PARK v. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION et al

Filing 131

OPINION. Signed by Judge Esther Salas on 6/5/20. (jc, )

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Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

IN RE COGNIZANT TECHNOLOGY
SOLUTIONS CORPORATION
SECURITIES LITIGATION

Civil Action No. 16-6509 (ES) (CLW)
OPINION

SALAS, DISTRICT JUDGE
Plaintiffs bring a putative class action under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 against defendants Cognizant Technology Solutions Corporation, Gordon
Coburn, and Steven E. Schwartz (collectively, “Defendants”). Before the Court are three motions
to dismiss the Second Amended Class Action Complaint (D.E. No. 83 “SAC”)) from the
Defendants pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), and under the Private
Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 (“PSLRA”). (D.E. Nos. 92, 93 & 94
(collectively, the “Motions”)). The Court has considered the parties’ submissions and decides the
Motions after the extensive oral argument conducted on May 19, 2020, via videoconferencing due
to the COVID-19 pandemic. (See D.E. No. 129 (“Tr.”)); see also L. R. 78.1(b)(2). For the
following reasons, the Motions are DENIED.
I.

Background
This putative securities class action involves an alleged bribery scheme that, according to

the SAC, a criminal indictment, and other court filings, was spearheaded by Cognizant Technology
Solutions Corporation’s (“Cognizant”) former President, Gordon Coburn (“Coburn”) and its Chief
Legal and Corporate Affairs Officer, Steven E. Schwartz (“Schwartz”). (SAC ¶¶ 16 & 33–34).
Coburn and Schwartz, among others, allegedly devised and implemented a scheme to bribe Indian
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government officials in order to secure permits that were necessary to operate Cognizant’s facility
known as the Knowledge Industry Township Campus (the “KITS Campus” or “KITS Facility”) in
Chennai, India. (Id. ¶¶ 19–20). The KITS Facility was built in one of India’s Special Economic
Zones (“SEZs”) and was Cognizant’s largest SEZ facility. (Id. ¶¶ 3 & 19). By locating the KITS
Facility in an SEZ, Cognizant would gain several lucrative tax and labor benefits. (Id. ¶ 3).
At the core of the allegations, Plaintiffs contend that Cognizant touted the benefits of its
SEZ licenses while failing to disclose the bribery scheme orchestrated in connection with the KITS
Facility, which ultimately could not operate without the necessary underlying permits. (Id. ¶¶ 5 &
19). Coburn, Schwartz, and other members of senior management allegedly worked with the
Indian-based construction company contracted to develop the KITS Facility to ultimately devise
and implement the bribery scheme. (Id. ¶ 20). Under the scheme, Cognizant’s contractor would
facilitate payments to Indian government officials, and Cognizant would reimburse its contractor
for these costs. (Id.) As such, the bribe payments appeared as legitimate reimbursement requests
from Cognizant’s contractor. (Id.). Consequently, Cognizant overstated its earnings to investors
because it recorded the bribe payments as capital expenditures rather than expenses. (Id. ¶ 9).
Cognizant’s stock price dropped by more than 13%, or $7.29 per share, after it finally disclosed
that it was “conducting an internal investigation into whether certain payments relating to facilities
in India were made improperly and in possible violation of the U.S. Foreign Corrupt Practices Act
and other applicable laws.” (Id. ¶¶ 11–12).
Because this case involves an intricate procedural history, the Court first discusses the
procedural posture as it relates to the present Motions before summarizing the key factual
allegations included in the SAC.

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A.

Procedural History
i.

Prior Opinion

The SAC comes before the Court following an opinion by the late Judge William H. Walls
dated August 8, 2018, on motions to dismiss the consolidated First Amended Class Action
Complaint (D.E. No. 38 (“FAC”)). (D.E. No. 66 (“Prior Opinion” or “Op.”)). In Count I of the
FAC, Plaintiffs brought claims under the Securities Exchange Act of 1934 (the “Exchange Act”)
and Rule 10b–5 against Cognizant; Francisco D’Souza (“D’Souza”), Cognizant’s former Chief
Executive Officer; Karen McLoughlin (“McLoughlin”), Cognizant’s former Chief Financial
Officer; and Gordon Coburn, Cognizant’s former President. (Id. at 1–2). In Count II of the FAC,
Plaintiffs brought claims under Section 20(a) of the Exchange Act against D’Souza, McLoughlin,
and Coburn. (Id. at 10).
As discussed more fully below, Plaintiffs’ Section 10(b) and Rule 10–5 claims were
initially premised on five categories of allegedly material misstatements, including: (i) statements
highlighting the benefits of Cognizant’s SEZ licenses; (ii) statements emphasizing legal
compliance and anti-corruption controls; (iii) statements touting Cognizant’s low-cost services and
attributing its financial results to legitimate business factors; (iv) overstatements of earnings
resulting from improperly recording bribes as capital expenditures; and (v) Cognizant’s SOX
certifications. (Id. at 10–11 & 33). Judge Walls found that Plaintiffs adequately pled materially
misleading statements in three of the five categories, including: (i) statements highlighting the
benefits of Cognizant’s SEZ licenses; (ii) statements emphasizing legal compliance and anticorruption controls, specifically limited to statements reporting no incidents of corruption and
statements touting the effectiveness of anti-corruption training in Cognizant’s 2014 and 2015
Sustainability Reports; and (iii) overstatements of earnings resulting from improperly recording

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bribes as capital expenditures. (Id. at 33–36, 41–44 & 52–53). Thus, Judge Walls dismissed
claims based on statements emphasizing legal compliance and anti-corruption controls,
specifically those concerning Cognizant’s Code of Conduct and Anticorruption Policy, statements
touting the low-cost services and attributing the company’s financial results to legitimate business
factors, and statements contained in Cognizant’s SOX certifications. (Id. at 74).
Because Judge Walls found that at least some categories of allegedly material
misstatements survived the motions to dismiss, His Honor continued to evaluate the second
element in contention: scienter. Judge Walls ultimately dismissed, without prejudice, Count I
against D’Souza and McLoughlin for failure to plead scienter. (Id. at 62 & 74). Although Judge
Walls held that Plaintiffs adequately pled scienter with respect to Coburn, His Honor dismissed
Count I against Coburn because he did not make any of the allegedly material misstatements that
survived dismissal. (Id. at 55). Critically, however, unlike D’Souza and McLoughlin, the
dismissal of Count I against Coburn was with prejudice. (Id. at 74).
At the outset, it is unclear to this Court why Plaintiffs were permitted to reallege Count I
against D’Souza and McLoughlin, but not Coburn. The parties previously stipulated to Plaintiffs’
filing of the consolidated FAC (see D.E. No. 26), and there were no prior motions to dismiss the
original complaint. Rather than amend allegations against D’Souza and McLoughlin, Plaintiffs
confirmed their intent to preserve the right to appeal the Court’s Prior Opinion as it relates to “all
previously dismissed claims, [d]efendants, and statements.” (SAC at 2 n.1, 12 n.3, 130 n.123 &
132 n.124 (citing U.S. ex rel. Atkinson v. PA Shipbuilding Co., 473 F.3d 506, 517 (3d Cir. 2007)
(stating that “[i]f a party omits a claim from an amended complaint that it would not have been
futile to replead, that party can still preserve the claim for appellate review by standing on the
dismissed claim despite leaving it out of the amended complaint. . . . Adding a section to an

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amended pleading specifically preserving the claim certainly suffices.”)); see Tr. at 32:24–33:7).
At the present juncture, this Court must respect Plaintiffs’ decision to stand on their prior
allegations pertaining to all previously dismissed claims, defendants, and statements for purposes
of appeal. 1 As such, the Court makes clear that it will not address the sufficiency of allegations
raised by the SAC against (i) Coburn, D’Souza, or McLoughlin under Count I; (ii) D’Souza or
McLoughlin under Count II; or (iii) Cognizant under Count I for the categories of alleged
misstatements that were previously deemed non-actionable.
Next, Judge Walls was tasked, as this Court is again, to determine whether Plaintiffs pled
scienter with respect to Cognizant as a corporate entity. Central to this issue was the fact that
Judge Walls found, for pleading purposes, actionable misstatements; however, those statements
were not made by Coburn, the only individual defendant that Judge Walls inferred had scienter at
the pleading stage. (Op. at 55 & 63–66). As discussed in-depth herein, there are three approaches
that divide the Circuit Courts of Appeals on the issue of “corporate scienter” or “collective
scienter” when there is no identified individual responsible for making any of the alleged
misstatements at issue who also possessed the requisite scienter. The Third Circuit has yet to
weigh in on which approach it considers controlling. See, e.g., In re Hertz Glob. Holdings Inc.,
905 F.3d 106, 121 n.6 (3d Cir. 2018) (“We have neither accepted nor rejected th[e] doctrine [of
corporate scienter] and decline to do so here because the [] allegations would not give rise to
corporate scienter under any recognized theory of that doctrine.”). Ultimately, Judge Walls
concluded that Coburn’s scienter could be imputed to Cognizant under the broad and middle

1

In addition, neither Plaintiffs, Coburn, nor Cognizant moved for reconsideration of Judge Walls’s Prior
Opinion at any point in time. See Geibel v. United States, 667 F. Supp. 215, 219 (W.D. Pa. 1987) (noting four
exceptions to the law-of-the-case doctrine where a successor judge may reevaluate a previously decided issue by a
former judge, which may include a timely motion for reconsideration of the prior judge’s decision), aff’d, 845 F.2d
1011 (3d Cir. 1988).

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approaches followed by various Circuit Courts of Appeals. (Op. at 66–72).
Accordingly, Count I of the FAC survived against Cognizant only. (Id. at 74). The Court
also held that Count II survived against Coburn and allowed Plaintiffs to amend Count II against
D’Souza and McLoughlin in a subsequent complaint. (Id.).
ii.

Interlocutory Appeal

Approximately one month after Judge Walls issued the Prior Opinion, Cognizant moved
for immediate appeal pursuant to 28 U.S.C. § 1292(b), so that the Third Circuit could resolve the
threshold issue that implicated Cognizant’s potential liability: “what a securities plaintiff must
plead in order to [] impute the alleged scienter of an individual to a corporation.” (D.E. No. 70-1
at 1). Because Count II could not survive without a viable claim against Cognizant or another
individual defendant under Count I, Cognizant correctly noted at the time that the issue of
corporate scienter would be outcome-determinative of the entire case. (Id. at 2). 2
Given the clear divide that exists amongst the Circuit Courts of Appeals on the issue of
corporate scienter, and recognizing that Plaintiffs’ claims could have been dismissed in their
entirety had Cognizant succeeded on appeal, Judge Walls certified the Court’s August 8, 2018
Order for immediate appeal pursuant to 28 U.S.C. § 1292(b), and stayed the action on October 18,
2018. (D.E. No. 75). Subsequently, on February 25, 2019, Plaintiffs moved to vacate the Court’s
October 18, 2018 Order granting certification for interlocutory appeal and staying the matter
pending appeal. (D.E. No. 76). In their motion, Plaintiffs expressed their intention to file an
amended complaint in light of new and material factual developments, specifically (i) a twelve-

2

“Section 20(a) of the Exchange Act creates a cause of action against individuals who exercise control over a
‘controlled person,’ including a corporation, who has committed a section 10(b) violation.” City of Edinburgh Council
v. Pfizer, Inc., 754 F.3d 159, 177 (3d Cir. 2014) (citing 15 U.S.C. § 78t(a)). In the Prior Opinion, Judge Walls found
that no claim could proceed under Count I against D’Souza, McLoughlin, or Coburn. However, because Coburn’s
scienter was imputed to Cognizant, thus allowing Count I to proceed against the corporation, Count II survived
dismissal against Coburn. Thus, had the Third Circuit decided the issue of corporate scienter in favor of Cognizant,
Count II against Coburn would have also been dismissed.

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count criminal indictment against Coburn and Schwartz issued on February 14, 2019, for their part
in spearheading the bribery scheme at issue here; (ii) a civil action filed by the Securities Exchange
Commission (“SEC”) on February 15, 2019, based on the same bribery scheme; and (iii) an
announcement from the SEC stating that Cognizant agreed to settle civil charges for violations of
securities laws for $25 million. (D.E. No. 76-1 at 1–2 & 16–17).
Nine days after Plaintiffs filed their motion to vacate, the Third Circuit denied Cognizant’s
petition for interlocutory appeal under 28 U.S.C. § 1292(b). (D.E. No. 79–1). Specifically, the
Third Circuit denied the petition without prejudice, “if the District Court denie[d] leave to amend
[Plaintiffs’] complaint.” (Id.). As a result, Plaintiffs agreed to provide a proposed second amended
complaint to counsel for existing defendants Coburn and Cognizant, and a new defendant,
Schwartz. (D.E. No. 79 at 1; D.E. No. 80 at 1). The parties also agreed to a briefing schedule for
any potential motions to dismiss in the event Coburn, Cognizant, and Schwartz consented to the
proposed second amended complaint. (D.E. No. 79 at 2; D.E. No. 80 at 2). In accordance with
the parties’ proposed schedule, the SAC was filed on April 26, 2019. (See SAC).
B.

Second Amended Class Action Complaint
i.

Current Claims

In the SAC, Plaintiffs reallege claims under Count I for violations of Section 10(b) of the
Exchange Act and Rule 10b–5 against Cognizant and Count II against Coburn for violation of
Section 20(a). (SAC ¶¶ 335–49). In addition, Plaintiffs brought claims under Counts I and II
against Schwartz based on new allegations that implicate him in the bribery scheme. (Id.).
Cognizant and Schwartz move to dismiss Count I for failure to plead (i) misrepresentations
or omissions and (ii) scienter. (See generally D.E. No. 92-1 (“Cognizant Mov. Br.”) and D.E. No.
94-1 (“Schwartz Mov. Br.”)). Coburn and Schwartz also move to dismiss Count II. (See generally

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D.E. No. 93-1 (“Coburn Mov. Br.”); Schwartz Mov. Br.).
This matter was then transferred to the undersigned on July 26, 2019. (D.E. No. 108). On
the same day, Plaintiffs filed one “Omnibus Memorandum of Law in Opposition to Defendants’
Motions to Dismiss the Second Amended Complaint.” (D.E. No. 109 (“Opp. Br.”)). Thereafter,
on August 26, 2019, Defendants filed three separate reply briefs. (D.E. No. 110 (“Coburn Reply
Br.”), D.E. No. 111 (“Schwartz Reply Br.”), and D.E. No. 112 (“Cognizant Reply Br.”)).
ii.

Allegations

This action concerns a bribery scheme allegedly conducted by Cognizant’s senior
management to secure necessary permits for its largest SEZ facility in Chennai, India—the KITS
Facility.

(SAC ¶ 19).

Cognizant is headquartered in Teaneck, New Jersey, and provides

“information technology and business process outsourcing” services with its principal operations
located in India. (Id. ¶¶ 2 & 30). By operating in India, Cognizant was allegedly able to provide
its services at lower, more competitive costs to its clients, which was key to the company’s overall
profitability. (Id. ¶ 2).
One of the primary ways Cognizant leveraged its Indian operations was by locating its
facilities in SEZs. (Id. ¶ 3). Companies that operate in SEZs were “guaranteed a number of highly
lucrative benefits, including numerous tax exemptions and holidays, easing of various customs
and labor regulations and procedures, and heightened access to credit, infrastructure, and other
resources.” (Id. ¶¶ 3 & 44). Furthermore, Plaintiffs allege that by building and expanding its SEZ
facilities, Cognizant increased its “ability to drive revenue: the more employees the Company
could put to work at its SEZ facilities, the more revenue it would book.” (Id. ¶ 46). However,
between February 27, 2015, and September 29, 2016 (the “Class Period”) (see id. at 2; id. ¶ 329),
there were several announcements by the Indian government regarding the phasing out of tax

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benefits for SEZ facilities established after 2017. (Id. ¶¶ 49 & 50). As a result, Cognizant allegedly
embarked on establishing numerous SEZ facilities during the Class Period. (Id. ¶ 51). And, as
detailed below, Coburn and Schwartz (among others) allegedly devised and implemented the
bribery scheme at issue to secure permits that were necessary for the operation of Cognizant’s
largest SEZ facility, the KITS Facility. (Id. ¶¶ 19–20).
The bribery scheme remained hidden from investors until September 30, 2016, when
Cognizant announced in a Form 8-K that its Board of Directors was “conducting an internal
investigation into whether certain payments relating to facilities in India were made improperly
and in possible violation of the U.S. Foreign Corrupt Practices Act and other applicable laws.”
(Id. ¶¶ 11 & 141). That same day, Cognizant admitted that Coburn had suddenly resigned three
days earlier during the investigation. (Id. ¶¶ 11, 142 & 155–58). The market’s reaction to the
disclosure resulted in Cognizant’s stock price dropping by more than 13% per share from $55.00
to $47.71. (Id. ¶¶ 12 & 148).
Subsequently, Cognizant stated that its “‘senior management’ ‘may have participated in’
making $6 million dollars’ worth of corrupt payments to Indian government officials to procure
permits relating to the Company’s Indian facilities . . . .” (Id. ¶¶ 9, 149 & 157). On November 7,
2016, in its third quarter Form 10-Q, Cognizant admitted that “certain members of senior
management may have participated in or failed to take action to prevent the making of potentially
improper payments by either overriding or failing to enforce the controls established by the
Company relating to real estate and procurement principally in connection with permits for certain
facilities in India.” (Id. ¶ 81 (emphasis in original); id. ¶ 150). During its third quarter earnings
call on the same day, D’Souza announced that Cognizant
discovered in the course of the investigation that certain members of
senior management may have been aware of or participated in the
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matters under investigation . . . . Based on the results of the
investigation to-date, those who may have been involved are no
longer with the company or in the senior management position.
(Id. ¶ 154). And, in its March 1, 2017 Form 10-K, Cognizant further admitted that “senior
management who may have participated in or been aware of the making of the identified
potentially improper payments and failed to take action . . . were no longer with the Company or
in a senior management position as of December 31, 2016.” (Id. ¶ 159).
1.

