With Cognizant paying millions to end a shareholder lawsuit, Niall Hearty outlines events that led to the settlement.

Cognizant is preparing to pay $95 million to settle a lawsuit that accused the IT services company of defrauding shareholders.

The lawsuit was brought as a result of allegations that Cognizant had concealed bribes to officials in India. Preliminary settlement of the proposed class action was submitted to the federal court in Newark, New Jersey, and will require a judge's approval.

The settlement will conclude a saga that begin with shareholders accusing the New Jersey-based company of not disclosing payments that were made to obtain permits for facilities in "special economic zones" - including its Indian headquarters in Chennai - that would allow it to benefit from tax benefits. 

In 2016, Cognizant’s share price dropped by 13.3% when the allegations became public knowledge and the company announced it was examining whether there had been breaches of the Foreign Corrupt Practices Act.

Cognizant’s ex-president Gordon Coburn and its former chief legal officer Steven Schwartz denied wrongdoing in agreeing to settle. The company expects insurers to cover much of the $95 million settlement. 

Two years ago, the company agreed to pay $25 million to settle a related US Securities and Exchange Commission civil probe, and US prosecutors charged Coburn and Schwartz with a number of FCPA and other violations. Those criminal cases are still pending.

While the payment that Cognizant now faces is a significant one, the closure of this investigation will be a huge relief to both the company and its shareholders.