Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 1 of 75 PageID: 1443

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Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 2 of 75 PageID: 1444

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as 38. Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 3 of 75 PageID: 1445

NOT FOR PUBLICATION

I. Cognizant’s India Operations

Although its current headquarters are located in New Jersey, Cognizant began as an

Indian company and maintains its principal operations there. Id. ¶ 27. During the operative

timeframe, close to 150,000 of Cognizant’s 200,000 employees were located in India, many of

whom were housed at its ten large IT campuses known as “global delivery centers.” Id. ¶ 27,

30. As part of its effort to lower cost, Cognizant obtained licenses from central and regional

Indian governments to construct and operate its facilities in designated Special Economic Zones

(“SEZs”). Id. ¶ 30. Companies operating within SEZs are entitled to favorable treatment

including tax exemptions and holidays, heightened access to credit, and relaxed customs and

labor regulations. Id. ¶J 3, 29—30.These tax breaks and other benefits helped lower operating

costs, and Cognizant reported that the tax benefits derived from SEZ licenses increased net

incomeby S201.4 million in 2015. Id. ¶J5, 111.

Although the $EZs were beneficial to the companies that operated within them, members

of the Indian government were becoming skeptical of their continued value, and in February

2015 the Finance Minister Arun Jaitley indicated that the Indian government might begin to limit

the tax benefits available to newly-constructed SEZs. Id. ¶ 35. Consistent with the plan of

limiting SEZ benefits, India’s Central Board for Direct Taxes issued a draft proposal that would

phase out SEZ tax benefits for new facilities commencing activities after April 2017. Id. ¶ 36. In

february 2016 Minister Jaitley presented a final budget plan implementing a policy for phasing

out SEZ benefits after April 1, 2020. Id. ¶ 36.

Class Period; any entity in which any Defendant has a controlling interest; and the legal representatives, heirs, successors, and assigns of any such excluded person or entity. Am. Compl. ¶ 245.

3 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 4 of 75 PageID: 1446

NOT FOR PUBLICATION

Cognizant continued to seek and obtain SEZ licenses after the February 2015

announcement, and constructed or expanded four SEZ-licensed global delivery centers during

the Class Period. id. ¶ 31. In September 2015, Cognizant signed agreements to expand its global

delivery center in Coimbatore, and its Indian headquarters in Chennai, which together were

projected to have the capacity to accommodate approximately 17,000 to 20,000 professionals. Id.

¶ 37. In March 2016, Cognizant received approval for an 8,500-employee facility in Hyderabad,

and in August 2016 it received approval to construct a SEZ facility on a fifteen-acre plot in

Kolkata. Id. ¶ 38. The land for the Kolkata facility was purchased from the state government’s

Housing Infrastructure Development Corporation, which reportedly waived its development fee

and ensured that the price of the land “would be ‘kept reasonable’ to sweeten the deal.” Id.

(quoting Mamata Government Allots New TownPlot for Company‘sThird Campus in Calcutta,

Telegraph (India) (Aug 3, 2016),

https://telegraphindia.coml 1160803/jsp/calcuttalstory_1002$$.jsp). Around the same time, the

state government refused to grant licenses to Cognizant’s competitors, Wipro and Infosys, which

had both been assured by the state’s previous administration that their projects would receive

SEZ status. Id. ¶ 39.

According to Plaintiffs, Cognizant acquired some of these SEZ licenses through a bribery

scheme involving members of Senior Management, including company President Defendant

Cobum.

II. The Class Period

a. Cognizant’s Statements About SEZ Licenses, the Company’s Financial Performance, and Internal Anticorruption Procedures

Cognizant made a series of public disclosures about its business strategy to leverage the

benefits of its low-cost Indian facilities. In its annual and quarterly SEC forms, Cognizant

4 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 5 of 75 PageID: 1447

NOT FOR PUBLICATION

reported strong results, and quantified the benefits of utilizing SEZ licenses. As example, the

Company reported that the SEZ facilities “increase[d] net income by approximately $201.4

million. . . and increase[d] diluted PES by $.033” in its 2015 form 10-K. Id. ¶ 111 (quoting

Cognizant, 2015 Annual Report, at 4, 92). The Company also made statements about its intent to

continue to build and operate its newer facilities in $EZs and continue to make capital

expenditures to grow those operations. Id. ¶ 42.