KITS Facility Bribery Scheme

Among the primary additions in the SAC are factual allegations from the Department of
Justice (“DOJ”) and SEC’s two-year investigation of Cognizant’s bribery scheme related to its
SEZ facilities, including the KITS Facility in Chennai, India. (Id. ¶¶ 15 & 19). The DOJ issued
an indictment on February 14, 2019 (see D.E. No. 92-2 (“Brown Decl.”) ¶ 5; D.E. No. 92-6, Ex.
D. to Brown Decl. (the “Indictment”)), charging Coburn and Schwartz with twelve criminal counts
in connection with the KITS Facility bribery scheme at issue in this matter. (SAC ¶ 16 (citing
United States v. Gordon J. Coburn and Steven Schwartz, Crim. No. 19-120 (D.N.J.))). The
Indictment refers to Cognizant’s high-ranking corporate officers as co-conspirators, including
Cognizant’s former Chief Operating Officer—believed to be Sridhar Thiruvengadam
(“Thiruvengadam”)—and Cognizant’s former Vice President of Administration. (Id.). On the
same day, the SEC brought a civil lawsuit (see D.E. No. 92-5, Ex. C. to Brown Decl. (the “SEC
Action”)) against Coburn and Schwartz alleging Foreign Corrupt Practices Act (“FCPA”) and
securities laws violations. (SAC ¶ 17 (citing SEC v. Gordon J. Coburn and Steven E. Schwartz,
No. 19-5820 (D.N.J.))). In addition, the SEC separately issued an order (see D.E. No. 92-4, Ex.
B. to Brown Decl. (the “SEC Order”)) on the same day announcing that Cognizant agreed to settle
claims against it for violations of securities laws dealing with numerous bribes that comprised

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Cognizant’s overall scheme to secure licensing for its various SEZ facilities, including the KITS
Facility. (SAC ¶ 18). Specifically, Cognizant agreed to pay $25 million and to conduct various
remediation efforts with oversight by the SEC. (Id.). The Indictment, SEC Action, and SEC Order
(collectively, the “Government Filings”) were based on the DOJ and SEC’s investigations,
Cognizant’s internal documents, and information from numerous unindicted co-conspirators. (Id.
¶ 19).
In sum, the Government Filings detail the alleged scheme in which Cognizant’s
construction company, Larsen & Toubro Ltd. (“L&T”), would ultimately pay Indian government
officials to secure a planning permit for the KITS Facility (“KITS Planning Permit”). (Id. ¶¶ 38,
90 & 96). The KITS Facility was slated to support “between 17,000 and 20,000 Cognizant
employees.” (Id. ¶ 91). Plaintiffs maintain that Cognizant retained L&T to develop the KITS
Facility in or about November 2011, and that the “SEZ status” of the KITS Facility “would provide
Cognizant with a significant business advantage by, among other things, allowing the Company to
massively reduce[ ] the taxes and operating costs associated [with] the work done by thousands
of employees.”

(Id. ¶¶ 91–92 (emphasis in original)).

Cognizant’s Vice President of

Administration (“CC#1”) “directly oversaw development of the KITS [Facility]” and was the
company’s primary liaison with L&T. (Id. ¶ 92). Per its agreement with Cognizant, L&T was
responsible for “obtain[ing] all statutory approvals and permits” for the KITS Facility. (Id. ¶ 95).
However, L&T did not apply for the KITS Planning Permit until about fourteen months after work
on the project began. (Id.). By April of 2014, the KITS Planning Permit had not yet issued. (Id.
¶ 96).
On April 21 and 22, 2014, Coburn, Schwartz, CC#1, and Thiruvengadam participated on
videoconference calls to allegedly discuss “paying a $2 million bribe . . . to an official with the

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Chennai Metro Development Authority in order to secure the KITS [Planning] Permit and
complete this critical SEZ facility.” (Id.). CC#1 allegedly informed Coburn and Schwartz that a
bribe payment was demanded by an Indian government official “in exchange for approving the
[KITS Planning Permit] and asked for their guidance.” (Id.). During these videoconference calls,
Coburn, Schwartz, CC#1, and Thiruvengadam allegedly agreed that L&T would front the bribe
payment and that it would submit reimbursement requests to Cognizant for $2 million at the
project’s completion. (Id. ¶¶ 96–97). Coburn was allegedly the person “responsible for personally
approving any payments in excess of $500,000 that L&T requested from Cognizant for
reimbursement of unanticipated costs associated with the agreed-upon scope of work (known as
‘variation claims’ or ‘change order requests’).” (Id. ¶ 94). Plaintiffs claim that Coburn’s authority
was key to the bribery scheme because he would ultimately “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.” (Id. ¶ 97). On
the April 22, 2014 videoconference call, Schwartz allegedly emphasized “that the reimbursement
payment should not stand out in the change order request” specifically “[t]o ensure that their
fraudulent scheme went undetected.” (Id.).
CC#1, at the direction of Coburn, allegedly told L&T that Cognizant would not make any
future KITS Facility payments until L&T tendered the bribe payment to the Indian government
official, and CC#1 also informed L&T that its business with Cognizant would be jeopardized
unless it complied with the bribe payment. (Id. ¶ 98). Throughout the process, CC#1 allegedly
kept Coburn, Thiruvengadam, and others informed as to the “traction” on the KITS Planning
Permit. (See id. ¶ 101). On May 20, 2014, Coburn corresponded with CC#1 and others suggesting
that Cognizant pay some money owed to L&T, but to withhold the remaining balance until L&T

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delivered. (Id. ¶ 102). Thereafter, on or about June 16, 2014, Thiruvengadam emailed CC#1
stating that “‘[Coburn] wanted an update on the [KITS Campus] approval (no [e]mails he said).’”
(Id. ¶ 103). On or about June 30, 2014, L&T secured the KITS Planning Permit and asked CC#1,
among others, to maintain confidentiality because no one should have known that L&T obtained
the approval. (Id. ¶ 104). CC#1 later circulated a scanned copy of the government order, without
L&T’s confidentiality instructions, stating that Cognizant “will now start firm planning for
occupation. Thanks to [L&T] for support.” (Id.). About four months later, on November 5, 2014,
the KITS Planning Permit was issued to Cognizant. (Id. ¶ 106).
When the KITS Facility neared completion, L&T submitted nearly $25 million in
reimbursement requests, which included $2.5 million related to the KITS Planning Permit,
comprised of $2 million for the bribe payment and $500,000 paid to L&T for its part in delivering
the bribe payment. (Id. ¶ 107). CC#1 circulated a “Variations List Discussion Document” to
Coburn and others detailing L&T’s change order requests that contained a claim for $3.7 million
described as “Approvals/Campus Regularisation [sic],” and a subsequent document with a
shortened description for “Statutory Approvals,” which encompassed the $2.5 million for the KITS
Planning Permit. (Id. ¶ 108). However, knowing that this “Statutory Approvals” designation
would stand out against Schwartz’s advisement, “CC#1 instructed a co-conspirator who was a
member of Cognizant’s real estate group to create a fake version of [the document] that would
replace the entire $3.7 million claim for ‘approvals/campus regularization’ (which included the
$2.5 million ‘statutory approvals’ request) with eleven previously-rejected claims worth roughly
the same amount.” (Id. ¶ 109). In January 2015, Coburn received the faulty change order requests,
and preliminarily approved them in an email sent to CC#1 on February 3, 2015. (Id. ¶ 110).
Plaintiffs allege that in order “[t]o facilitate the formal approval of the bribe payments by

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Cognizant’s finance unit, on or about March 11, 2015, Defendant Coburn falsified a spreadsheet
and related approvals containing and incorporating the false change order requests in connection
with the KITS Campus.” (Id. ¶ 111). Subsequently, on March 13, 2015, Coburn emailed
Cognizant’s finance unit to formally approve the phony change order requests. (Id. ¶ 112). Based
on Coburn’s approvals, Cognizant issued multiple reimbursement payments to L&T encompassing
the $2.5 million bribe payment for the KITS Planning Permit between March 2015 and January
2016. (Id. ¶ 113).
2.

Statements Touting the Benefits of SEZs

Plaintiffs contend that during the Class Period, Cognizant falsely touted the benefits of its
SEZ licenses, which were materially misleading when those benefits were obtained by way of a
bribery scheme. For example, in its 2014 Form 10-K filed with the SEC on February 27, 2015,
Cognizant stated that its “Indian subsidiaries . . . are primarily export-oriented and are eligible for
certain income tax holiday benefits granted by the Indian government for export activities
conducted within Special Economic Zones, or SEZs, for periods of up to 15 years.” (Id. ¶ 169).
This statement also appeared in Cognizant’s Q1 2015 Form 10-Q, filed on May 4, 2015; Q2 2015
Form 10-Q, filed on August 6, 2016; Q3 2015 Form 10-Q, filed on November 5, 2015; 2015 Form
10-K, filed on February 25, 2016; Q1 2016 Form 10-Q, filed on May 6, 2016; and Q2 2016 Form
10-Q, filed on August 5, 2016. (Id. ¶¶ 174, 177, 180, 183, 188 & 191; see Op. at 11–12).
In the same 2014 Form 10-K, Cognizant quantified the “effect of the income tax holidays
granted by the Indian government” which resulted in “increase net income by approximately[in
thousands] $182,973, $146,326, and $151,789, respectively, and increase diluted EPS [earnings
per share] by $0.30, $0.24, and $0.25, respectively.” (Id. ¶ 170). In addition, Cognizant claimed
that “[a]s of December 31, 2014, we had outstanding fixed capital commitments of approximately

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$20,452 [in thousands] related to our India real estate development program to build new
Company-owned state-of-the-art IT development and delivery centers.” (Id. ¶ 171). However,
Cognizant’s outstanding fixed capital commitments included at least $4.1 million in illicit bribe
payments to Indian government officials. (Id. ¶ 172). Plaintiffs allege that substantially similar
misstatements were included in Cognizant’s (i) 2015 Form 10-K filed on February 25, 2016; (ii)
Q1 2016 Form 10-Q filed on May 6, 2016; and (iii) Q2 2016 Form 10-Q filed on August 5, 2016.
(Id. ¶ 183–93).
Lastly, the 2014 Form 10-K also stated that Cognizant “constructed and except[ed] to
continue to locate most of our newer development facilities in SEZs.” (Id. ¶ 171). Similar
renditions of this statement are contained in Cognizant’s Q1 2015 Form 10-Q, filed on May 4,
2015; Q2 2015 Form 10-Q, filed on August 6, 2016; Q3 2015 Form 10-Q, filed on November 5,
2015; 2015 Form 10-K, filed on February 25, 2016; Q1 2016 Form 10-Q, filed on May 6, 2016;
and Q2 2016 Form 10-Q, filed on August 5, 2016. (Id. ¶¶ 174, 177, 180, 185, 188 & 191; see Op.
at 12).
3.

2014 & 2015 Sustainability Reports

Next, as it relates to the Court’s prior finding of actionable misstatements contained in
Cognizant’s 2014 and 2015 Sustainability Reports, 3 Plaintiffs now allege that Coburn and

3

These alleged misstatements include the following representations in Cognizant’s 2014 Sustainability

Report:
•

•
•

“[Cognizant] delivered 331,114 hours of Code of Ethics training through
eLearning in 2014,” and “delivered live Code of Ethics trainings to targeted
audiences of over 18,000 associates in India and the Philippines.” (SAC ¶
202; Op. at 41–42).
“[O]ur Enterprise Risk Management group conducts annual risk analysis
surveys covering all business units and corporate functions to assess the
likelihood of various risks including corruption.” (SAC ¶ 202; Op. at 42).
“[There were] no incidents [of corruption] reported in 2014.” (SAC ¶ 202;
Op. at 42).

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Schwartz “participated in approving and issuing” the reports, “which falsely stated that there had
been ‘no incidents’ of corruption at the Company.” (Id. ¶ 22). For example, Plaintiffs claim that
both Coburn and Schwartz “intentionally furnished false information that was incorporated into
[the reports]—including certifying their personal compliance with the Company’s anticorruption
policy and maintenance of accurate books and records.” (Id.; see also id. ¶ 129). However, when
Coburn and Schwartz executed these certifications related to the Sustainability Reports, they
allegedly “knew that they had authorized Cognizant to execute a scheme to bribe an Indian
government official to acquire an essential permit necessary for the completion of the Company’s
largest SEZ facility, the KITS Campus.” (Id. ¶ 129).
Moreover, Plaintiffs maintain that Coburn monitored Cognizant’s sustainability
performance, which encompassed compliance with anti-corruption laws, “‘and reporting the
results of this review to our Board of Directors,’ including the CEO, who signed and approved the
report.” (Id. ¶ 130). In addition, Schwartz allegedly “furnished information for inclusion in, and
participated in approving, Cognizant’s Sustainability Reports,” and as the Chief Legal Officer, he
“was ultimately responsible for monitoring and ensuring Cognizant’s compliance with anticorruption laws” and “for monitoring and reporting the false compliance data included in the
Sustainability Reports.” (Id. ¶ 131).
4.

Financial Earnings Releases

Akin to the prior allegations, Plaintiffs continue to claim that because Cognizant incorrectly
booked bribe payments as capital expenditures when “those payments should have been booked
as expenses and charged dollar-for-dollar against the Company’s earnings,” it overstated its

Additionally, Judge Walls held that certain statements from Cognizant’s 2015 Sustainability Report were
actionable, including that there were “no incidents [of corruption] reported in 2015,” and “no [significant risks related
to corruption] reported in 2015.” (SAC ¶ 209; Op. at 42).

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earnings during the Class Period. (Id. ¶ 282). Cognizant admitted that at least $4.1 million in
corrupt bribe payments should have been expensed on its earnings/profit-and-loss statement when
instead it appeared as increased assets on Cognizant’s balance sheet. (Id.). Out of the $4.1 million
in capitalized expenses, “$1 million was expensed as depreciation and amortization.” (Id.).
Accordingly, during the Class Period, Cognizant admitted that it overstated its “earnings and
investment in physical assets by at least $3.1 million and understated its expenses by the same
amount.” (Id.). Plaintiffs allege that by virtue of their authorization of the KITS Facility bribery
scheme, both Coburn and Schwartz “made and caused to be made this false financial information
in Cognizant’s Class Period earnings releases and financial statements.” (Id. ¶ 283).
5.

Forms 8-K

During the Class Period, Cognizant’s earnings releases that reported its quarterly financial
results were attached to numerous Forms 8-K filed with the SEC. (Id. ¶ 284). These Forms 8-K
were allegedly “personally signed and authorized” by Schwartz and were “disseminated to
investors on May 4, 2015, August 5, 2015, November 4, 2015, February 1, 2016, May 6, 2016 and
August 5, 2016.”

(Id.).

The earnings releases included reports on “Cognizant’s capital

expenditures, operating expenses, and net income.” (Id.).
6.

SOX Sub-Certifications

Notwithstanding the Court’s Prior Opinion dismissing as nonactionable statements from
Cognizant’s SOX Certifications, Plaintiffs now claim that Coburn and Schwartz “signed numerous
false SOX ‘sub-certifications’ in connection with the Company’s financial reports filed with the
SEC between July 2014 and January 2016,” in which they attested to “the accuracy of the
Company’s financial reports and integrity of its controls.” (Id. ¶ 123). These sub-certifications
allegedly formed the basis of statements contained in the SOX Certifications, that Cognizant’s
Chief Executive Officer and Chief Financial Officer relied on when certifying the statements.
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(Id.). Plaintiffs maintain that “any refusal by a member of senior management to sign a subcertification would surely have raised red flags to the auditor about the accuracy of the Company’s
SEC filings and would have also precluded filing the financial reports.” (Id.). The allegations
state that Coburn and Schwartz’s false SOX sub-certifications falsely stated the following:
(1) Cognizant’s internal controls had been in force and effective; (2)
they had disclosed to Cognizant’s CEO and CFO all known
deficiencies in the operation of the internal controls; (3) they had
disclosed to Cognizant’s CEO and CFO “any known fraud, whether
or not material, that involves management or other employees,
within my area of responsibility, who have a significant role in the
Company’s internal controls”; and (4) that the financial information
for each relevant period “does not contain any untrue statement of
fact or omit to include a material statement of fact necessary to make
such financial information, in light of the circumstances under
which such financial information was compiled, not misleading.”

(Id. ¶ 124). Both Coburn and Schwartz allegedly knew, when executing these sub-certifications,
that “they had authorized Cognizant to execute a scheme to bribe an Indian government official so
as to acquire an essential permit necessary for the completion of the Company’s largest SEZ
facility, the KITS Campus,” and that “they had approved a plan to conceal the bribery scheme and
circumvented the Company’s internal controls, which necessarily entailed deliberately falsifying
Cognizant’s books, records, and accounts – and, in turn, its public financial statements.” (Id. ¶
125).
7.

Management Representation Letters

The SAC includes allegations that Coburn specifically provided “false management
representation letters” to Cognizant’s auditors between August 2014 and June 2016. 4 (Id. ¶ 121).

4

Schwartz correctly notes that the specific allegations with respect to the management representation letters
are ultimately connected to Coburn, not Schwartz. (See Schwartz Mov. Br. at 17 n.5; compare SAC ¶ 21, with id. ¶¶
121–22).

