United States District Court, D. New Jersey
MICHAEL A. HAMMER UNITED STATES MAGISTRATE JUDGE
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.
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.
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.
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.
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.
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.
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. 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.
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 ...