September 20, 2020

Court orders evidentiary hearing to determine if pre-indictment cooperation between DOJ and SEC entitles FCPA defendants to SEC discovery

On September 14, 2020, a federal judge in the US District Court for the District of New Jersey, partially granted a motion to compel filed by defendants Gordon Coburn and Steven Schwartz, former Cognizant Technology Solutions Corporation executives, seeking documents from the US Securities and Exchange Commission which the SEC had obtained during its investigation of Cognizant for anti-bribery and accounting violations of the Foreign Corrupt Practices Act.  The court ordered that an evidentiary hearing be held to determine if and to what extent the investigation by the US Department of Justice leading to the pending criminal charges against Coburn and Schwartz was conducted jointly with the SEC, which would in turn determine whether the defendants are entitled to discovery from the SEC.

In 2019, Coburn, the former Cognizant President, and Schwartz, the former Cognizant Chief Legal Officer, were charged in a 12-count indictment with conspiracy  to violate and substantive violations of the FCPA anti-bribery, books and records, and internal controls provisions.  Specifically, the indictment alleges that Coburn and Schwartz authorized an improper payment of about $2 million to government officials in India in order to obtain permits to build a facility there.  In their motion to compel, the defendants argued that they are entitled to obtain any relevant information that the SEC might have that may help their defense, alleging that the close cooperation between the DOJ and SEC before trial amounted to a joint investigation.  The DOJ disputed this, arguing that the SEC’s participation in roughly half of the witness interviews conducted by the DOJ (especially when the SEC did not ask questions or take notes) did not constitute a joint factual investigation.  In further support of this position, the DOJ added that the SEC had no influence over the DOJ’s decision making process or the grand jury activities.  The court held that joint fact gathering could be enough to entitle the defendants to discovery of the SEC documents.  The court stated that the question would turn on the extent to which the DOJ and the SEC were a ”team,” such that DOJ was in constructive possession of the SEC documents, as mere “joint activity” would not be enough.  Because the DOJ did not provide a “comprehensive explanation as to what kind of cooperation there was,” the court granted an evidentiary hearing to determine how closely the SEC and the DOJ coordinated their investigations.  

Defendants also requested discovery related to Cognizant’s cooperation with the DOJ, alleging that the DOJ essentially outsourced its investigation to Cognizant, citing the close cooperation between the DOJ and Cognizant during the company’s internal investigation. The judge granted the defendants’ request for subpoenas on this topic, rejecting certain aspects of the subpoenas that the court ruled were outside the scope of that question (e.g., subpoena requests relating to discussions between Cognizant and the DOJ as to the scope of attorney-client privilege).  

USNJ Memorandum and Opinion