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Coburn’s management representation letters allegedly stated that “[w]e have no knowledge of any
fraud or suspected fraud affecting the Company involving a) Senior management; b) Management
or other employees who have significant roles in internal control over financial reporting; or c)
Others where the fraud could have a material effect on the condensed consolidated interim
financial statements.” (Id.). Plaintiffs maintain that “[t]hese false management representation
letters were essential to causing Cognizant to report false financial information to investors.” (Id.).
Yet, Coburn allegedly “knew at the times that he signed these false management representation
letters that he . . . had authorized Cognizant to execute a scheme to bribe an Indian government
official so as to acquire an essential permit necessary for the completion of the Company’s largest
SEZ facility, the KITS Campus,” and knew that “at his direction, Cognizant had concealed these
illicit payments through fraudulent change orders and circumvented the Company’s internal
controls, which resulted in a series of improper payments to L&T between 2015 and 2016, and
that the books, records and accounts of Cognizant – and its public financial statements – were
thereby falsified.” (Id. ¶ 122).
8.

Statements to Cognizant’s Auditors

Finally, Plaintiffs allege that between 2014 and 2016, Coburn and Schwartz continued to
hide the KITS Facility bribery scheme from Cognizant’s auditors.

(Id. ¶¶ 119 & 120).

Specifically, Plaintiffs claim that Coburn and Schwartz failed to disclose to Cognizant’s auditors
information relating to “the bribery scheme, the disguised payments to L&T, the resulting false
books and records of Cognizant, and their intentional circumvention of Cognizant’s Code of Ethics
and internal accounting controls.” (Id. ¶ 120). 5

5

Other allegations in the SAC that were included in the FAC and referenced in Judge Walls’s Prior Opinion
are also incorporated herein. (See, e.g., FAC ¶¶ 68–74; SAC ¶¶ 82–88; Op. at 6–8 (recounting allegations attributed
to Cognizant’s former employees)).

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II.

Legal Standard
Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed, in whole

or in part, for failure to state a claim upon which relief can be granted. “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id. The burden is on the moving party to show that the plaintiff
has not stated a facially plausible claim. See Davis v. Wells Fargo, 824 F.3d 333, 349 (3d Cir.
2016).
The Court also observes that there are certain heightened pleading standards under the
PSLRA. “The PSLRA imposes two exacting and distinct pleading requirements for securities
fraud actions.” In re Aetna, Inc. Sec. Litig., 617 F.3d 272, 277 (3d Cir. 2010). First, a complaint
bringing a Section 10(b) or Section 20(a) claim that is based on “an untrue statement of a material
fact,” or an omission of “a material fact necessary in order to make the statements made, in the
light of the circumstances in which they were made not misleading,” must “specify each statement
alleged to have been misleading, [and] the reason or reasons why the statement is misleading . . .
.” 15 U.S.C. § 78u-4(b)(1); In re Aetna, 617 F.3d at 277. “[Federal Rule of Civil Procedure] 9(b)’s
particularity requirement is comparable to and effectively subsumed by the requirements of [§
78u–4(b)(1)] of the PSLRA.” 6 Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242, 253 (3d Cir.

6

Federal Rule of Civil Procedure 9(b) states that when “alleging fraud . . . a party must state with particularity
the circumstances constituting fraud . . . .” “In order to satisfy Rule 9(b), a complaint must provide all of the essential
factual background that would accompany the first paragraph of any newspaper story—that is, the who, what, when,
where and how of the events at issue.” United States v. Eastwick Coll., 657 F. App’x 89, 93 (3d Cir. 2016) (quoting
In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002)) (internal quotation marks omitted).
In other words, a complaint “must state the circumstances of the alleged fraud with sufficient particularity to place the

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2009) (internal quotation marks omitted). Second, the complaint must, “with respect to each act
or omission alleged to violate this chapter, state with particularity facts giving rise to a strong
inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A);
In re Aetna, 617 F.3d at 277–78. The Third Circuit has described the required state of mind as one
“‘embracing [an] intent to deceive, manipulate, or defraud,’ either knowingly or recklessly.” In re
Hertz, 905 F.3d at 114 (quoting Avaya, Inc., 564 F.3d at 252)) (alteration in original). The PSLRA
thus “unequivocally raise[d] the bar for pleading scienter.” See Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 317, 321 (2007) (internal quotations omitted) (alteration in original).
III.

Discussion
“Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange

Commission’s Rule 10b–5 prohibit making any material misstatement or omission in connection
with the purchase or sale of any security.” Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S.
258, 267 (2014). To allege a claim pursuant to Section 10(b), a plaintiff must plead “(1) a material
misrepresentation or omission, (2) scienter, (3) a connection between the misrepresentation or
omission and the purchase or sale of a security, (4) reliance upon the misrepresentation or
omission, (5) economic loss, and (6) loss causation.” In re Hertz, 905 F.3d at 114 (City of
Edinburgh Council, 754 F.3d at 167). A Section 10(b) claim is subject to the PSLRA’s heightened
pleading standard previously discussed. Id. Here, the elements in contention are (i) material
misrepresentation or omission, and (ii) scienter.
A.

Material Misrepresentations

“To prevail on a § 10(b) claim, a plaintiff must show that the defendant made a statement
[or omission] that was ‘misleading as to a material fact.’” Matrixx Initiatives, Inc., v. Siracusano,

defendant on notice of the ‘precise misconduct with which [it is] charged.’” Frederico v. Home Depot, 507 F.3d 188,
200 (3d Cir. 2007) (quoting Lum v. Bank of Am., 361 F.3d 217, 223–224 (3d Cir. 2004)).

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563 U.S. 27, 38 (2011) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)). Materiality
“requires delicate assessments of the inferences a ‘reasonable shareholder’ would draw from a
given set of facts.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976). Materiality is
satisfied when “there is ‘a substantial likelihood that the disclosure of the omitted fact would have
been viewed by the reasonable investor as having significantly altered the ‘total mix’ of
information made available.’” Matrixx Initiatives, 563 U.S. at 38 (quoting Basic Inc., 485 U.S. at
231–32). “[T]he materiality of disclosed information may be measured post hoc by looking to the
movement, in the period immediately following disclosure, of the price of the firm’s stock.” In re
Merck & Co., Inc. Sec. Litig., 432 F.3d 261, 269 (3d Cir. 2005).
Because materiality is often very fact-specific, courts have noted that it is typically an issue
reserved for the factfinder. See In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 274 (3d Cir.
2004); Weiner v. Quaker Oats Co., 129 F.3d 310, 317 (3d Cir. 1997) (“[T]he emphasis on a factspecific determination of materiality militates against a dismissal on the pleadings.”). “Only if the
alleged misrepresentations or omissions are so obviously unimportant to an investor that
reasonable minds cannot differ on the question of materiality is it appropriate for the district court
to rule that the allegations are inactionable as a matter of law.” Adams Golf, 381 F.3d at 275
(internal quotations omitted).
First, the Court will assess the parties’ arguments pertaining to the three categories of
allegedly material misstatements that previously survived dismissal from the FAC, including: (i)
statements touting the benefits of SEZ licenses; (ii) certain statements in Cognizant’s 2014 and
2015 Sustainability Reports, specifically statements reporting no incidents of corruption and
statements touting the effectiveness of anti-corruption training; and (iii) statements of error in
Cognizant’s financial earnings releases.

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i.

Statements Touting the Benefits of SEZ Licenses

Throughout its briefing, Cognizant argues that Plaintiffs’ entire case is debunked by the
SAC’s new “allegations based on the DOJ and SEC investigations” because the investigations “did
not show, or even suggest, that any payments were ever made to obtain licenses to locate facilities
in SEZs, as Plaintiffs allege.” (Cognizant Mov. Br. at 2 & 16–23; see also Schwartz Mov. Br. at
2 & 10–11 (echoing Cognizant’s argument)). Rather, Cognizant and Schwartz maintain that the
Government Filings show the alleged bribe payments were only made for planning, construction,
or operating permits for the timely completion of the KITS Facility. (See Cognizant Mov. Br. at
17 & 18; Schwarz Mov. Br. at 10–11).
The Court finds that the theory Cognizant and Schwartz proffer is, as Plaintiffs
characterize, “a distinction without a difference.” (See Opp. Br. at 60). The Plaintiffs do not allege
that the bribery scheme was orchestrated to secure one or more SEZ licenses. (See generally SAC).
Rather, Plaintiffs allege, as they did previously in the FAC, that the bribery scheme concerned
permits that were “necessary for the construction and operation of” Cognizant’s KITS Facility.
(Id. ¶ 19 (emphasis added); see id. ¶¶ 89–90; see also Opp. Br. at 60). For example, Plaintiffs
allege that the Government Filings “describe a significant bribery scheme to secure critical permits
for the Company’s SEZ campuses” which included “permits that were necessary for the
construction and operation of the Company’s largest SEZ facility” known as the KITS Facility in
Chennai. (SAC ¶ 19 (emphasis added)). Plaintiffs also claim that “Cognizant could not have built
and operated this crucial SEZ facility, nor enjoyed the lucrative SEZ benefits attendant to it,
without the KITS [Planning] Permit.” (Id. ¶ 90 (emphasis added)). Once L&T secured the KITS
Planning Permit via the bribe payments, Cognizant’s Vice President of Administration allegedly
wrote to Cognizant’s executives stating that “[w]e will now start firm planning for occupation.”

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(See id. ¶¶ 37 & 104; Opp. Br. at 59). Thus, even if the KITS Facility was already designated as
an SEZ facility, Plaintiffs plausibly allege that it could not fully operate or occupy the facility—
and thereby obtain the corresponding SEZ-related benefits—without the necessary permits. (See
SAC ¶¶ 19 & 89–90; see also Tr. at 31:24–32:1 (“An SE[Z] license isn’t really worth anything if
you can’t actually develop and occupy and operate the facility for which the license is for.”)).
Moreover, the Government Filings do not contradict Plaintiffs’ theory of the case, specifically in
light of the allegations reiterated above. Rather, the Government Filings mirror Plaintiffs’
allegations, as those documents claim that the KITS Facility bribe concerned a statutorily “required
planning permit,” not an SEZ license. (SEC Order at 3; SEC Action ¶¶ 2, 25 & 35; Indictment ¶
28).
Cognizant also attempts to debunk Plaintiffs’ theory by arguing that it could have leased
space in another SEZ facility to house its employees while its KITS Facility permit remained
pending. (Cognizant Mov. Br. at 19–20 (“Plaintiffs nowhere allege that absent the alleged bribe
for the KITS planning permit, Cognizant would not have been able to locate its employees in
leased space [at a different facility] within the same SEZ, and gain the benefits of locating there,
while it waited to receive [the KITS] permit.”); see also Cognizant Reply Br. at 3–4 & 5–7).
However, as counsel for Plaintiffs suggested during oral argument, Cognizant’s hypothetical
assumes that there were one or more SEZ facilities available to house Cognizant’s 17,000 to 20,000
employees slated to work in the KITS Facility. (See Tr. at 23:14–15). Moreover, it defies logic at
the pleading stage to infer that Cognizant would have embarked on building its largest SEZ facility
only to incur additional costs to lease other SEZ space to house the KITS Facility’s employees.
And, as Plaintiffs argued, if “the same large economic benefits could have been obtained at a much
lower cost than construction; that is, just by leasing facilities, then Cognizant’s decision to build[,]

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occupy and operate this facility wouldn’t have made any sense if they could have just so easily
leased a preexisting facility.” (Tr. at 22:12–17).
Moreover, the Court does not agree with Cognizant’s contention that Former Employee 1’s
(“FE1”) statements 7 contradict the Government Filings or the SEC’s February 13, 2014 letter to
Cognizant’s counsel. (See Cognizant Mov. Br. at 18 & 21). In particular, the allegations attributed
to FE1—Cognizant’s former Manager, Internal Audit & SOX Compliance—reveal that FE1
conducted an FCPA compliance audit and reported finding evidence “that payments related to
procuring SEZ licensing were being made to Indian government personnel and that these payments
were being improperly classified in Cognizant’s internal systems.” (See SAC ¶ 83 (emphasis
added); id. ¶¶ 10 & 82). In addition, FE1 allegedly reported that the 2015 audit revealed that
invoices from Cognizant’s contractor “explicitly sought reimbursement for payments for licenses
to operate in SEZs in Bangalore and elsewhere.” (Id. ¶ 83 (emphasis added)). These allegations
do not, as Cognizant suggests, show that FE1’s statements were limited to improper payments
directly for procuring SEZ licenses. (See Cognizant Mov. Br. at 18 & 21). Rather, they plausibly
indicate that FE1 uncovered evidence of improper payments that were in some way related to
Cognizant’s SEZ licenses and the operation of Cognizant’s SEZ facilities. Thus, statements
touting the benefits of Cognizant’s SEZ licenses remain actionable at the pleading stage.
ii.

Statements in Cognizant’s 2014 & 2015 Sustainability Reports

Next, Cognizant and Schwartz contend that statements reporting no incidents of corruption
and statements regarding Cognizant’s anticorruption training contained in the 2014 and 2015

7
Although Cognizant correctly notes that it previously moved to strike allegations attributed to FE1 based on
his alleged repudiation of those allegations (see Cognizant Mov. Br. at 19 n.8), Judge Walls denied Cognizant’s motion
to strike (see Op. at 21–26) and Cognizant never moved for reconsideration on that decision. Accordingly, this Court
may consider the allegations attributed to FE1. Moreover, the Court agrees with Judge Walls’s prior assessment as to
FE1’s basis of knowledge and similar indicia under the factors articulated in California Public Employees’ Retirement
System v. Chubb Corporation, 394 F.3d 126, 147 (3d Cir. 2004). (See Op. at 34–35).

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Sustainability Reports are not materially false or misleading because the Government Filings
contradict these statements. (Cognizant Mov. Br. at 20–21; Cognizant Reply Br. at 4–5; Schwartz
Mov. Br. at 11). Specifically, Cognizant argues that the Government Filings contradict these
allegations because information attributed to FE1, which Judge Walls found corroborated the
Sustainability Reports’ misstatements, relates solely to SEZ licenses. (Cognizant Mov. Br. at 21).
For the reasons already articulated, the allegations relating to FE1’s discovery of payments made
in connection with SEZ licenses are not refuted by the Government Filings.
In addition, Cognizant claims that the SEC’s February 13, 2019 letter to Cognizant’s
counsel (see D.E. No. 92-3, Ex. A to Brown Decl. (the “Declination Letter”)) 8 contradicts
information attributed to FE1 regarding Cognizant’s training materials because the Declination
Letter states that “Cognizant provided ‘all known relevant facts about the misconduct,’ [and] the
DOJ declined to prosecute Cognizant because of, among other things, ‘the existence and
effectiveness of the Company’s pre-existing compliance program.’” (Cognizant Mov. Br. at 21
(quoting Declination Letter at 2)). Moreover, for the same reason, Cognizant contends that the
Declination Letter contradicts allegations attributed to Former Employee 2 (“FE2”), who allegedly
stated that his or her “staff had no FCPA-specific training and that no FCPA training manuals even
existed.” (SAC ¶ 86; Cognizant Mov. Br. at 21–22). However, as Plaintiffs correctly note, the
Declination Letter made no finding whatsoever with respect to the effectiveness of Cognizant’s
anticorruption training in particular. (Opp. Br. at 68). Thus, the Court declines to find that the
Declination Letter contradicts the allegations attributed to FE1 or FE2 concerning Cognizant’s

8

The Court may consider the Declination Letter and other documents such as the Forms 8-K attached to
Cognizant’s and Schwartz’s motions to dismiss because they are incorporated by reference, integral to the claims in
the SAC, or are items subject to judicial notice. See Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir.
2006) (“In evaluating a motion to dismiss, we may consider . . . any ‘matters incorporated by reference or integral to
the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the
case.’”) (alteration in original); see also Oran v. Stafford, 226 F.3d 275, 289 (3d Cir. 2000) (taking judicial notice of
SEC filings).

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anti-corruption training practices. (See generally Declination Letter; see also Opp. Br. at 68).
Accordingly, the Court will not disrupt Judge Walls’s holding with respect to the actionable
misstatements contained in Cognizant’s 2014 and 2015 Sustainability Reports.
iii.

Statements of Error in Cognizant’s Financial Earnings Releases

Cognizant and Schwartz also ask this Court to revisit the Prior Opinion’s conclusion that
the financial misstatements were plausibly material to investors because they concealed the
underlying bribery scheme. (Cognizant Mov. Br. at 22–23; Cognizant Reply Br. at 5–7; Schwartz
Mov. Br. at 11). The Court declines to revisit Judge Walls’s prior assessment as to the materiality
of Cognizant’s financial earnings releases. The parties failed to challenge Judge Walls’s decision
in a motion for reconsideration. See Geibel, 667 F. Supp. at 219. Thus, this Court is bound by the
prior ruling.
Although Cognizant contends that the financial misstatements were immaterial because its
share price did not drop after the Government Filings went public (see Cognizant Mov. Br. at 23),
this argument, as Plaintiffs note, fails to account for the market’s reaction when it initially learned
about the bribery scheme on September 2016. (See Opp. Br. at 64–65). Following the September
30, 2016 disclosure, Cognizant’s stock price dropped by more than 13% per share. (SAC ¶¶ 12 &
148).
Moreover, this Court finds no reason to sway from Judge Walls’s finding of materiality at
the pleading stage based on the additional allegations in the SAC. 9 For the reasons stated above

9

Nor will the Court entertain Cognizant’s latest attempt to argue that the financial misstatements are
quantitatively immaterial as a matter of law. (See D.E. No. 124 (citing In re Duke Energy Corp. Sec. Litig., 282 F.
Supp. 2d 158 (S.D.N.Y. 2003), aff’d, 113 F. App’x 427 (2d Cir. 2004))). Although Cognizant had ample opportunity
to include Duke Energy in its briefing, Cognizant cited to this case for the first time in its May 5, 2020 letter to the
Court that it submitted prior to oral argument. (See id.). And, in any event, Duke Energy precedes the decisions that
Judge Walls relied on in concluding that the alleged misstatements were qualitatively material for pleading purposes.
(See Op. at 52 (citing Indian Public Ret. Sys., 818 F.3d at 89 and In re Eletrobras Sec. Litig., 245 F. Supp. 3d 450,
464–65 (S.D.N.Y. 2017)).