The company also made statements regarding the sources of its financial success during

those years, both in its SEC filings and in direct statements to investors. The Company listed

sources of its success such as “[s]olid performance across all of our business segments”;

“[s]ustained strength in the North American market”; “[c]ontinued penetration of the European

and Rest of World (primarily the Asia Pacific) markets”; “[ijncreased customer spending on

discretionary projects”; “[e]xpansion of our service offerings, including Consulting, IT IS, and

BPS services”; “[i]ncreased penetration at existing consumers”; and “[c]ontinued expansion of

the market for global delivery of IT services and BPS.” Id. ¶ 43.

In addition to the statements about its low-cost India facilities and overall financial

success, Cognizant also made public statements about its anticorruption controls and compliance

measures. Cognizant’s Code of Conduct stated: “We do not corruptly give or offer, directly or

indirectly, anything of value to a government official to obtain or maintain business or any other

advantage for the company,” and also specified procedures designed to vet payments to foreign

officials. Id. ¶ 52, 53 (citing Cognizant’s Core Valuesand Standards of Business Conduct 9

(2015)). Similar statements appear it Cognizant’s Anticomiption Policy. Id. ¶ 54.

Cognizant publicly endorsed these anticorruption controls in a series of certifications by

Defendants D’Souza and McLoughlin stating that based on their evaluation, there were no

5 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 6 of 75 PageID: 1448

NOT FOR PUBLICATION

“significant deficiencies and material weaknesses in the design or operation” of its internal

controls, and that based on their knowledge Cognizant’s SEC Filings were free from material

misstatements and omissions. Id. ¶IJ61, 210. Cognizant also referred to its Code of Conduct in

its 2014 Annual Report and stated on its website that it “employs rigorous internal controls to

ensure our commitment to ethical behavior, proper risk management, and exemplary corporate

conduct.” Id. ¶J 56, 62. One of the critical elements of accounting controls prescribed by the

FCPA is “tone at the top.” Id. ¶ 58. Tone at the top refers to senior management’s commitment to

legal and ethical compliance and accurate reporting. Id.

During this time and throughout these statements, Cognizant stated its earnings and

publicly filed financial statements providing capitalized expenses and expenses.

The amended complaint alleges that these statements drove Cognizant’s stock price up,

rising from $46.50 per share at the start of the Class Period to a Class Period high of more than

$68 per share. Id. ¶ 63.

b. Cognizant’s Alleged Bribery Scheme

The amended complaint alleges that Cognizant engaged in a long-standing bribery

scheme to secure SEZ licenses, making millions of dollars in improper payments to Indian

government officials. Id. ¶ 65. Plaintiffs allege that this scheme involved Defendant Coburn and

other senior management, who overrode the company’s internal controls to facilitate the bribery.

Id. ¶ 66. These payments were then booked as capital expenditures rather than operating

expenses, disguising the payments and inflating the reported investments in SEZ Facilities. Id.

The amended complaint provides statements from unidentified former employees in

support of its allegations. The amended complaint provides the statements of Former Employee 1

(“FE1”), Cognizant Manager, Internal Audit & Sox Compliance from November 2014 through

6 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 7 of 75 PageID: 1449

NOT

December

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email Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 8 of 75 PageID: 1450

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(on disseminated Global to

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Id. Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 9 of 75 PageID: 1451

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from

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in Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 10 of 75 PageID: 1452

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prices ¶J material Company... in Act complaint The liable and effectiveness Section asserting actions of complaint and

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Id. Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 11 of 75 PageID: 1453

NOT

business

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6, Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 12 of 75 PageID: 1454

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and Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 13 of 75 PageID: 1455

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misleading because Cognizant and its senior management were engaged in a bribery scheme at

the time the statements were made. Id. ¶ 95.

