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SEC Brings Another Enforcement Action Against A Former Cognizant Executive

Approximately 90% of SEC corporate FCPA enforcement actions in recent years have lacked any related charges against company employees.

A bit unusual then that the February 2019 enforcement action against Cognizant Technology Solutions (see here [1]) has resulted in not one, not two, but three individual enforcement actions as last Friday the SEC announced [2] an administrative action against Sridhar Thiruvengadam (pictured – an Indian national and resident who previously served as Cognizant’s Chief Operating Officer).

Unlike the two prior individuals [3] charged by the SEC and DOJ (Gordon Coburn and Steven Schwartz) who appear to be putting the government to its burden of proof, Thiruvengadam, without admitting or denying the SEC’s findings, agreed to pay a $50,000 civil penalty in an enforcement action that lacked any U.S. jurisdictional allegation other than that Thiruvengadam participated in a video conference from India with certain executives who participated in the video conference from the U.S.

The Thiruvengadam enforcement action was based on the same core set of facts found by the SEC in the $25 million Cognizant enforcement action.

In summary fashion, this administrative order [4] finds:

“Thiruvengadam, the chief operating officer of Cognizant Technology Solutions Corporation (“Cognizant”) participated in a scheme with three other Cognizant executives to authorize the payment of a $2 million bribe on behalf of the company to a government official in India. The payment was made in response to the official’s demand to secure the issuance of a planning permit that was necessary for the construction of a commercial office facility in Chennai, India. The scheme required that Cognizant’s books and records be falsified in order to conceal the nature of the payment. Thiruvengadam further contributed to the concealment by signing false subcertifications to the company’s management representation letters. Thiruvengadam thereby caused Cognizant’s violations of the [FCPA’s books and records and internal controls provisions] and violated Exchange Act Section 13(b)(5) and Rules 13b2-1 and 13b2-2 thereunder.”

[5]

Under the heading “Bribe Payments in Chennai, Tamil Nadu” the order finds:

“Cognizant’s construction project in Chennai, referred to as the KITS campus, represents the company’s largest owned facility in India, encompassing 2.7 million square feet with a capacity for approximately 17,500 employees. Cognizant engaged Contracting Firm-1 to build the facility and obtain all necessary government permits. Construction began in 2011 prior to the issuance of a required planning permit.

In 2014, during the course of construction, Real Estate Officer-1 [described as serving in Cognizant India’s corproate workplace function] was made aware that an Indian government official had made a $2 million bribe demand to Contracting Firm-1 as a condition for issuing the planning permit. Real Estate Officer-1 passed the information along to his supervisor Thiruvengadam. On April 21 and 22, 2014, the demand was discussed by video conference among Senior Executive-1, Senior Legal Executive-1, Real Estate Officer-1, and Thiruvengadam. Senior Executive-1 and Senior Legal Executive-1 participated in the conference from the United States, while Real Estate Officer-1 and Thiruvengadam participated from India. Real Estate Officer-1 described the bribe demand in detail, asked Senior Executive-1 and Senior Legal Executive-1 for guidance on how to proceed, and suggested that Contracting Firm-1 could be reimbursed for the payment through a series of sham change order requests to its contract. Senior Legal Executive-1 approved the method of reimbursement and Senior Executive-1 authorized both the bribe payment and the suggested method for disguising it. Real Estate Officer-1 was given the task of executing the scheme. Thiruvengadam raised no objection to the proposed scheme during the two video conferences.

In addition to discussing the bribe demand and the suggested method of disguising the reimbursement during the videoconferences, Senior Executive-1 directed his subordinates to withhold future payments to Contracting Firm-1 if it resisted paying the bribe on Cognizant’s behalf. Contracting Firm-1, which had been urging Cognizant to make the payment, ultimately yielded to Senior Executive-1’s pressure and made the payment in late May or early June 2014. Cognizant received the planning permit in November of that year.

Following Real Estate Officer-1’s suggestion, Cognizant concealed the $2.5 million reimbursement to Contracting Firm-1, including both the $2 million bribe and a $500,000 commission for paying it, through a series of falsified contract change orders. Real Estate Officer-1 selected change order requests from Contracting Firm-1 invoices that Cognizant had previously rejected and retroactively “accepted” them, adjusting the cost amounts so that they would total $2.5 million. The falsified invoices and supporting Excel spreadsheets were forwarded to Senior Executive-1 for approval, with copies provided to Thiruvengadam based on his position as chief operating officer. Senior Executive-1 approved payments in February and March 2015, and the payments were made to Contracting Firm-1 in installments between March 2015 and January 2016.

Thiruvengadam helped conceal the payment scheme by signing false management representation subcertifications in connection with Cognizant’s 2014 through 2016 audits. The subcertifications falsely denied that Thiruvengadam was aware of any fraud involving senior management. The subcertifications were relied upon by Cognizant’s chief executive officer and chief financial officer in signing management representation letters given to Cognizant’s outside auditor. The outside auditor relied on management’s representations in opining on Cognizant’s financial statements.”

Based on the above, the SEC found that Thiruvengadam caused Cognizant’s violations of the FCPA books and records provisions “by participating in the two video conferences in which the bribe payment and its concealment, which necessarily entailed deliberately falsifying Cognizant’s books and records, were authorized.”

The further found that Thiruvengadam caused Cognizant’s violations of the FCPA’s internal controls provisions “because, as chief operating officer, he was made aware of weaknesses in Cognizant’s accounting controls environment and, rather than taking steps to remediate those weaknesses, he participated in a scheme that exploited them.”

The SEC also found that Thiruvengadam “directly violated Section 13(b)(5) by participating in a scheme to falsify the company’s books and records and by knowingly signing false subcertifications to management representation letters that contributed to concealing the scheme” and that “Thiruvengadam committed violations of Exchange Act Rule 13b2-2 by signing false subcertifications to Cognizant’s management representation letters, all of which misrepresented that management was not aware of fraud related to the company’s financial statements.”

Without admitting or denying the SEC’s findings, Thiruvengadam agreed to pay a $50,000 civil penalty and the order states that the SEC “is not imposing a civil penalty in excess of $50,000 based on [Thiruvengadam’s] agreement to cooperate in a Commission investigation and related enforcement action.”

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