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(see supra Section III.A.i), the Government Filings do not contradict the qualitative nature of the
alleged misstatements because those documents relate to the bribery scheme for essential permits
that were necessary for the operation and occupation of the KITS Facility. Accordingly, the
alleged financial misstatements are sufficiently material at the pleading stage.
B.

Statements Attributable to Schwartz

Next, the Court will assess whether Plaintiffs’ Section 10(b) claim may proceed against
Schwartz.

Plaintiffs seek to attribute statements made in Cognizant’s earnings releases to

Schwartz because he signed various SEC Forms 8-K that attached the releases for dissemination
to shareholders. 10 Schwartz argues that Plaintiffs’ claim fails because he is not the “maker” of
any allegedly material misstatements attached to the Forms 8-K. (Schwartz Mov. Br. at 11–22).
i.

Forms 8-K

Plaintiffs allege that Schwartz signed six Forms 8-K filed during the Class Period which
attached Cognizant’s earnings releases, that, “as Schwartz knew, misstated Cognizant’s capital
expenditures, operating expenses, and net income.” (SAC ¶ 118). The Forms 8-K in contention
include those filed with the SEC on (i) May 4, 2015; (ii) August 5, 2015; (iii) November 4, 2015;
(iv) February 1, 2016; (v) May 6, 2016; and (vi) August 5, 2016 (collectively, “Cognizant’s Forms
8-K”). (Id.). As stated above, Judge Walls previously found, for purposes of pleading, that
Cognizant made materially false and misleading statements by overstating its earnings as a result
of the bribery scheme. (Op. at 52–53). And, for the reasons previously discussed, this Court does
not disturb that finding. The issue presently before the Court is whether Schwartz, as the signer
of Cognizant’s Forms 8-K, may be held liable as the “maker” of the alleged earnings misstatements

10

A “Form 8-K is the ‘current report’ companies must file with the SEC to announce major events that
shareholders should know about.” Form 8-K, U.S. Sec. and Exch. Comm’n, https://www.sec.gov/fastanswers/answersform8khtm.html. (last visited June 5, 2020).

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contained in the releases. The Court finds that while Schwartz cannot be held liable as the “maker”
of the alleged misstatements in Cognizant’s Forms 8-K under Rule 10b–5(b), Plaintiffs’ Section
10(b) claim nonetheless survives against Schwartz under the doctrine of scheme liability pursuant
to Rule 10b–5(a) and (c).
To begin, Rule 10b–5 provides three ways that persons may be liable under Section 10(b)
of the Exchange Act. See 17 C.F.R. § 240.10b–5. Specifically, Rule 10b–5 makes it unlawful:
(a) [t]o employ any device, scheme, or artifice to defraud,
(b) [t]o make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading, or
(c) [t]o engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,
that is carried out “in connection with the purchase or sale of any security.” Id. Traditionally,
under subsection (b), an individual must “make” the allegedly misleading statements or omissions
of material fact, while subsections (a) and (c) cover what is referred to as “scheme liability” for
allegedly deceptive conduct. De Vito v. Liquid Holdings Grp., Inc., No. 15-6969, 2018 WL
6891832, at *41 (D.N.J. Dec. 31, 2018) (citing In re DVI, Inc. Sec. Litig., 639 F.3d 623, 643 n.29
(3d Cir. 2011)). The Court will first evaluate whether Plaintiffs adequately plead a claim under
Rule 10b–5(b) against Schwartz.
1.

Liability Under Rule 10b–5(b)

Defendant Schwartz argues that he is not liable under Rule 10b–5(b) as the “maker” of the
statements attached to Cognizant’s Forms 8-K because Plaintiffs fail to allege that Schwartz had
ultimate authority over any statements in Cognizant’s earnings releases. (Schwartz Mov. Br. at
12–16; Schwartz Reply Br. at 2–7). The Court agrees that Schwartz is not the “maker” of the

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alleged misstatements attached to Cognizant’s Forms 8-K.
“For purposes of Rule 10b–5, the maker of a statement is the person or entity with ultimate
authority over the statement, including its content and whether and how to communicate it.” Janus
Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011). Thus, “[w]ithout control,
a person or entity can merely suggest what to say, not ‘make’ a statement in its own right.” Id.
Moreover, in Janus, the Supreme Court noted that “[o]ne who prepares or publishes a statement
on behalf of another is not its maker.” Id. As such, “make” means “to state” rather than “to
create.” Id. at 142–44. The Supreme Court analogized this distinction to the relationship between
a speechwriter and a speaker. Id. at 143. Although a speechwriter drafts the speech, the speaker
is ultimately the person in control of its delivery and will take blame for what he or she ultimately
says. Id.
Here, the parties cite to a number of cases that deal specifically with the intricacies of
Forms 8-K when deciphering potential liability under Rule 10b–5. Each of these cases, however,
suggests that the signer of Forms 8-K may be liable for misstatements contained in attachments to
the Forms 8-K when they allegedly have at least some authority over the misleading statements.
For example, in United States Securities Exchange Commission v. Carter, the plaintiff adequately
alleged that the Form 8-K signer was the “maker” of misstatements made in the attached press
release. No. 10-6145, 2011 WL 5980966, at *2–3 (N.D. Ill. Nov. 28, 2011). The signer allegedly
reviewed and approved the press release, listed his contact information on the press release, and
had been quoted in the press release. Id. at *2–3. Similarly, in Levy v. Gutierrez, a general counsel
who signed the Forms 8-K could not be the maker of quoted misstatements contained in the
attached press releases because the releases quoted other corporate officers rather than general
counsel himself. No. 14-443, 2017 WL 2191592, at *12 (D.N.H. May 4, 2017).

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And while the parties extensively debate their renditions of In re Banco Bradesco S.A.
Securities Litigation, 277 F. Supp. 3d 600 (S.D.N.Y. 2017) and North Port Firefighters’ PensionLocal Option Plan v. Temple Inland, Incorporated, 936 F. Supp. 2d 722 (N.D. Tex. Mar. 28, 2013),
the Court finds that these cases ultimately support Schwartz’s position. First, it is unclear whether
Mr. Angelotti, the signer of Forms 6-K 11 at issue in Banco Bradesco, had also signed the press
releases attached to those forms, as Schwartz suggests. See 277 F. Supp. 3d at 663; (Schwartz
Reply Br. at 4). In any event, the district court there held that by signing a Form 6-K that included
the language “we would like to take this opportunity to reiterate the clarifications provided in the
Notice to Market of May 31, 2016,” Mr. Angelotti effectively ratified and approved the earlier
May 31, 2016 statement, and therefore plaintiffs adequately alleged that he “made” those
statements under Janus. Banco Bradesco, 277 F. Supp. 3d at 663.
North Port Firefighters’ is also inapposite. North Port Firefighters’ ultimately did not
assess the issue presently before the Court: whether the signer of Forms 8-K may be liable for
statements attached therein. Rather, the signer of the Form 8-K at issue in North Port Firefighters’
was not a named party in the action, and potential liability as to him was therefore never assessed.
936 F. Supp. 2d at 742–43. By contrast, the court only analyzed whether those individuals and
companies that signed documents attached to the Form 8-K could be liable for “making”
statements contained in those attachments. Id. at 740–43.
In the present matter, Plaintiffs do not allege that Schwartz was quoted in any of the
financial earnings press releases attached to Cognizant’s Forms 8-K. (See generally SAC). Nor
do Plaintiffs allege that Schwartz’s name or contact information appeared on the press releases, or
that Schwartz was responsible for reviewing or approving the press releases prior to their issuance.

11

Under 17 C.F.R. § 240.13a-16(a), foreign private issuers are required to make reports on Forms 6-K if they
are subject to Rule 13a-1 under the Exchange Act.

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(See generally id.). The Court’s review of Cognizant’s Forms 8-K, attached to Cognizant’s and
Schwartz’s moving briefs and incorporated by reference in the SAC, do not indicate the contrary.
(See D.E. Nos. 92-10, 92-11, 92-12, 92-13, 92-14 & 92-15, Exs. H–M to Brown Decl.).
Moreover, a case from this district that analyzed the potential liability of a Form 8-K signer
comports with the principles gleaned from the parties’ cited cases. See In re MobileMedia Sec.
Litig., 28 F. Supp. 2d 901, 940 (D.N.J. 1998). In MobileMedia, the corporate entity, MobileMedia,
issued a Form 8-K signed by its Senior Vice President and General Counsel, Mr. McVay. Id. at
912. “Item 5” of the Form 8-K included portions of MobileMedia’s credit agreement that provided
funds for its acquisition of another company, MobileComm. Id. at 939. “Item 5” restated certain
credit agreement terms, specifically the portion that required MobileMedia to be in compliance
with all Federal Communication Commission (“FCC”) rules and regulations. Id. However,
McVay knew that MobileMedia failed to comply with all FCC rules and regulations. Id. at 940.
Thus, the Court held that McVay’s alleged “fail[ure] to disclose information known to him
concerning the filing of false Forms 489 supports the inference that the inclusion of the Credit
Agreement in the 1996 Form 8–K was materially misleading in violation of Rule 10b–5.” Id.
Although MobileMedia presents a closer call, it is significant that the misleading and
materially false portion of the credit agreement was quoted directly in “Item 5” on the Form 8-K
that McVay signed. “Item 5” was “designated as the space where events ‘the registrant deems of
importance to security holders’ are to be reported.” Id. at 939. Here, by contrast, Plaintiffs do not
cite to any alleged misstatements contained on the itemized portion of Cognizant’s Forms 8-K.
Instead, the Court’s review of Cognizant’s Forms 8-K reflects that the allegedly material
misstatements were attached in the underlying press releases that Schwartz was not alleged to have
drafted or approved. (See, e.g., D.E. No. 92-10, Ex. H to Brown Decl. (stating that “[o]n May 4,

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2015, Cognizant Technology Solutions Corporation, a Delaware corporation (the “Company”),
issued a press release to report the Company’s financial results for the quarter ended March 31,
2015. The full text of the press release is attached to this current report on Form 8-K as Exhibit
99.1.*”)). Thus, unlike the allegations here, the misstatement in MobileMedia was on a document
in which McVay appended his signature to, and arguably had “authority” over. Moreover,
dissimilar to the present circumstances, where Schwartz vigorously contests his attribution to any
of the alleged misstatements, McVay had already admitted that the misstatement made in the Form
8-K was attributable to him. MobileMedia, 28 F. Supp. 2d at 939.
Accordingly, because Plaintiffs fail to allege how Schwartz had “ultimate authority” over
the alleged misstatements attached to Cognizant’s Forms 8-K, the Court finds that Schwartz was
not the “maker” of those statements under Rule 10b–5.
2.

Scheme Liability Under Rule 10b–5(a) and (c)

Next, Plaintiffs contend that, notwithstanding whether Schwartz was the “maker” of the
alleged misstatements appended to Cognizant’s Forms 8-K, he nonetheless faces “scheme
liability” for violations of Rule 10b–5(a) and (c). (Opp. Br. at 73; Tr. at 50:12–17). Relying on
the Supreme Court’s recent decision in Lorenzo v. Securities and Exchange Commission, 139 S.
Ct. 1094 (2019), Plaintiffs argue that “Schwartz . . . disseminated statements he knew to be false
to investors,” thereby implicating “scheme liability” under Rule 10b–5(a) and (c). (Opp. Br. at
74). In his reply brief, Schwartz maintains that while “Lorenzo opened the door to scheme liability
claims based upon the dissemination of a misstatement, there is no suggestion from the opinion
that the Supreme Court intended to do away with a requirement that the act of dissemination be
‘inherently deceptive.’” (Schwartz Reply Br. at 8 (emphasis added)).
As set out above, liability under Rule 10b–5(a) or (c) is implicated when an individual,

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either directly or indirectly, “employ[s] any device, scheme, or artifice to defraud, . . . or []
engage[s] in any act, practice, or course of business which operates or would operate as a fraud or
deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. §
240.10b–5. To state a valid claim for “scheme liability” under Rule 10b–(a) or (c), a “plaintiff
must allege (1) that the defendant committed a deceptive or manipulative act, (2) in furtherance of
the alleged scheme to defraud, (3) with scienter, and (4) reliance.” S.E.C. v. Lucent Techs., Inc.,
610 F. Supp. 2d 342, 350 (D.N.J. 2009); see also Trustcash Holdings, Inc. v. Moss, 668 F. Supp.
2d 650, 661 (D.N.J. 2009). 12
In Lorenzo, the Supreme Court granted certiorari under “the assumption that Lorenzo was
not a ‘maker’ under subsection (b) of Rule 10b–5” and therefore declined to revisit the District of
Columbia’s Circuit Court of Appeals’ decision on that point. 139 S. Ct. at 1100. Accordingly, the
Court considered the narrow issue of “whether those who do not ‘make’ statements (as Janus
defined ‘make’), but who disseminate false or misleading statements to potential investors with
the intent to defraud, can be found to have violated the other parts of Rule 10b–5, subsections (a)
and (c). . . .” Id. at 1099. Critical to the case at bar, however, the Supreme Court made clear that
its grant of certiorari on this issue was limited to the circumstance before it—specifically “when
the only conduct involved concerns a misstatement.” Id. at 1100 (emphasis added).
At the outset, the Court notes that this case is markedly different than Lorenzo because
Plaintiffs make clear that Schwartz’s alleged conduct—namely, his participation in and
concealment of the bribery scheme—extended far beyond the mere dissemination of alleged
misstatements in Cognizant’s Forms 8-K. To understand this distinction, the facts in Lorenzo are
paramount. Francis Lorenzo was an investment banking director who, through his employer, was

12

The Court’s analysis in this section is limited to elements one, two and four only. As discussed in infra
Section III.C.ii, Plaintiffs adequately allege scienter with respect to Schwartz.

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hired to sell $15 million of debentures to prospective investors on behalf of Waste2Energy
Holdings, Inc. (“W2E”). Id. at 1099. At the direction of his supervisor, Lorenzo sent two emails
to prospective investors that discussed the debenture offering. Id. However, because those emails
were authored and approved by Lorenzo’s supervisor, Lorenzo did not have “ultimate authority”
over the emails’ content which had precluded liability under Rule 10b–5(b), as determined by the
Court of Appeals. Id. at 1100. The emails authored by Lorenzo’s supervisor misstated W2E’s
assets, and Lorenzo knew they were inaccurate. Id. at 1099. In fact, Lorenzo was informed about
the true value of W2E’s assets, and W2E had publicly disclosed the accurate value of its assets
before Lorenzo sent the misstated emails. Id. Despite this knowledge, Lorenzo appended his
signature to the emails, identifying himself as “Vice President—Investment Banking,” and
encouraged the recipients to contact him with any questions. Id.
The Supreme Court held that “dissemination of false or misleading statements with intent
to defraud can fall within the scope of subsections (a) and (c) of Rule 10b–5, . . . even if the
disseminator did not ‘make’ the statements and consequently falls outside subsection (b) of the
Rule.” Id. at 1100–01. It reasoned that “[b]y sending emails he understood to contain material
untruths, Lorenzo ‘employ[ed]’ a ‘device,’ ‘scheme,’ and ‘artifice to defraud’ within the meaning
of subsection (a) of the Rule, § 10(b) . . . . [and b]y the same conduct, he ‘engage[d] in a[n] act,
practice, or course of business’ that ‘operate[d] . . . as a fraud or deceit’ under subsection (c) of the
Rule.” Id. at 1101. After reviewing the dictionary definitions of the terms “device,” “scheme,”
“artifice,” “act,” and “practice,” the Court concluded that subsections (a) and (c) encompass “a
wide range of conduct” including the act of “disseminating false or misleading information to
prospective investors with the intent to defraud.” Id. (emphasis added). Moreover, because
Lorenzo did not challenge the District of Columbia’s Circuit Court of Appeals’ scienter finding,

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the Supreme Court was not tasked with evaluating whether Lorenzo had the requisite scienter, that
is, whether he intended to deceive investors. Id. (“Recall that Lorenzo does not challenge the
appeals court’s scienter finding, so we take for granted that he sent the emails with ‘intent to
deceive, manipulate, or defraud’ the recipients.”).
Thus under Lorenzo, unlike prior precedent, a plaintiff need not necessarily allege
deceptive conduct that extends beyond the alleged misstatement itself. See De Vito, 2018 WL
6891832, at *42 (noting that district courts in the Third Circuit “consistently required that a
subsection (a) or (c) claim encompass deceptive conduct that [went] beyond a material
misstatement or omission” (emphasis added)); Kyle A. Mason, Life after Lorenzo – The Strained
Re-Emergence of Scheme Liability, 48 SEC. REG. L.J. 1 (2020) (“[B]ecause Lorenzo held directly
to the contrary (that is, scheme liability can be based purely on conduct involving only a
misstatement) it should completely abrogate this rule. . . .”). Under a narrow application of
Lorenzo, Schwartz attempts to steer this Court to view the alleged misstatement in isolation by
arguing that Lorenzo did not “do away with a requirement that the act of dissemination be
‘inherently deceptive.’” (Schwartz Reply at 8 (emphasis added)). However, while Lorenzo may
have altered the scope of scheme liability by allowing a claim in the narrow circumstance “when
the only conduct involved concern[ed the dissemination of] a misstatement,” it did not necessarily
preclude from liability instances where the dissemination of a misstatement is preceded by
additional allegedly deceptive conduct. See Lorenzo, 139 S. Ct. at 1100–01. This interpretation
of Lorenzo is bolstered by the Supreme Court’s comment that the “provisions [under subsections
(a) and (c)] capture a wide range of conduct.” Id. at 1101 (emphasis added).
Here, the Court cannot simply turn a blind eye to the alleged conduct that preceded
Schwartz’s dissemination of the misstatements at issue.