In its Anticorruption Policy, Cognizant stated that it would “never pay, promise, offer, or

authorize a briber or anything of value to a government official,” or “permit, allow, authorize, (or

turn a ‘blind eye’ to) a Company third party’s representative payment, promise, authorization of

a bribe or anything of value to a government official or any other individual in order to win

business or obtain improper advantages for the company.” Id. ¶ 123. Substantially similar

statements appear in its revised 2015 Code of Conduct. Id. ¶ 134. The amended complaint

alleges that these statements were misleading because the Company and its representatives paid

bribes to Indian officials in order to secure SEZ licensing for its India operations, with the

knowledge and participation of senior management. Id. ¶ 52.

The Anticorruption Policy also states that Cognizant would “consult with our Legal

Department before offering or giving anything of value. . . to a government official,” “ensure

that entries into the Company’s books and record are accurate, and that all Company internal

controls and procedures are maintained and followed when making payments from the

Company,” and “comply with, and enforce, all the Company’s requirements for documentation

of expenses and payment requests.” Id. ¶ 123. The amended complaint alleges that it was

misleading because (1) the company’s books and records were misstated; (2) senior management

actually overrode the Company’s internal controls; and (3) Company policies concerning

“documentation of expenses,” including flagging payments to foreign officials and vetting them

with the Legal Department were not followed. Id. ¶ 126.

Cognizant’s Anticorruption Policy also announced that its employees and business

partners and third-party representatives would “receive appropriate training from the Company”

13 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 14 of 75 PageID: 1456

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regarding compliance with anticorruption laws. Id. ¶ 124. Similar statements appear in the 2014

and 2015 Sustainability Report, which quantified the hours of training and employees trained. Id.

¶ 129, 136. The amended complaint alleges that these statements were misleading because, as

reported by Cognizant’s former employees, adequate training was not provided. Id. ¶ 12$.

The Anticorruption Policy further provides that “periodic audits of compliance shall be

performed by each business unit in coordination with our legal department.” Id. ¶ 124. The

amended complaint asserts that this was misleading because the Company failed to perform any

such audit before 2014 and failed to act when the 2014 audit uncovered evidence of bribes. Id. ¶

12$.

Cognizant’s 2014 and 2015 Sustainability Reports provide “no incidents [of corruption]

reported in 2014.” Id. ¶ 129, 136. The amended complaint asserts that this was misleading

because (1) the Company’s President and other members of senior management were involved in

the bribery scheme and thus, were aware of such corruption; (2) the 2015 audit findings

providing evidence of bribery had already been reported; and (3) senior management overrode

and/or failed to enforce the internal controls designed to detect and prevent such bribes. Id. ¶

130.2

The 2015 Sustainability Report also states that “Cognizant treats reports of misconduct

seriously,” Id. ¶ 136, which the amended complaint asserts is misleading because the Company’s

senior management overrode and/or failed to enforce Cognizant’s internal financial controls in

order to facilitate the bribery scheme. Id. ¶ 13$.

2 The 2015 Sustainability Report also provides “no incidents [of significant risk related to corruption] reported in 2015,” which the amended complaint asserts is misleading for the same reason. Id. ¶ 137. 14 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 15 of 75 PageID: 1457

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In its Code of Conduct, Cognizant states that it does not “[g]et involved with middlemen

and/or the bribing of government officials while procuring or leasing land and infrastructure.” Id.

¶ 132. The amended complaint asserts that this was misleading because Cognizant was engaged

in a scheme to bribe Indian government officials in exchange for SEZ licenses for the

Company’s facilities in India. Id. ¶ l35.

In a statement attached to the revised 2015 Code of Conduct, D’$ouza states that “[w]e

do not cut corners, bend the rules, or look for shortcuts—and we have a zero-tolerance policy

toward those who do.” Id. ¶ 133. The amended complaint asserts that this was misleading

because senior management officials overrode and/or failed to enforce Cognizant’s internal

financial controls in order to operate the bribery scheme. Id. ¶ 135.

c. Statements touting Cognizant’s low-cost services and attributing its financial results to legitimate business factors

The amended complaint alleges that Defendants touted their ability to deliver low-cost

services through legitimate means, and attributed Cognizant’s financial success to legitimate

business factors and conditions. The complaint asserts that these statements were materially false

and misleading because Cognizant’s performance was driven, in material part, by its bribery

scheme. Id. ¶ 140.

