short, the SEC's civil complaint alleges that Defendants understood that: (1) Cognizant's bribe to Contracting Firm was to reimburse the firm for the $2 million payment to the Government Official to assist in the obtainment of necessary building permits; (2) the $500, 000 payment to Contracting Firm was as an additional payment for its role in the scheme; (3) the two payments would be falsely recorded in the books and records of Cognizant and Cognizant India as fraudulent change orders that did not in fact represent bona fide services or materials under the relevant construction contracts; and (4) their statements made to Cognizant's auditors and in connection with management representation letters were false. Id. ¶¶ 6-9, 45-47, 52-60.

         The SEC now seeks to hold Defendants liable for violating and aiding and abetting violations of the FCPA's anti-bribery provisions, 15 U.S.C. § 78dd-1; aiding and abetting violations of Sections 13(B)(2)(A) and 13(B)(2)(B) of the Exchange Act, 15 U.S.C. §§ 78m(b)(2)(A) and (B); and violating Section 13(b)(5) of the Exchange Act and Exchange Act Rules 13b2-1 and-2, 15 U.S.C. § 78m(b)(5), 17 C.F.R. § 240.13b2-1, -2. See Id. ¶¶ 61-78. The SEC requests both the imposition of monetary penalties and injunctive relief.

         The United States has moved for leave to intervene into this action under Federal Rule of Civil Procedure 24, and requests this Court stay all proceedings until the conclusion of the parallel Criminal Case.[1] Defendants oppose the United States' request for a blanket stay of the civil action, and argue in the alternative that the Government is entitled to, at most, a partial stay. For the reasons that follow, the Court holds that a complete stay of discovery is warranted.

         III. ANALYSIS

         “[A] stay of a civil proceeding is an extraordinary remedy and is not favored.” Forrest v. Corzine, 757 F.Supp.2d 473, 476 (D.N.J. 2010). That said, “[d]istrict courts possess inherent discretion to stay a proceeding whenever the interests of justice mandate such action.” Akishev v. Kapustin, 23 F.Supp.3d 440, 445 (D.N.J. 2014) (internal quotation marks and citation omitted). In the context of parallel civil and criminal proceedings, a stay “may be warranted in ...


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