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allegations reflect that Schwartz participated in devising the scheme on the April 21 and 22, 2014
videoconference calls to disguise the true nature of bribe payments. (SAC ¶ 96). Specifically,
during the April 22, 2014 videoconference call, Schwartz allegedly advised that the reimbursement
payment made to L&T for the bribe to the Indian government official “should not stand out in the
change order request” so that the fraudulent scheme would remain undetected. (See id. ¶ 96
(emphasis added)). Second, Schwartz also allegedly knew that the way in which the bribe
payments were ultimately disguised—as bona fide construction payments to L&T—would result
in Cognizant reporting overstated capitalized expenditures and overstated earnings. (Id. ¶¶ 112 &
116 (“Schwartz knew that the reimbursement for the bribe would be and was included in the
amount Cognizant agreed to pay L&T, and that the change order documents would be and were
falsified to conceal the true nature of those payments,” and “that these actions would cause
Cognizant to improperly record the illicit payments in Cognizant’s books and records as bona fide
construction expenses”); id. ¶ 117 (alleging that Schwartz knew “the bribery scheme would also
cause Cognizant’s publicly reported financial statements to be falsified. . . . [because b]y disguising
the bribes as bona fide construction costs, [Schwartz] understood that these expenditures would be
capitalized, rather than expensed, thus overstating capital expenditures, understating operating
expenses, and overstating earnings in Cognizant’s publicly-reported financial statements.”)).
Third, Schwartz allegedly furthered the scheme by causing inaccurate financial information to be
reported to investors by concealing “the bribery scheme from Cognizant’s auditor in connection
with its audits of the Company’s financial statements . . . .” (Id. ¶¶ 119–20).
Moreover, Schwartz’s position and job responsibilities at Cognizant take him far outside
the confines of an employee such as a mailroom clerk who is only “tangentially involved” in the
dissemination of misstatements “for whom liability would typically be inappropriate.” See

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Lorenzo, 139 S. Ct. at 1101. And Schwartz’s prior role at Cognizant is arguably even more
paramount than the position occupied by Lorenzo. See id. at 1099. Here, Schwartz’s alleged
participation and concealment of the bribery scheme, and his dissemination of Cognizant’s Forms
8-K, occurred in his capacity as Cognizant’s Executive Vice President, Chief Legal and Corporate
Affairs Officer. (See SAC ¶ 34). Plaintiffs allege that in his role at Cognizant, Schwartz
“manag[ed] Cognizant’s global legal teams, global government affairs efforts, and global security
team,” oversaw and managed Cognizant’s compliance functions, and “was ultimately responsible
for monitoring and ensuring Cognizant’s compliance with anti-corruption laws.” (Id. ¶¶ 34 &
131). As such, Plaintiffs claim that Schwartz was responsible for “reporting the false compliance
data included in the Sustainability Reports.” (Id. ¶ 131).
When viewed cumulatively, the Court cannot find that Schwartz’s dissemination of
Cognizant’s Forms 8-K was merely tangential. (See Tr. at 64:22–25 (arguing that the “[term]
scheme itself is necessarily cumulative. You look at the whole. You don’t look at one single
piece.”)). Rather, the Court can plausibly infer from the alleged facts that Schwartz engaged in a
pattern of deceptive conduct leading up to and encompassing the dissemination of the alleged
misstatements that he plausibly knew to be false by virtue of his participation in the scheme and
its concealment. This conclusion comports with the reasoning articulated by the Supreme Court
in Lorenzo:
Our conviction is strengthened by the fact that we here confront
behavior that, though plainly fraudulent, might otherwise fall
outside the scope of the Rule. Lorenzo’s view that subsection (b),
the making-false-statements provision, exclusively regulates
conduct involving false or misleading statements would mean those
who disseminate false statements with the intent to cheat investors
might escape liability under the Rule altogether. But using false
representations to induce the purchase of securities would seem a
paradigmatic example of securities fraud. We do not know why
Congress or the Commission would have wanted to disarm
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enforcement in this way. And we cannot easily reconcile Lorenzo’s
approach with the basic purpose behind these laws: to substitute a
philosophy of full disclosure for the philosophy of caveat emptor
and thus to achieve a high standard of business ethics in the
securities industry.
Lorenzo, 139 S. Ct. at 1102–03 (internal quotation marks omitted). And, as the Supreme Court
did in Lorenzo, this Court confronts alleged behavior by Schwartz that is “plainly fraudulent, [but]
might otherwise fall outside the scope of Rule [10b–5].” See id. Accordingly, for the cumulative
reasons stated above, the Court finds that the alleged facts state a claim for scheme liability against
Schwartz in that he committed a deceptive or manipulative act by disseminating financial
misstatements in furtherance of a scheme to defraud.
Moreover, even under cases that pre-date Lorenzo, scheme liability would still prevent
dismissal of the Section 10(b) claim against Schwartz. See, e.g., De Vito, 2018 WL 6891832, at
*41–42. Traditionally, claims under subsections (a) and (c) for scheme liability are viewed as
distinct from claims under subsection (b) because the former “make deceptive conduct actionable,
as opposed to . . . deceptive statements.” DVI, Inc., 639 F.3d at 643 n.29 (emphasis added). Before
Lorenzo, district courts in the Third Circuit “consistently required that a subsection (a) or (c) claim
encompass deceptive conduct that [went] beyond a material misstatement or omission.” De Vito,
2018 WL 6891832, at *42 (collecting cases). Many other courts held the same view: that scheme
liability required an inherently deceptive act distinct from the alleged misstatement. See id. at *41;
see also Public Pension Fund Group v. KV Pharmaceutical Co., 679 F.3d 972, 987 (8th Cir. 2012);
WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1057 (9th Cir. 2011);
S.E.C. v. Kelly, 817 F. Supp. 2d 340, 344 (S.D.N.Y. 2011). However, pre-Lorenzo courts
recognized that deceptive conduct under Rule 10b–5(a) and (c) may overlap with misstatements
or omissions that fall under Rule 10b–5(b). De Vito, 2018 WL 6891832, at *42. “But to be

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actionable [under subsections (a) or (c)], the conduct must be fraudulent in its own right, apart
from any misrepresentations about the conduct.” Id. In De Vito, the Court articulated the
following test to determine whether liability falls under Rule 10b-5(a), (b) or (c) where “the
deceptive conduct is alleged to be the act of making the statement or omission itself” thus blurring
the line “between scheme liability and the misrepresentation/omission liability:”
If disclosure of the full details of the alleged misconduct would
transform that conduct into otherwise permissible behavior, liability
likely falls under Rule 10b-5(b). But if the complete details of the
conduct had been fully disclosed, and that conduct would still be
fraudulent, scheme liability under Rule 10b-5(a) and (c) is
appropriate.
Id. at *42–3. Here, it is clear that if the full details of the financial misstatement (i.e., the bribery
scheme) were disclosed, the underlying alleged conduct would still be fraudulent such that a claim
for scheme liability would be appropriate under subsections (a) and (c). See, e.g., Eletrobras, 245
F. Supp. 3d at 471 (failing to plead scheme liability claims where plaintiffs only focused on
“defendants’ alleged misstatements or omissions, and therefore fail[ed] to state that they
committed an ‘inherently deceptive act that is distinct from an alleged misstatement’”); JAC
Holding Enters., Inc. v. Atrium Capital Partners, LLC, 997 F. Supp. 2d 710, 735 (E.D. Mich. 2014)
(finding that plaintiffs adequately pled scheme liability where the alleged conduct was “not just
specific false statements . . . but also the planning and carrying out of a comprehensive scheme,
by specific steps, to mislead the buyers as to JAC’s value”). Because Plaintiffs maintain that
Schwartz participated in devising the bribery scheme and concealing it thereafter, the allegations
plausibly indicate that he engaged in inherently deceptive conduct apart from the dissemination of
the alleged misstatements. The Court disagrees with Schwartz’s contention that had he “at the
time of the filing of the 8-K said here are the facts, there would be nothing else to disclose . . . .
because there would be full disclosure to investors of the effects on the financial statements.” (See
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Tr. at 82:24–83:12). Thus, even under the pre-Lorenzo scheme liability framework, Plaintiffs have
adequately alleged the first two elements of a scheme liability claim against Schwartz.
Finally, with respect to the last element of a scheme liability claim—reliance—Schwartz
cites to Trustcash, for the proposition that “‘[t]he alleged deception is not sufficiently causally
connected to any inherently unlawful activities propagated on Plaintiffs’ to support a claim for
scheme liability.” (Schwartz Reply Br. at 9 (citing Trustcash, 668 F. Supp 2d at 662)). In
Trustcash, the Court further stated that “[t]he lack of a direct causal connection between the alleged
inherently deceptive conduct and [p]laintiffs’ alleged injuries can alternatively be framed as a
defect in reliance, which requires a causal connection between a defendant’s alleged misconduct
and a plaintiff’s injury.” 668 F. Supp 2d at 662 n.5 (citing Basic, 485 U.S. at 243). Here, however,
it is adequately alleged that but-for Schwartz’s misconduct in devising, advising, and concealing
the bribery scheme, as well as his dissemination of the financial misstatements, Cognizant would
not have overstated its earnings, which then resulted in Plaintiffs’ alleged injuries. 13 Accordingly,
Plaintiffs have adequately alleged reliance.
Finally, as discussed below (see infra Part III.C.ii), Plaintiffs’ claim for scheme liability
against Schwartz survives because the SAC adequately pleads the remaining element, Schwartz’s
scienter.
ii.

Sustainability Reports

With respect to the Sustainability Reports, Schwartz argues that the allegations claiming
that he “‘participated in approving’ and was ‘ultimately responsible’ for the false compliance data”
are “sheer speculation” that this Court should reject. (Schwartz Mov. Br. at 21 (quoting SAC ¶
131)). As such, Schwartz contends that he cannot be the “maker” of any alleged misstatements in

13

In addition, the Court notes that even Cognizant fails to challenge the element of reliance under the Section
10(b) claim asserted against it. (See generally Cognizant Mov. Br.).

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the Sustainability Reports. (Id. at 21–22).
For the reasons discussed above in light of Janus, the Court agrees that Schwartz cannot
be the “maker” of statements contained in the Sustainability Reports. Schwartz is not alleged to
have directly drafted or completely approved any of the claimed misstatements in the
Sustainability Reports, and Plaintiffs do not contest Schwartz’s arguments in this regard. (See
generally Opp. Br.). Plaintiffs’ allegation that Schwartz “participated in approving” the false
compliance data and was “ultimately responsible for . . . reporting the false compliance data
included in the Sustainability Reports” suggests that other individuals aside from Schwartz had
“ultimate authority” or approval over the alleged misstatements as they appeared in the reports.
(See SAC ¶ 131 (emphasis added)); see also Janus, 564 U.S. at 142. And notably, in their
opposition brief, Plaintiffs focus their attention on Schwartz’s alleged furnishing or reporting of
false information for inclusion in the Sustainability Reports, as it relates to the analysis of corporate
scienter rather than Schwartz’s liability under Rule 10b–5. (See Opp. Br. at 40–43; see id. at 25
(stating that “Schwartz was responsible for reporting the false compliance data in the
Sustainability Reports” (emphasis added)); id. at 43 n.6 (stating that Cognizant’s argument that
Schwartz did not draft misstatements in the Sustainability Reports “rests on the entirely
misbegotten premise that a corporate agent’s scienter is imputable to the corporation only if they
‘draft’ the misstatement”)). Accordingly, the Court declines to find that Schwartz was the “maker”
of the alleged misstatements contained in the Sustainability Reports.
iii.

SOX Sub-Certifications

Lastly, Schwartz contests that he is the “maker” of any statements contained in Cognizant’s
SOX Certifications, SEC filings, or financial reports by way of his alleged signing of SOX subcertifications that were provided internally to Cognizant’s Chief Executive Officer and Chief

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Financial Officer. (See Schwartz Mov. Br. at 18–19; see SAC ¶¶ 123–24). Plaintiffs argue that
“without Coburn and Schwartz’s sub-certifications, the CEO and CFO ‘would have been unable
to sign their own certifications required by SOX, and the Company would have been unable to file
the financial reports with the SEC.’” (Opp. Br. at 36 (quoting SAC ¶ 123)).
Plaintiffs’ argument, however, is ultimately flawed in light of the Court’s Prior Opinion.
The Court already held that the SOX Certifications themselves are non-actionable in the first
instance, and Plaintiffs do not challenge this finding in the SAC. (See Op. 53–55; see, e.g., SAC
at 2 n.1 & 12 n.3). Thus, because this Court does not disturb Judge Walls’s holding, any attempt
by Plaintiffs to hold Schwartz liable as the maker of statements in the SOX Certifications (or
attendant filings) by way of his SOX sub-certifications is unpersuasive at this juncture.
C.

Scienter

“To establish liability under [Section] 10(b) and Rule 10b–5, a private plaintiff must prove
that the defendant acted with scienter, ‘a mental state embracing intent to deceive, manipulate, or
defraud.’” Tellabs, 551 U.S. at 319. The PSLRA requires that Plaintiffs alleging violations of
Section 10(b) “state with particularity facts giving rise to a strong inference that the defendant
acted with the required state of mind,” which can be shown by alleged facts “giving rise to a ‘strong
inference’ of ‘either reckless or conscious behavior.’” Avaya, Inc., 564 F.3d at 267 (quoting In re
Advanta Corp. Sec. Litig., 180 F.3d 525, 534–35 (3d Cir. 1999)). The Third Circuit has defined
“reckless” as “an extreme departure from the standards of ordinary care . . . which presents a
danger of misleading buyers or sellers that is either known to the defendant or is so obvious that
the actor must have been aware of it.” Advanta, 180 F.3d at 539 (internal quotations omitted); see
also Fan v. StoneMor Partners LP, 927 F.3d 710, 718 (3d Cir. 2019). Allegations reflecting mere
corporate mismanagement are not sufficient. City of Roseville Emps.’ Ret. Sys. v. Horizon Lines,

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Inc., 442 F. App’x 672, 675 (3d Cir. 2011).
“[I]n determining whether the pleaded facts give rise to a ‘strong’ inference of scienter, the
court must take into account plausible opposing inferences.” Tellabs, 551 U.S. at 323. The Court
must “consider[] all the arguments presented by [an amended c]omplaint and assess[] scienter
holistically.” See OFI Asset Mgmt. v. Cooper Tire & Rubber, 834 F.3d 481, 493 (3d Cir. 2016).
The relevant question is “whether all of the facts alleged, taken collectively, give rise to a strong
inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that
standard.” Tellabs, 551 U.S. at 322–23. Nor do plaintiffs need to come forth with “smoking-gun”
evidence to support the inference of scienter. Id. at 324. Thus, at the motion to dismiss stage, a
court must weigh the “plausible, nonculpable explanations for the defendant’s conduct” against
the “inferences favoring the plaintiff.” Id. at 323–24. “A complaint will survive . . . only if a
reasonable person would deem the inference of scienter cogent and at least as compelling as any
opposing inference one could draw from the facts alleged.” Id. at 324; see also, Avaya, Inc., 564
F.3d at 259.
i.

Coburn

At the outset, the Court notes that in its briefing, Cognizant does not appear to contest the
sufficiency of the allegations that are presently before the Court as they relate to Coburn’s scienter.
(See generally Cognizant Mov. Br.; see also Cognizant Reply Br.). Nor does Cognizant attempt
to suggest that this Court should reassess the Prior Opinion’s conclusion that Coburn’s scienter
was adequately alleged. 14 (See generally Cognizant Mov. Br.; see also Cognizant Reply Br.).

14

As previously stated, Judge Walls found that the allegations supported scienter as to Coburn but dismissed
Count I against him with prejudice because he did not make any of the alleged misstatements that survived dismissal.
(Op. at 55, 63–66 & 74).

“[W]hen one district judge has rendered a decision in a case, and the case is later transferred to another judge,
the successor should not ordinarily overrule the earlier decision.” See Geibel, 667 F. Supp. at 219. However, the
Third Circuit has stated four exceptions to the law-of-the-case doctrine in this circumstance. Id. Accordingly, a

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However, even if the parties had raised the issue of Coburn’s scienter, this Court finds that the new
allegations contained in the SAC serve to bolster Judge Walls’s prior analysis. (See Op. at 63–
66).
For example, neither Cognizant nor Coburn contest that the timing and circumstances of
Coburn’s resignation support the inference of scienter. (See id.; see generally Cognizant Mov.
Br., Coburn Mov. Br., Cognizant Reply Br. & Coburn Reply Br.). Cognizant and Coburn also do
not dispute that “Coburn was a participant in the bribery scheme and, consequently, that he had
actual knowledge that statements touting SEZ licenses, touting compliance procedures, and
misrepresenting financial statements were false and misleading.” (Op. at 63; see generally
Cognizant Mov. Br., Coburn Mov. Br., Cognizant Reply Br. & Coburn Reply Br.).
Furthermore, the new allegations contained in the SAC only serve to bolster the Court’s
prior scienter analysis because they describe Coburn’s specific involvement in devising and
implementing the alleged bribery scheme in connection with the KITS Facility. (See SAC ¶¶ 89–
131). For example, Coburn was allegedly the individual who ultimately approved L&T’s phony
change order requests that concealed the true nature of the bribe payments. (Id. ¶¶ 94, 97, 108 &
111–13). And Plaintiffs allege that “having served as Cognizant’s CFO and President . . . [he]
knew that these actions would cause Cognizant to improperly record the illicit payments in
Cognizant’s books and records as bona fide construction expenses.” (Id. ¶ 116). The bribery
scheme thus “necessarily entailed deliberately falsifying Cognizant’s books, records and accounts,
which were used to generate Cognizant’s Class Period financial statements and earnings releases.”

successor judge may (i) consider a timely motion for reconsideration when the successor judge is unavailable; (ii)
address a previously decided issue based on the availability of new evidence; (iii) apply a new rule of law that is valid
and applicable to the issues; and (iv) reassess the prior decision if it was “clearly erroneous and would work a manifest
injustice.” Id. Here, Cognizant does not argue that the undersigned should revisit Judge Walls’s scienter analysis as
it relates to Coburn under any of the exceptions to the law-of-the-case doctrine. (See generally Cognizant Mov. Br.).