In its 2014 Form 10-K, filed February 27, 2015, Cognizant stated its increase in revenue,

and stated that ‘key drivers of our revenue growth in 2014” were “[s]olid performance across all

of our business segments”; “[s]ustained strength in the North American market”; “[c]ontinued

penetration of the European and Rest of World (primarily the Asia Pacific) markets”;

The revised 2015 Code of Conduct also states that Cognizant complies with “all applicable anti-corruption laws,” which “means, in part, that we comply with all applicable anti corruption laws, rules, and regulations wherever we conduct business.” Id. ¶ 134. The amended complaint asserts that this is misleading for the same reason. Id. ¶ 135.

15 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 16 of 75 PageID: 1458

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“[i]ncreased customer spending on discretionary projects”; “[e]xpansion of our service offerings,

including Consulting, IT IS, and BPS services”; “[i]ncreased penetration at existing customers”;

and “[c]ontinued expansion of the market for global delivery of IT services and BPS.” Id. ¶ 141.

Similar statements appear in Cognizant’s Qi 2015 Form 10-Q, filed May 4, 2015; Q2 2015 Form

10-Q, filed August 5, 2015; Q3 2015 Form 10-Q, filed November 5, 2015; 2015 Form 10-K,

filed February 25, 2016; Q1 2016 Form 10-Q, filed May 6, 2016; and Q2 2016 form 10-Q, filed

August 5, 2015. Id. ¶J 145, 162, 170, 179, 182, 196. The amended complaint asserts that this is

misleading because Cognizant’s financial performance was driven, in material part, by its bribery

scheme. Id. ¶ 142.

In a May 4, 2015 press release and Form 8-K, Cognizant stated that its “strong revenue

performance this quarter versus our guidance was driven primarily by organic growth of our core

business. . . .“ Id. ¶ 143. Defendant D’$ouza made a similar statement on a Qi 2015 Earnings

Conference Call. Id. ¶ 149. The amended complaint alleges that this was misleading because the

Company’s financial performance was driven, in material part, by its bribery scheme. Id. ¶ 114.

Cognizant’s Ql 2015 Form l0-Q stated that “the revenue growth from our Rest of World

customers in 2015 was primarily driven by the Indian, Japan, Australia, Hong Kong, and

Singapore Markets.” Id. ¶ 146. Similar statements appear in Cognizant’s Q2 2015 Form 10-Q,

Q3 2015 10-Q, 2015 form 10-K, Q1 2016 form 10-Q, Q1 2016 Earnings Call on May 6, 2016,

and Q1 2016 10-Q.Id. ¶ 163, 171, 180, 183, 186, 197. The amended complaint alleges that this was misleading because Cognizant’s financial performance was driven, in material part, by its

bribery scheme. Id. ¶ 147.

On an August 5, 2015 QI 2015 Earnings Conference Call, Defendant Cobum stated that

“[g]rowth was driven primarily by strength in key markets such as India and the Middle East.”

16 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 17 of 75 PageID: 1459

NOT Id.

Q4

was amended

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the Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 18 of 75 PageID: 1460

NOT FOR PUBLICATION

On a May 6, 2016 Qi Earnings Conference Call, Defendant D’Souza described a

strategic initiative, stating that it is “to help clients achieve new levels of efficiency and

effectiveness in their core transaction processing operations by building platform-based solutions

and industry utilities . . . By applying a series of levers including process optimization,

digitization and large-scale efficiencies, we’re able to bring clients levels of effectiveness which

they would have been unable to reach on their own.” Id. ¶ 185. The amended complaint asserts

that this was misleading because Cognizant’s ability to deliver cost savings was driven, in

material part, by its scheme to obtain SEZ licensing by bribing Indian government officials. Id. ¶

187.

On an August 5, 2016 Q2 2016 Earnings Conference Call, Defendant Coburn stated that:

[T]he drive for getting continued efficiencies from existing IT infrastructures to be able to fund innovation projects remains absolutely essential to almost every

client. . . . Our strong vertical presence and investments in building sharply focused industry-specific platforms allow clients to obtain these efficiencies by shiffing from buying a service to buying an outcome. These trends will continue to open opportunities for us over the coming years.