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(Id. ¶ 117). Accordingly, for all of the reasons stated in the Court’s Prior Opinion and based on
the newly alleged facts detailing Coburn’s participation, execution, and concealment of the bribery
scheme, Plaintiffs have adequately pled Coburn’s scienter. (See Op. at 63–66).
ii.

Schwartz

Next, Schwartz contests that the allegations support the inference that he acted with the
requisite scienter. (Schwartz Mov. Br. 23–30). The Court finds that cumulatively, Plaintiffs’
allegations regarding Schwartz reflect a strong inference of scienter.
First, the SAC makes clear that Schwartz not only participated on the April 21 and 22, 2014
videoconference calls during which the bribery scheme was conceived, but also advised coconspirators to conceal the true nature of the bribe payments so that they did “not stand out.” (SAC
⁋ 96; id. ⁋ 97 (“To ensure that their fraudulent scheme went undetected, Schwartz emphasized
during the April 22, 2014 video conference that the reimbursement payment should not stand out
in the change order request.”); id. ⁋ 298). As alleged by Plaintiffs, it follows that Schwartz
“approved and executed a plan to conceal the bribery scheme that necessarily entailed deliberately
falsifying Cognizant’s books, records, and accounts, which were used to generate Cognizant’s
Class Period Financial statements and earnings releases.” (Id. ⁋ 117). Schwartz knew that the
“bribery scheme would also cause Cognizant’s publicly reported financial statements to be
falsified” because Schwartz, having served as Cognizant’s general counsel, “understood that these
expenditures would be capitalized, rather than expensed, thus overstating capital expenditures,
understating operating expenses, and overstating earnings in Cognizant’s publicly-reported
financial statements.” (Id.).
Second, akin to Judge Walls’s scienter analysis as to Coburn, the new allegations regarding
Schwartz’s departure from Cognizant also provide for an inference of scienter. The resignation of

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corporate executive defendants is one “factor that can strengthen the inference of scienter.” In re
Hertz, 905 F.3d at 118 (collecting cases). As Judge Walls noted, “[t]he resignation of a member
of senior management in the midst of an internal investigation can be indicative of scienter.” (Op.
at 64 (citing Se. Pa. Transp. Auth. v. Orrstown Fin. Servs., Inc., No. 12-993, 2016 WL 466958, at
*4 (M.D. Pa. Feb. 8, 2016))). “For a resignation to add to an inference of scienter, a pleading must
set forth allegations suggesting a compelling inference that the resignation was the result of
something other than ‘the reasonable assumption that the resignation occurred as a result of’ the
release of bad news.” In re Hertz, 905 F.3d at 118; see also Fain v. USA Techs., Inc., 707 F. App’x
91, 97 (3d Cir. 2017).
Here, Schwartz allegedly departed from Cognizant in November of 2016. (SAC at 2; id. ¶
34). Any nonculpable explanation for Schwartz’s departure is refuted by Cognizant’s public
statement in its Form 10-K filed on March 1, 2017 with the SEC. Specifically, Cognizant
disclosed:
[T]he members of senior management who may have participated in
or been aware of the making of the identified potentially improper
payments and failed to take action to prevent the making of the
identified potentially improper payments were no longer with the
Company or in a senior management position as of December 31,
2016. Additional personnel actions have been taken with respect to
other employees and further actions may be required.
(Id. ¶ 159). Thus, given that Schwartz allegedly departed from Cognizant sometime in November
2016 (see id. ¶ 34), coupled with the allegations concerning his direct participation in and
concealment of the bribery scheme (see id. ¶¶ 89–131), the Court finds that Schwartz’s departure
strengthens the inference of scienter.
Third, based on Schwartz’s knowledge of and participation in the bribery scheme, Plaintiffs
allege that both he and Coburn “‘lied to Cognizant’s auditor’ by making ‘false and misleading

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statements or omissions to Cognizant’s auditor in connection with its audits of the company’s
financial statements from 2014 through 2016.’” (SAC ¶ 120). This allegation lends further support
to Schwartz’s concealment of the bribery scheme.
Fourth, although this Court does not disrupt Judge Walls’s decision, which held that the
SOX certifications are non-actionable statements, Plaintiffs allege that both Schwartz and Coburn
provided false SOX sub-certifications internally to Cognizant’s Chief Executive Officer and Chief
Financial Officer. (Id. ¶ 124). In these SOX sub-certifications, Schwartz allegedly failed to
disclose “any known fraud, whether or not material, that involves management or other employees,
within [his] area of responsibility, who have a significant role in the Company’s internal controls.”
(Id.). Moreover, in the SOX sub-certifications, Schwartz also falsely certified that “the financial
information for each relevant period ‘does not contain any untrue statement of fact or omit to
include a material statement of fact necessary to make such financial information, in light of the
circumstances under which such financial information was compiled, not misleading.’” (Id.).
Notwithstanding that statements contained in the SOX Certifications and SOX sub-certifications
are non-actionable (see supra Section III.B.iii), the Court finds that Schwartz’s conduct in
allegedly providing false information internally in connection with those certifications is probative
of his scienter.
Finally, Plaintiffs allege that Schwartz, in his role as Cognizant’s Chief Legal Officer, “was
ultimately responsible for monitoring and ensuring Cognizant’s compliance with anti-corruption
laws.” (Id. ¶ 131). As such, Plaintiffs contend that Schwartz was “responsible for monitoring and
reporting the false compliance data included in the Sustainability Reports.” (Id.).
Collectively, these allegations provide a strong inference that, at minimum, Schwartz acted
recklessly by virtue of his participation in the bribery scheme and his subsequent failure to account

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for the scheme’s consequences in (i) his internal dealings with auditors, and (ii) his various internal
reporting functions. By advising co-conspirators to disguise the true nature of the bribe payments,
the allegations do not support the inference that Schwartz was merely an innocent or negligent
bystander. Nor do Schwartz’s alleged actions reflect corporate mismanagement. Rather, the
totality of the allegations above support the inference that Schwartz acted in “an extreme departure
from the standards of ordinary care, [that] present[ed] a danger of misleading buyers or sellers that
[was] either known . . . or is so obvious that [Schwartz] must have been aware of it.” See Advanta,
180 F.3d at 539 (internal quotation marks omitted); cf. Menaldi v. Och-Ziff Cap. Mgmt. Grp. LLC,
277 F. Supp. 3d 500, 510 (S.D.N.Y. 2017) (noting that “the lack of actual knowledge of bribery
weighs down the [n]ew [c]omplaint’s allegations, particularly when it comes to scienter”); In re
Key Energy Servs., Inc. Sec. Litig., 166 F. Supp. 3d 822, 833–34 (S.D. Tex. 2016) (stating that to
plead scienter, “[p]laintiffs may not rely on a general assertion that [d]efendants knew about a
particular bribe or a specific accounting violation or internal control problem because of their
positions in the company, because they are officers, or because of their day-to-day involvement in
the company; instead there must be specific allegations of facts showing that they actually knew
about a particular accounting violation, bribe, or internal control problem”).
iii.

Cognizant

Finally, Cognizant asks this Court to revisit its prior conclusion that Coburn’s scienter may
be imputed to Cognizant under the doctrine of corporate scienter. (Cognizant Mov. Br. at 24–40;
Cognizant Reply Br. at 7–15). The doctrine of corporate scienter allows a plaintiff to plead an
inference of scienter against a corporate defendant without raising the same inferences required to
attribute scienter to an individual defendant. Rahman v. Kid Brands, Inc., 736 F.3d 237, 246 (3d
Cir. 2013). There are currently three approaches that divide the Circuit Courts of Appeals on this

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issue, including the narrow approach followed in the Fifth and Eleventh Circuits, the broad
approach followed in the Second and Seventh Circuits, and the middle approach followed in the
Sixth Circuit. (See Op. 66–68). Although the Third Circuit has held that a corporate defendant
was not liable for violations of Section 10(b) because it failed to find primary liability on the part
of any individual officers, see In re Tyson Foods, Incorporated, 155 F. App’x 53, 57 (3d Cir.
2005), the court has since made clear that it has not taken a position with respect to the corporate
or collective scienter doctrine. See In re Hertz, 905 F.3d at 121, n.6; Rahman, 736 F.3d at 246;
City of Roseville, 442 F. App’x at 676 (declining to weigh in on the doctrine of corporate scienter
because the “plaintiff did not plead sufficient facts, when viewed in their totality, to raise a strong
inference of scienter as to the senior executives. [The company’s] scienter, thus, cannot be based
on the scienter of any individual.”).
Under the narrow approach adopted in the Fifth and Eleventh Circuits, a plaintiff must
identify an individual responsible for the alleged misstatement who also possessed the requisite
mental state. See, e.g., City of Roseville, 442 F. App’x at 676. In the Prior Opinion, Judge Walls
declined to adopt the narrow approach, reasoning that it fails to encompass circumstances “where
widespread corporate fraud cannot be connected to individual defendants at the pleading stage.”
(Op. at 68–69 (quoting In re Marsh & Mclennan Cos., Inc. Sec. Litig., 501 F. Supp. 2d 452, 481–
82 (S.D.N.Y. 2006))). Thus, as Judge Walls’s explained, under this approach, corporations could
theoretically evade liability by willfully turning a blind eye to fraudulent activity. (See id. at 68).
By contrast, Judge Walls found that under either the broad approach adopted in the Second
and Seventh Circuits or the “middle ground” approach employed by the Sixth Circuit, Coburn’s
scienter may be imputed to Cognizant. (Id. at 69). Under the broader approach, courts may impute
the scienter of an individual defendant where “[t]here are sufficient allegations regarding the

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pervasiveness of the fraud, the conscious misbehavior of the particular corporate employees, and
the complicity of the corporate entities to find that [the corporate defendant] was aware of or
recklessly disregarded the intentional misconduct.” (Id. at 66 (quoting In re Marsh, 501 F. Supp.
2d at 482)). Judge Walls found that the allegations in the FAC were sufficient under this standard
because the alleged bribery scheme involved Coburn, Cognizant’s President, and “by Cognizant’s
own admission, [the scheme] involved other members of senior management.” (Id. at 70). While
Judge Walls recognized that an individual’s knowledge may not be imputed to a corporate entity
to hold it liable in every circumstance, the following allegations from the FAC supported the
inference of pervasive fraud: “the breadth and duration of the alleged bribery scheme, the
importance of SEZ licenses to the company, and the alleged involvement of [d]efendant Coburn
and other unnamed members of senior management.” (Id. at 72). Lastly, under the middle ground
approach, Judge Walls found that Coburn’s scienter “may be imputed to the corporation because
he [was] a ‘high managerial agent . . . who ratified, recklessly disregarded, or tolerated the
misrepresentation after its utterance or issuance.’” (Id. at 69 (quoting In re Omnicare, Inc. Sec.
Litig., 769 F.3d 455, 476 (6th Cir. 2014))).
Now, Cognizant asks this Court to adopt the narrow approach followed in the Fifth and
Eleventh Circuits to conclude that because the allegations fail to establish that Coburn or Schwartz
made any material misstatements, their scienter may not be imputed to Cognizant. (Cognizant
Mov. Br. at 24–27). Plaintiffs assert that under any approach to corporate scienter, Coburn and/or
Schwartz’s scienter may be imputed to Cognizant. (Opp. Br. at 32–57). At the outset, the Court
notes that based on the Prior Opinion’s holding with respect to Coburn and this Court’s analysis
relating to Schwartz, neither of the individual defendants is responsible for “making” any of the
allegedly material misstatements at issue under Rule 10b–5(b). While the Court allows a claim

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for scheme liability to proceed against Schwartz under subsections (a) and (c), this theory is
premised on his dissemination of material misstatements and alleged participation in the
underlying bribery scheme. Notwithstanding the implications of the scheme liability claim as it
relates to Cognizant’s scienter, the Court will assess whether it may impute Coburn and/or
Schwartz’s scienter to Cognizant under any approach to the corporate scienter doctrine. For the
reasons stated below, the Court concludes that scienter may be imputed to Cognizant under all
three approaches to the corporate scienter doctrine that currently divide the Circuit Courts. 15
1.

Narrow Approach

The Fifth and Eleventh Circuits have required a strong inference of scienter as to the
individual corporate official or officials who make or issue the statement rather than generally to
the collective knowledge of all the corporation’s officers and employees. See Southland Sec. Corp.
v. INSpire Ins. Sols., Inc., 365 F.3d 353, 366 (5th Cir. 2004); Phillips v. Scientific-Atlanta, Inc.,
374 F.3d 1015, 1017 (11th Cir. 2004). Specifically, under Southland, scienter may be imputed to
a corporation by looking at “the state of mind of the individual corporate official or officials who
make or issue the statement (or order or approve it or its making or issuance, or who furnish
information or language for inclusion therein, or the like) rather than generally to the collective
knowledge of all the corporation’s officers and employees acquired in the course of their
employment.” 365 F.3d at 366.
Courts that have applied the “furnish information” standard under Southland have imputed
an individual’s scienter to a corporation where that person was not responsible for making any of
the alleged misstatements, but supplied misinformation internally to other corporate individuals

15

Because the Court concludes that scienter may be imputed to Cognizant under any approach, it declines, as
Cognizant requests, to state that the choice of standard is outcome-dispositive in this case. (See Cognizant Mov. Br.
at 36 n.14). The Court will entertain any future motion for interlocutory appeal pursuant to 28 U.S.C. § 1292(b)
following this Opinion.

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who then made the allegedly false statements with that misinformation. See, e.g., Lee v. Active
Power, Inc., 29 F. Supp. 3d 876, 882–85 (W.D. Tex. 2014); see also Knurr v. Orbital ATK, Inc.,
294 F. Supp. 3d 498, 503, 511–16 (E.D. Va. 2018). For example, in Lee, the corporate officer
hired to oversee all Chinese-based operations of Active Power, Inc. (“Active Power”), knowingly
lied to the Chief Executive Officer and Chief Financial Officer regarding the identity of an entity
in which Active Power had purportedly partnered with. Lee, 29 F. Supp. 3d at 878–79. This lie
resulted in Active Power issuing public statements that touted its partnership with a different
corporation, which would help its lagging trends in China and Asia. Id. Notwithstanding the
defendant’s argument that the rogue employee’s scienter could not be imputed to the company, the
court commented that “Southland’s ‘furnish information’ language is alive and well.” Id. at 884.
The court ultimately held that the employee’s scienter could be imputed to Active Power. Id. at
884–85. 16
Similarly, in Knurr v. Orbital ATK, Incorporated, plaintiffs alleged that defendants failed
to disclose substantial cost overruns on a specific contract and failed to record estimated contract
losses as soon as they became evident. 294 F. Supp. 3d at 501. In an amended Form 10-K, the
corporate defendant disclosed that lower-level management had actively “suppress[ed]
information . . . related to cost overruns and the override of certain controls due to pressure to
achieve cost savings and maintain[] a targeted profit rate.” Id. at 516. Under common law agency

16

Cognizant attempts to distinguish the corporate scienter holding in Lee from the instant case by claiming that
the determination hinged on the employee’s lie to mislead investors, which ultimately caused a substantial
overstatement of Active Power’s projected sales. (Cognizant Reply Br. at 11 n.8). Consequently, Cognizant argues
that Lee is “a far cry from the allegations here, which involve quantitatively and qualitatively immaterial misstatements
and no intent to deceive investor.” (Id.). Significantly, however, the court in Lee did not qualify its corporate scienter
holding on the materiality of the employee’s alleged misstatements. See Lee, 29 F. Supp. 3d at 881–85. Furthermore,
the imputation of scienter to a corporate defendant is not dependent on the gravity or impact of the alleged
misstatements. And for pleading purposes, Coburn and Schwartz possessed the requisite scienter, by, at minimum,
recklessly disregarding the consequences of the bribery scheme they concocted and implemented. (See supra Section
III.C).

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principles, the court stated that “a corporate defendant can be liable if an agent provides false
information to the corporation and its officers intending that the corporation make a false or
misleading statement.” Id. at 512. The court reasoned that even when lower-level employees
provide false information to higher-level corporate officers “with the intent that those officers rely
on that information, [it] has the same effect on stockholders and the market as if the manager
personally made the misrepresentations or as if the corporate officers made the misrepresentations
with fraudulent intent.” Id. In Knurr, the court found that the amended complaint alleged facts
warranting a strong inference of scienter when lower-level employees furnished inaccurate
information about the contract cost overruns and profit rates that were then given to corporate
officers “for inclusion in SEC filings and other public reports.” Id. at 516. Accordingly, the court
imputed the scienter of the lower-level employees to the corporation at the pleading stage. Id.
Although Cognizant urges this Court to uphold the Prior Opinion’s ruling that rejected the
narrow approach to corporate scienter, Judge Walls did not have the benefit of analyzing new
allegations contained in the SAC, specifically those allegations detailing the KITS Facility bribery
scheme. (See SAC ¶¶ 89–131). The Court finds that the additional allegations are sufficient at the
pleading stage to meet Southland’s “furnish information” standard.
Notably, Cognizant does not contest that the Fifth Circuit’s standard may be satisfied when
an individual furnishes information for inclusion in public statements. (Cognizant Reply Br. at
11). However, it argues that under Pipefitters Local Number 636 Defined Benefit Plan v. Zale
Corporation, 499 F. App’x 345 (5th Cir. 2012), the Court cannot find that Coburn furnished
information at the pleading stage because there are no alleged facts suggesting that Coburn or
Schwartz intended to defraud investors. (Cognizant Mov. Br. at 33; Cognizant Reply Br. at 10).
Similar to the present case, Pipefitters involved alleged misstatements that were not purportedly

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made by any individual defendant who also possessed scienter. Id. at 351. However, the defendant
corporation’s Vice President of marketing, a non-party in the action, had allegedly caused the
company to record advertising costs as pre-paid when those costs should have been expensed in
the period during which they were incurred. Id. at 347. The district court concluded that the more
compelling inference was that the Vice President of marketing was “acting under the motivation
to make the Marketing Department appear to be efficient, organized, and well-managed, and not
that she intended to initiate company-wide fraud.” Id. at 348. The Fifth Circuit ultimately declined
to disturb the district court’s finding: the alleged facts did not suggest that the Vice President of
marketing was “even aware her actions could potentially lead to fraudulent financial statements
on behalf of the entire company.” Id. at 348 & 351. Moreover, the defendant in Zale declined to
challenge the district court’s assessment that the Vice President of marketing “was not severely
reckless to the possibility that her false information might cause Zale to release misleading
financial statements.” Id. at 351.
This Court finds that Cognizant’s argument under Zale is misplaced. First, Zale is
inapposite because the allegations with respect to the Vice President of marketing did not involve
an underlying bribery scheme or fraud. See generally id. The allegations surrounding the alleged
bribery scheme, particularly Coburn’s involvement in devising and implementing the scheme, and
Schwartz’s advice that the reimbursement request should not stand out, are sufficiently
distinguishable from the alleged facts in Zale. The alleged bribe payments themselves—disguised
as legitimate change order requests—are indicative of Coburn’s intent to perpetrate a fraud by way
of concealing the true nature of the bribe payments as bona fide expenditures. At minimum, the
allegations support that Coburn acted recklessly by ignoring the full ramifications of the faulty
change order requests, specifically in Cognizant’s financial statements. Thus, unlike the corporate

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executive in Zale, Coburn was “aware [or at least reckless in that his] actions could potentially
lead to fraudulent financial statements on behalf of the entire company.” See 499 F. App’x at 348;
(see also SAC ¶¶ 116–17 (noting that Coburn, “having served as Cognizant’s CFO . . . knew that
these actions would cause Cognizant to improperly record the illicit payments in Cognizant’s
books and records as bona fide construction expenses . . . . [and that] the bribery scheme would
also cause Cognizant’s publicly reported financial statements to be falsified.”)). Moreover, as the
court stated in Lee, the fact that the Fifth Circuit in Zale even evaluated whether the Vice President
of marketing acted with scienter means that “imputation is permissible from those who merely
‘furnish information,’” because, like Coburn and Schwartz, she was not found to have uttered any
alleged misstatements. Lee, 29 F. Supp. 3d at 883.
Here, the allegations tied to Coburn create a stronger inference that, at minimum, he
furnished information under Southland for inclusion in Cognizant’s financial misstatements.
Plaintiffs allege that Coburn was responsible for personally approving payments over $500,000 to
Cognizant’s contractor for reimbursement of unanticipated costs associated with the parties’ scope
of work agreement. (SAC ¶ 94). These requests were known as variation claims or change order
requests.

(Id.).

Before March 2015, CC#1 (Cognizant’s VP of Administration) allegedly

“instructed a co-conspirator who was a member of Cognizant’s real estate group to create a fake
version of the ‘Variations List Discussion Document’ that replaced the entire $3.7 million claim
for ‘approvals/campus regularization’ (which included the $2.5 million ‘statutory approvals’
request) with eleven previously-rejected claims worth roughly the same amount.” (Id. ¶ 109).
Plaintiffs allege that on January 15, 2015, Coburn received change order requests and supporting
spreadsheets to approve the agreed-upon bribe payments, and on February 3, 2015, Coburn sent
an email in which he stated that these requests were preliminarily “approved.” (Id. ¶ 110). Coburn

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was allegedly informed by a co-conspirator within Cognizant that certain line items in the
document were used to conceal the bribe payments. (Id.). On or about March 11, 2015, Coburn
allegedly proceeded to falsify “a spreadsheet and related approvals” that incorporated L&T’s false
change order requests made in connection with the KITS Facility bribe payments. (Id. ¶ 111).
Approximately two days later, Coburn formally authorized the bribe payments to L&T as
disguised change order requests in an email sent to Cognizant’s finance unit. (Id. ¶ 112). “Based
on Coburn’s approvals, Cognizant issued several separate payments to L&T to cover the cost of
L&T’s change order requests between March 2015 and January 2016 that included approximately
$2 million for the bribe and $500,000 for the additional payment for paying the bribe.” (Id. ¶ 113).
Ultimately, having previously served as Cognizant’s Chief Financial Officer, Coburn “knew that
these actions would cause Cognizant to improperly record the illicit payments in Cognizant’s
books and records as bona fide construction expenses . . . . [and that] the bribery scheme would
also cause Cognizant’s publicly reported financial statements to be falsified.” (Id. ¶¶ 116–17).
Coburn’s approvals “were used to generate Cognizant’s Class Period financial statements and
earnings releases.” (Id. ¶ 117).
Collectively, these allegations reflect that Coburn ultimately furnished information that
materially altered Cognizant’s financial statements.

Indeed, Plaintiffs allege that Coburn’s

approval of the phony change order requests caused “the repayment to be falsely recorded in
Cognizant’s books and records as bona fide construction costs.” (Id. ¶¶ 97, 99 & 117). This
inference is furthered by Cognizant’s own admission in its November 7, 2016 Form 10-Q, stating
that “certain members of senior management may have participated in or failed to take action to
prevent the making of potentially improper payments by either overriding or failing to enforce the
controls . . . in connection with permits for certain facilities in India. As a result . . . a material

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weakness existed as of December 31, 2015, and continues to exist in subsequent interim periods,
in our internal control over financial reporting.” (Id. ¶ 150).
Moreover, based on the amended allegations, it is also plausible that Coburn and/or
Schwartz furnished information for inclusion in Cognizant’s Sustainability Reports that relate to
the actionable misstatements reporting no incidents of corruption in 2014 and 2015. (See id. ¶¶
128 & 202 (stating that Cognizant reported “‘no incidents’ of corruption” in light of its
anticorruption compliance audit); id. ¶ 209 (reporting “no incidents [of corruption] in 2015”)). For
example, Plaintiffs claim that Coburn and Schwartz provided false certifications during the Class
Period which ultimately stated that they complied with Cognizant’s “anti-corruption policy the
maintenance of accurate books and records, and compliance with all laws, rules and regulations
applicable to the Company in India and wherever Cognizant conducted business.” (Id. ¶ 129).
Yet, prior to providing these allegedly false certifications, both Coburn and Schwartz allegedly
participated in implementing and devising the bribery scheme beginning in April 2014, and
Coburn began approving false change order requests as early as February 2015. (Id. ¶¶ 96 & 110–
13). Thus, it is plausible that the allegedly false certifications by Coburn and Schwartz were used
to compile the actionable misstatements contained in Cognizant’s 2014 and 2015 Sustainability
Reports, especially if, as Plaintiffs allege, the certifications stated that the defendants adhered to
Cognizant’s anti-corruption policy. (See id. ¶ 129).
In addition, the District of Delaware’s decision in City of Roseville, which was affirmed by
the Third Circuit, supports this Court’s finding. See City of Roseville Emps.’ Ret. Sys. v. Horizon
Lines, Inc., 713 F. Supp. 2d 378, 403 (D. Del. 2010), aff’d, 442 F. App’x 672 (3d Cir. 2011).
There, plaintiffs argued that the court should have found a strong inference of scienter as to the
corporate defendant because at least two managers who conspired in a price-fixing scheme and

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possessed scienter “participated in the making of” the misstatements by the corporation and other
individual defendants. Id. at 403. The court rejected plaintiffs’ arguments because there were no
allegations that other senior executives’ false or misleading statements must have been based on
information provided by the co-conspirators. Id. Plaintiffs had no evidence that any pricing
figures or reports were prepared by the co-conspirators or any other individual from the company.
Id. Although plaintiffs relied on information from a confidential witness, that witness stated the
reports with misinformation were created internally at another company that was not connected to
the defendant corporation. Id. at 397–98 & 403.
Significantly, unlike in City of Roseville, Cognizant admits that Coburn “provided
information to other, unnamed Cognizant employees who then drafted the [allegedly misleading]
financial statements without scienter.” (Cognizant Mov. Br. at 31). Here, Plaintiffs allege that
Coburn sent an email to Cognizant’s finance unit in which he authorized illegitimate payments to
L&T. (SAC ¶ 112). The alleged act of furnishing information for the drafters of Cognizant’s
financial statements—that Coburn allegedly knew to be false in furtherance of the scheme—is
sufficient to meet the corporate scienter standard articulated by the Fifth Circuit at the pleading
stage. See City of Roseville, 713 F. Supp. 2d at 403; see also Pipefitters, 499 Fed. App’x 345;
Knurr, 294 F. Supp. 3d 498, 511–16; Lee, 29 F. Supp. 3d at 881–85; Kerr v. Exobox Techs. Corp.,
2012 WL 201872, at *14 (S.D. Tex. Jan. 23, 2012) (stating that “plaintiffs need only assert that
[an individual] furnished the information or language for inclusion in order to attribute his scienter
to [the corporation]”). Accordingly, the Court finds that Coburn’s scienter may be imputed to
Cognizant under the narrow approach.
2.

Broad Approach

Conversely, the Second and Seventh Circuits have adopted a broader approach to the

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doctrine of corporate scienter. See Teamsters Local 445 Freight Div. Pension Fund v. Dynex
Capital, Inc., 531 F.3d 190, 195 (2d Cir. 2008); see Makor Issues & Rights, Ltd. v. Tellabs Inc.,
513 F.3d 702, 710 (7th Cir. 2008). Under this standard, to allege scienter of a corporate defendant,
a plaintiff must plead facts that “create a strong inference that someone whose intent could be
imputed to the corporation acted with the requisite scienter.” Dynex, 531 F.3d at 195. In Dynex,
the Second Circuit stated that “the most straightforward way to raise such an inference for a
corporate defendant will be to plead it for an individual defendant.” Id. However, the court
acknowledged that “it is possible to raise the required inference with regard to a corporate
defendant without doing so with regard to a specific individual defendant.”

Id.; see also

Pennsylvania Pub. Sch. Emps.’ Ret. Sys. v. Bank of Am. Corp., 874 F. Supp. 2d 341, 371 (S.D.N.Y.
2012). For example, in Bank of America, the Court upheld, on a motion for reconsideration, its
holding that the allegations were sufficient to plead scienter, notwithstanding that the plaintiff
failed to allege scienter with respect to any individual defendant. 874 F. Supp. 2d at 370–72.
Cognizant maintains that even under the broader approach, the Court may not impute
scienter to Cognizant because the Government Filings and the SAC depict isolated misconduct
and “immaterial payments” that are not indicative of widespread corporate fraud. (Cognizant Mov.
Br. at 36–37; Cognizant Reply Br. at 13). Plaintiffs argue that while it is possible to impute scienter
to a corporation without specifically naming an individual that possessed scienter, allegations of
widespread fraud are not required when, as here, named senior officers are alleged to have had the
requisite scienter. (Opp. Br. at 53–54). Here, because the Court finds a strong inference of scienter
as it relates to Coburn and Schwartz, it need not analyze, in the traditional sense of the broader
approach, whether some unknown individual at the company may have possessed scienter. See,
e.g., Li v. Aeterna Zentaris, Inc., No. 14-7081, 2016 WL 3583821, at *2 (D.N.J. June 30, 2016)

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(upholding, on a motion for reconsideration, the imputation of scienter to a corporate entity where
the court previously held that plaintiffs adequately alleged scienter with respect to its President
and Chief Executive Officer). In any event, the Court agrees with Plaintiffs and Judge Walls’s
prior analysis in that the collective allegations reflect a scheme which plausibly extended beyond
those named senior management in the SAC. (See Op. at 70–72 (stating that “[t]here is a strong
inference that someone involved with the making of the [financial misstatements] and the
Sustainability Reports knew of their falsity” and that the “bribery scheme required multiple
employees across the globe and involved the President and other members of senior
management”); see also Opp. Br. at 52–54).
In the Third Circuit’s opinion in City of Roseville, the court declined to weigh in on the
doctrine of corporate scienter because it found that in any event, plaintiffs did not plead sufficient
facts, when viewed in their totality, to raise a strong inference of scienter as to the senior executives
who made the alleged misrepresentations. 442 F. App’x at 676. The underlying facts concerned
a price-fixing conspiracy in the corporate defendant’s shipping business from Puerto Rico to the
United States, for which three members of its Puerto Rico management team had pled guilty to
criminal charges. Id. at 673. The corporation itself also pled guilty to price-fixing charges under
the doctrine of respondeat superior liability. Id. The district court held that the allegations gave
rise to a strong inference of scienter with respect to the three co-conspirators, but these coconspirators did not make any of the allegedly false statements. Id. at 674. Conversely, the
allegations sufficiently alleged that other senior executives made material misstatements, but they
did so without scienter. Id. at 673–74.
In the City of Roseville, the Third Circuit suggested that plaintiffs could invoke the
corporate-scienter doctrine under the broader approach in unique and extraordinary circumstances.

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Id. at 676–77.

City of Roseville cited to Bridgestone Corporation, which involved a tire

manufacturer and Firestone, the manufacturer’s subsidiary; these entities allegedly possessed
information that their tires had been rupturing and causing a significant number of rollover
accidents. See City of Monroe Emps.’ Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 656–59 (6th
Cir. 2005). In Bridgestone, the companies were involved “in a variety of tactics, such as a largescale secret settlement” with a car insurance company, to keep the extent of the tire problems from
investors as well as national and foreign safety regulators. City of Roseville, 442 F. App’x at 676;
see Bridgestone Corporation, 399 F.3d at 658–59. In City of Roseville, the Third Circuit posited
that the alleged conduct in Bridgestone was extraordinary, in line with the following hypothetical
articulated by the Seventh Circuit: “Suppose General Motors announced that it had sold one
million SUVs in 2006, and the actual number was zero. There would be a strong inference of
corporate scienter, since so dramatic an announcement would have been approved by corporate
officials sufficiently knowledgeable about the company to know that the announcement was false.”
442 F. App’x at 676 (quoting Tellabs, Inc., 513 F.3d at 710). Ultimately, the Third Circuit
concluded that even if “it were possible to plead scienter against a corporation without pleading
scienter against an individual,” the facts presented in light of the price-fixing conspiracy were “a
far cry from those in Bridgestone or in the Seventh Circuit’s hypothetical.” Id. at 676–77.
Although the Third Circuit upheld the district court’s opinion that declined to impute scienter
under the Fifth Circuit’s narrow standard, it in essence considered the broader approach by
analyzing the facts before it against the facts in Bridgestone. Id. at 677. Thus, it appears that the
Third Circuit has not foreclosed application of the broader approach in this district.
This Court finds that the alleged facts in the SAC are distinguishable from the allegations
in City of Roseville where only three co-conspirators allegedly possessed scienter and carried out

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the price-fixing scheme. For example, the bribery scheme at issue here allegedly involved at least
four of Cognizant’s corporate executives who participated in devising and implementing the KITS
Facility bribery scheme, including Coburn (Cognizant’s President), Schwartz (Cognizant’s
Executive Vice President, Chief Legal and Corporate Affairs Officer), Thiruvengadam
(Cognizant’s Chief Operating Officer), and CC#1 (Cognizant’s Vice President of Administration).
(SAC ¶¶ 33–34 & 36–37; Opp. Br. at 5 & 47). In addition, CC#1 allegedly involved a fifth
individual from Cognizant’s real estate group, who was instructed to “create a fake version of the
‘Variations List Discussion Document’” that ultimately changed the designation of the “statutory
approval” change order requests to eleven previously-rejected claims. (SAC ¶ 109).
Moreover, unlike City of Roseville, the allegations connected to Former Employee 1 allow
the Court to plausibly infer that additional executives at Cognizant became aware of the illicit bribe
payments, which further supports the inference that widespread or pervasive fraud existed within
Cognizant. FE1 was Cognizant’s former Manager, Internal Audit & SOX Compliance, between
November 2014 and December 2015. (Id. ¶ 82). FE1 was responsible for “overseeing an FCPA
compliance audit of Cognizant’s Indian operations” that began in September 2014 and ended in
May 2015. (Id.). FE1 “reported that the 2015 audit found evidence that payments related to
procuring SEZ licensing were being made to Indian government personnel and that these payments
were being improperly classified in Cognizant’s internal systems.” (Id. ¶ 83). FE1 also “reported
that the 2015 audit turned up several invoices from [Cognizant’s] contractor that explicitly sought
reimbursement for payments for licenses to operate in SEZs in Bangalore and elsewhere.” (Id.
(emphasis added)). The reimbursement payments “were made to what appeared to be a private,
non-governmental entity.” (Id.). Moreover, according to FE1 “numerous payments to Indian
government-affiliated personnel had been improperly classified as lease payments or otherwise

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characterized in a way that was inconsistent with the nature of the actual transaction.” (Id. ¶ 85
(emphasis added)). Apparently, these payments were discovered by the audit team “‘fairly easily,’
by running a few searches through [Cognizant’s] electronic database.” (Id. ¶ 84). Significantly,
FE1 reported the 2015 audit findings described above to “Cognizant’s Associate Vice President of
Audit, Abraham Verghese, for inclusion in a formal final audit report.” (Id. ¶ 87). FE1 “further
reported that he/she was included on emails in which Verghese raised these findings with
Cognizant’s Assistant Vice President of Global Compliance & Ethics, Misty Pederson []—one of
Cognizant’s most senior compliance executives.” (Id.).
The allegations attributed to FE1 support the inference that other high-level executives at
Cognizant, beyond the four identified co-conspirators, became aware of the alleged fraud during
the Class Period. 17 These allegations also negate the contention that the alleged fraud was “isolated
outlier conduct involving only a few former employees” who concealed the alleged fraud from
corporate management, especially considering the alleged ease in which the illicit payments were
discovered by the audit team. (See Cognizant Mov. Br. at 26 n.11 & 36; see also SAC ¶ 84). Most
significantly, FE1 allegedly reported the 2015 audit findings to Cognizant’s Associate Vice
President of Audit, who then included those findings in emails with Misty Pederson, Cognizant’s
Assistant Vice President of Global Compliance & Ethics. (SAC ¶ 87). Both Abraham Verghese
and Misty Pederson were in elevated executive positions at Cognizant. (See id.). Specifically,
Plaintiffs allege that Misty Pederson was “one of Cognizant’s most senior compliance executives.”
(Id.). And, as Plaintiffs submit, the new allegations and Government Filings only serve to bolster

17
To be clear, the 2015 audit ended in May 2015, and FE1 was employed in his/her capacity as Manager,
Internal Audit & SOX Compliance until December 2015. (SAC ¶ 82). Thus, the Court can plausibly infer that FE1
reported the findings of the 2015 audit sometime between May 2015 and December 2015, plausibly before some of
the alleged misstatements were made during the Class Period, which extended from February 27, 2015 to September
29, 2016. (Id. ¶ 329; see Op. at 42–43).

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the allegations attributed to FE1. (See Tr. at 154:17–23 & 156:4–8). Ultimately, whether these
allegations are sufficient to prove liability is not the question before the Court. Rather, for pleading
purposes at this juncture, the totality of allegations support Judge Walls’s prior finding that “[t]he
alleged bribery scheme was widespread throughout the company and involved multiple
personnel.” (See Op. at 70).
In addition, Cognizant attempts to analogize the instant matter to Christian v. BT Group
PLC, No. 17-497, 2018 WL 3647213, at *9 (D.N.J. Aug. 1, 2018), a case where Judge McNulty
declined to impute scienter to the defendant corporation because it was “at least as likely that key
individuals at [the defendant company] were unaware of the fraud, were not reckless in ignoring
it, and reacted appropriately when the relevant facts came out.” (See Cognizant Reply Br. at 13
n.10). 18 However, Judge McNulty’s decision hinged on facts that are very different than those
alleged here. See generally Christian, 2018 WL 3647213. Most significantly, Christian was a
putative securities class action that involved the relationship between a parent corporation and its
subsidiary. Id. at *1. The subsidiary allegedly knew about the underlying fraud, and plaintiffs
claimed that individuals at the parent corporation knew or were reckless in ignoring the
subsidiary’s fraudulent practices. Id. Central to the court’s decision, Judge McNulty specifically
noted that the “Third Circuit has declined to impute the scienter of a subsidiary to a parent.” Id.
(citing Rahman, 736 F.3d at 246); see also Pathfinder Mgmt., Inc. v. Mayne Pharma, Inc., No. 62204, 2009 WL 4250061, at *9 (D.N.J. Nov. 25, 2009) (stating that the “knowledge and actions
of a subsidiary company’s agents cannot be imputed to the parent company”). Here, unlike
Christian, a parent-subsidiary relationship is not a factor in the Court’s scienter analysis. Rather,

18

In Cognizant’s letter to the Court dated May 5, 2020 (D.E. No. 124), Cognizant cited to Judge McNulty’s
latest decision in the same case. See Christian v. BT Group. PLC, No. 17-497, 2020 WL 1969941 (D.N.J. Apr. 24,
2020). Judge McNulty again declined to impute scienter to the corporation for the same reasons stated in the court’s
initial opinion. Id. at *8–9.

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the allegations indicate that some of Cognizant’s top corporate executives participated in
developing and implementing the bribery scheme. (See SAC ¶¶ 33–34; 36–37 & 89–113; Opp.
Br. at 5 & 47). Accordingly, Cognizant’s reliance on Christian is unpersuasive.
Similarly, Cognizant’s broad characterization of Glazer Capital Management, LP v.
Magistri, 549 F.3d 736, 745 (9th Cir. 2008) is inapposite. (See Cognizant Reply Br. at 14 n.11).
Cognizant contends that Glazer rejected the identical argument proffered here because the plaintiff
“failed to connect the actual makers of the alleged misstatements to knowledge of FCPA violations
and thus failed to allege corporate scienter under [the broader approach].” (Id.). Unlike the present
allegations, however, Glazer involved three alleged warranty misstatements contained within one
sixty-page legal document that stated “the company was in compliance ‘with all laws.’” See
Glazer, 549 F.3d at 745. The court acknowledged that under plaintiff’s theory, it would be able to
impute scienter to the company if any employee knew that the company violated any law. Id.
Although the court held that plaintiff must plead scienter as to an individual who made one of the
three misstatements in the legal document, it ultimately confined its holding to “the limited nature
and unique context of the alleged misstatements in [the] case.” Id. Here, by contrast, the alleged
misstatements at issue extend beyond three warranties in one sixty-page legal document. Rather,
on multiple separate occasions during the 19-month Class Period, Cognizant allegedly (i) touted
the benefits of its SEZ licenses, (ii) stated that there was no reported corruption within the
company, and (iii) overstated its financial earnings in light of the underlying bribery scheme,
which caused it to capitalize bribe payments that should have been expensed. (See SAC ¶¶ 167–
93, 202–04 & 282–84).
Accordingly, for the reasons articulated above, this Court finds that the allegations satisfy
a strong inference of scienter as to Cognizant under the broad approach to the corporate scienter

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doctrine.
3.

Middle Approach

Lastly, under the middle approach articulated in In re Omnicare, Incorporated Securities
Litigation, “[t]he state(s) of mind of any of the following are probative for purposes of determining
whether a misrepresentation made by a corporation was made by it with the requisite scienter under
Section 10(b):”
(a)

The individual agent
misrepresentation;

who

uttered

or

issued

the

(b)

Any individual agent who authorized, requested,
commanded, furnished information for, prepared (including
suggesting or contributing language for inclusion therein or
omission therefrom), reviewed, or approved the statement in
which the misrepresentation was made before its utterance
or issuance;

(c)

Any high managerial agent or member of the board of
directors who ratified, recklessly disregarded, or tolerated
the misrepresentation after its utterance or issuance.

769 F.3d 455, 476 (6th Cir. 2014). In the Prior Opinion, Judge Walls focused on subsection (c) in
concluding that Coburn’s scienter could be imputed to Cognizant as a “high managerial agent . . .
who ratified, recklessly disregarded, or tolerated the misrepresentation after its utterance or
issuance.” (Op. at 69). Thus, Judge Walls found “a strong inference that as President of the
company, [d]efendant Coburn either had a role in preparing the statements at issue or that, if he
did not actually participate in their preparation, he became aware that they misstated earnings and
touted SEZ licenses and internal compliance measures, but nevertheless ‘tolerated the
misrepresentation.’” (Id. at 70).
Cognizant maintains that the Sixth Circuit’s subsequent decision in Doshi v. General Cable
Corporation, 823 F.3d 1032 (6th Cir. 2016), clarified Omnicare’s meaning of the term
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“probative,” such that when an individual does not make any alleged misstatements, only his or
her knowledge may be imputed to the corporation, not the person’s state of mind. (Cognizant
Mov. Br. at 37–38). Under Doshi, the Sixth Circuit proceeded to determine whether the state of
mind of an individual who did not make any alleged misstatements could be imputed to the
corporate defendant by examining a non-exhaustive list of factors set forth in Helwig v. Vencor,
Incorporated, 251 F.3d 540, 552 (6th Cir. 2001). Doshi, 823 F.3 1040–42. Plaintiffs argue that
this Court need not impute corporate scienter to Cognizant utilizing the Helwig factors because
they have not been adopted by the Third Circuit. (Opp. Br. at 49; Tr. 172:23–173:6).
As an initial matter, Plaintiffs are correct in that the Helwig factors are not binding on this
Court. See In re Intelligroup Sec. Litig., 527 F. Supp. 2d 262, 344 n.60 (D.N.J. 2007) (stating that
“[p]laintiffs fail[ed] to observe that, in Helwig, the . . . Sixth Circuit adopted a list of nine factors
indicative of scienter, . . . . The Court of Appeals for Third Circuit, however, has not directed
district courts in this Circuit to apply such an analysis [under Helwig].”). Nor has this Court
located any decision in the Third Circuit applying the Helwig factors under Omnicare’s corporate
scienter standard. Thus, this Court adopts the analysis and holding articulated in the Prior Opinion
as it relates to the middle ground approach. (See Op. at 69–70).
Furthermore, even if the Court were to consider the non-exhaustive list of Helwig factors, 19

19

The Helwig factors that the Sixth Circuit considers probative of scienter include:
(1) insider trading at a suspicious time or in an unusual amount; (2) divergence
between internal reports and external statements on the same subject; (3)
closeness in time of an allegedly fraudulent statement or omission and the later
disclosure of inconsistent information; (4) evidence of bribery by a top company
official; (5) existence of an ancillary lawsuit charging fraud by a company and the
company’s quick settlement of that suit; (6) disregard of the most current factual
information before making statements; (7) disclosure of accounting information
in such a way that its negative implications could only be understood by someone
with a high degree of sophistication; (8) the personal interest of certain directors
in not informing disinterested directors of an impending stock sale; and (9) the
self-interested motivation of defendants in the form of saving their salaries or jobs.

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the imputation of scienter to Cognizant would nonetheless be supported. Particularly, the Court
finds that factors four and five are supported by the allegations and are probative of Cognizant’s
scienter at the pleading stage. See Helwig, 251 F.3d at 552 (finding that the list of factors, “while
not exhaustive, [is] at least helpful in guiding securities fraud pleading). Here, there are most
certainly allegations pointing to “evidence of bribery by [multiple] top company official[s],”
including Coburn, Schwartz, Thiruvengadam, and CC#1. See id.; (see, e.g., SAC ¶¶ 96–97).
Second, Plaintiffs also allege the “existence of an ancillary lawsuit charging fraud by [Cognizant]
and [Cognizant’s] quick settlement of that suit.” See Helwig, 251 F.3d at 552; (see, e.g., SAC ¶¶
18, 165 (stating that in the SEC Order “Cognizant agreed to pay $25 million to settle claims that
it had violated the securities laws in connection with the bribery scheme; cease-and-desist future
violations; and report to the SEC periodically for two years on its remediation and implementation
of enhanced compliance measures . . . .”) & 297). Moreover, unlike Doshi, there is no “disparity
between [Coburn’s or Schwartz’s] knowledge and what [Cognizant] publicly misstated,” such that
the force behind these factors is not reduced. See Doshi, 823 F.3d 1042. For all of these reasons,
scienter may also be imputed to Cognizant under the middle ground approach.
D.

Section 20(a) Claims

Finally, Count II of the SAC asserts claims under Section 20(a) of the Exchange Act against
Coburn and Schwartz. Section 20(a) creates a cause of action against individual defendants who
are “control persons” of corporations that are guilty of securities fraud. Jones v. Intelli-Check,
Inc., 274 F. Supp. 2d 615, 644 (D.N.J. 2003). Section 20(a) states that:
[e]very person who, directly or indirectly, controls any person liable
under any provision of this chapter or of any rule or regulation
thereunder shall also be liable jointly and severally with and to the
same extent as such controlled person to any person to whom such
controlled person is liable, . . . unless the controlling person acted in
Helwig, 251 F.3d at 552.

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good faith and did not directly or indirectly induce the act or acts
constituting the violation or cause of action.
15 U.S.C. § 78t(a). Plaintiffs alleging a violation under Section 20(a) “must plead facts showing:
(1) an underlying violation by the company; and (2) circumstances establishing defendant’s control
over the company’s actions.” Jones, 274 F. Supp. 2d at 644–45.
Because the Court finds that Plaintiffs adequately alleged an underlying violation of
Section 10(b) against Cognizant, the remaining issue is whether Plaintiffs sufficiently allege that
Coburn and Schwartz are “controlling persons” under Section 20(a). The term “control” has been
defined as “the possession, direct or indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting securities, by
contract, or otherwise.” Rochez Bros. v. Rhoades, 527 F.2d 880, 890 (3d Cir. 1975) (quoting 17
C.F.R. § 240.12(b)–2(f)). Thus, “a plaintiff must demonstrate [that] the defendant had actual
power or influence over the allegedly controlled” company. MobileMedia, 28 F. Supp. 2d at 940
(internal quotation marks omitted).
Both Coburn and Schwartz contest that they are control persons under Section 20(a).
(Coburn Mov. Br. at 2–3; Coburn Reply Br. at 2–3; Schwartz Mov. Br. at 32–34). Although the
Court agrees that an individual’s position at a corporation is insufficient, standing alone, to
establish whether he or she is a “control person” (see Coburn Mov. Br. at 2–3; Coburn Reply Br.
at 1–2; Schwartz Mov. Br. at 32–34), the allegations here extend beyond the mere corporate titles
held by Coburn and Schwartz. See In re DVI, Inc. Sec. Litig., 919 F. Supp. 2d 498, 510–11 (E.D.
Pa. 2013) (holding oneself out as “senior vice president [was] not probative of his actual power to
direct or cause the direction of the management and policies” at the corporation). In DVI, the
record lacked support that the individual was responsible for the corporation’s operations in any
way. Id. at 511.
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Here, the Court finds that Plaintiffs adequately allege how Coburn and Schwartz had
“power or influence” over Cognizant’s operations in addition to alleging the executive positions
they held. See MobileMedia, 28 F. Supp. 2d at 940. Most notably, Plaintiffs maintain that “Coburn
was responsible for personally approving any payments in excess of $500,000 that L&T requested
from Cognizant for reimbursement of unanticipated costs associated with the agreed-upon scope
of work (known as ‘variation claims’ or ‘change order requests’).” (SAC ¶ 94). Contrary to
Coburn’s representation (see Coburn Mov. Br. at 3), this allegation also supports the inference that
Coburn had control or influence over the bribery payment transactions and financial misstatements
at issue. To be clear, if Coburn did not have the alleged authority to approve such requests or
declined to exercise his authority over the illegitimate reimbursement requests, it follows that
Cognizant’s books and records would not have been misstated. (See SAC ¶ 116 (“Coburn further
knew that the bribery scheme would cause Cognizant to falsely and improperly record the
payments in Cognizant’s books and records as bona fide expenses related to construction of the
KITS Campus because Coburn personally approved the fraudulent change orders.”)). As Plaintiffs
argue, Coburn makes an “irrelevant proposition, given that [he] directed the bribery scheme at
issue.” (Opp. Br. at 76). Thus, the Court finds that the allegations adequately state how Coburn
“played a role in the alleged nondisclosures.” In re Digital Island Sec. Litig., 223 F. Supp. 2d 546,
561 (D. Del. 2002), aff’d, 357 F.3d 322 (3d Cir. 2004).
Similarly, Plaintiffs allege that Schwartz actively participated on the videoconference calls
when the scheme was conceived, specifically by advising co-conspirators that reimbursement
payments to L&T for the bribe “should not stand out in the change order request.” (See SAC ¶
97). Moreover, by virtue of his job responsibilities as Cognizant’s Chief Legal Officer, Schwartz
disseminated Cognizant’s Forms 8-K, thereby demonstrating that Schwartz had the ability to exert

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“power or influence” over Cognizant’s operations. (Id. ¶¶ 283–84). Schwartz’s “arguments to the
contrary are questions of fact which are improper at the motion to dismiss stage.” See Jones, 274
F. Supp. 2d at 645. Nor does Schwartz attempt to rebut any arguments made by Plaintiffs with
respect to the Section 20(a) claim brought against him. (See generally Schwartz Reply Br.).
Accordingly, the Court finds that these allegations are sufficient to allege that Schwartz was a
“control person” under Section 20(a).
In addition, to ultimately succeed under a Section 20(a) claim, a defendant “must have been
a culpable participant in the act or acts constituting the violation or cause of action.” See Belmont
v. MB Inv. Partners, Inc., 708 F.3d 470, 484 (3d Cir. 2013) (collecting cases) (internal quotations
omitted). However, as Judge Walls previously noted, district courts in the Third Circuit disagree
as to “whether ‘culpable participation’ must be alleged to survive a motion to dismiss.” (Op. at 72
n.13). 20 Moreover, “[c]ulpable participation may only be based on inaction if the plaintiff proves
both knowledge of the underlying fraud and that the inaction was ‘deliberate and done intentionally
to further the fraud.’” Universal Am. Corp. v. Partners Healthcare Sols. Holdings, L.P., 176 F.
Supp. 3d 387, 397 (D. Del. 2016) (emphasis added); accord Belmont, 708 F.3d at 485.
The Court need not decide whether “culpable participation” must be pled to survive
dismissal of the Section 20(a) claims in the instant case because the Plaintiffs’ allegations would
satisfy such a pleading requirement in any event. Here, by virtue of Coburn’s and Schwartz’s
alleged participation in and implementation of the bribery scheme, Plaintiffs adequately plead that
both defendants had knowledge of the underlying bribery scheme. (See SAC ¶¶ 96–97). Lastly,

20

Compare Jones, 274 F. Supp. 2d at 645 (“[T]he overwhelming trend in this circuit” is that a plaintiff need
not plead “culpable participation” to survive a motion to dismiss.), with Universal Am. Corp. v. Partners Healthcare
Sols. Holdings, L.P., 176 F. Supp. 3d 387, 397 (D. Del. 2016) (“[T]he heightened standard of the PSLRA requires that
a claim under Section 20(a) state with particularity the circumstances of both the defendants’ control of the primary
violator, as well as of the defendants’ culpability as controlling persons.”) (internal quotations omitted).

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for the reasons stated above with respect to each defendant’s scienter (see supra Section III.C), the
Court can infer that any subsequent inaction by Coburn and Schwartz was conducted with the
requisite intent. (See Op. at 73). Thus, the Court finds that Plaintiffs’ Section 20(a) claims against
Coburn and Schwartz may proceed past the pleading stage.
IV.

Conclusion
For the foregoing reasons, the Court DENIES the Defendants’ motions to dismiss the SAC.

An appropriate Order accompanies this Opinion.
s/Esther Salas
Esther Salas, U.S.D.J.

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