Id. ¶ 199. The amended complaint asserts that this was misleading because the Company’s

ability to deliver cost savings to its clients was driven, in material part, by Cognizant’s scheme to

obtain SEZ licensing by bribing Indian government officials. Id. ¶ 201.

On the same conference call, Defendant McLoughlin attributed Cognizant’s financial

success to “a slightly lower tax rate and stronger operating margins,” which the amended

complaint asserts was misleading because the Company’s financial performance was driven, in

material part, by its scheme to obtain SEC licensing by bribing Indian government officials. Id.

¶J 201, 202.

On September 6, 2016 at a Citi Global Technology Conference, Defendant Coburn stated

“I will reduce your cost of ownership, because I’m going to bring in automation. I’m going to

18 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 19 of 75 PageID: 1461

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bring in different tools of productivity, go more offshore whatever, pull the different levers,

clients are very open to that discussion.” Id. ¶ 207. He went on to say that “we’ve been very

successful at, while maintaining our margins, being able to achieve the cost of ownership that the

clients want.” Id. the amended complaint asserts that this was misleading because the Company’s

ability to deliver cost savings to its clients, while maintaining margins, was driven, in material

part, by Cognizant’s scheme to obtain SEZ licensing by bribing Indian government officials. Id.

¶ 208.

d. Overstatements of earnings resulting from improperly recording bribes as capital expenditures

The amended complaint asserts that Cognizant overstated its earnings by incorrectly

booking the bribery payments as capital expenditures rather than booking them as expenses. Id. ¶

209. Of the $4.1 million of capitalized expenses, $1 million was expensed as depreciation and

amortization, leaving $3.1 million overstated on Cognizant’s earnings and investment in physical

assets, and understated in expenses. Id. The amended complaint asserts that Cognizant has

admitted these over- and understatements. Id.

SOX certifications

In connection with each quarterly and annual report filed by Cognizant, Defendants

D’$ouza and McLoughlin signed $OX Certifications, as required by Section 302 of SOX. In

them, Defendants D’Souza and McLoughlin certified that they had designed and evaluated

effective internal and disclosure controls:

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and b) any fraud, whether or

19 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 20 of 75 PageID: 1462

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not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Id. ¶ 210. The amended complaint alleges that this was materially false and misleading when

made because Cognizant admitted material weaknesses existed in its internal controls, including

“tone at the top,” as senior management participated in making corrupt payments by overriding

and/or failing to enforce the Company’s internal financial controls. Id. ¶J211.

Defendants D’Souza and McLoughlin also certified that “Based on my knowledge, this

report does not contain any untrue statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances under which such

statements were made, not misleading with respect to the period covered by this report.” Id. ¶

210. The amended complaint alleges that this was materially false and misleading when made

because the SEC filings to which the certifications were appended contained numerous

materially false and misleading statements and omissions. Id. ¶ 212.

VI. Defendants’ Motions to Dismiss and Motion to Strike

On June 6, 2017, Defendant Coburn filed a motion to dismiss the amended complaint for

failure to state a claim under federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Private

Securities Litigation Reform Act (“P$LRA”). Def. Coburns’ Mot. Dismiss, ECF No. 41-1.

Defendant Cobum argues that Plaintiffs failed to allege any material misstatement or omission,

failed to allege scienter, and failed to state a claim of control person liability under Section 20(a).

The same day, Defendants Cognizant, D’$ouza, and McLoughlin (“Cognizant

Defendants”) also filed a motion to dismiss the amended complaint under FRCP l2(b)(6).

Cognizant Mot. Dismiss, ECF No. 42. Cognizant Defendants contended that Plaintiffs failed to

allege material misrepresentations, scienter, or control person liability as to Defendants D’Souza

and McLoughlin.

20 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 21 of 75 PageID: 1463

NOT

Pls.’

outside a September Defendants allegations 52. repudiated 595 stricken The Complaint attributed support, stating

Cognizant Otherwise,

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In Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 22 of 75 PageID: 1464

NOT FOR PUBLICATION

own declaration regarding the allegations, but that Mr. Hawes changed his mind and declined to

meet.

In the alternative, Defendants move for an order granting limited discovery to allow them

to depose Mr. Hawes.

Under Federal Rule of Civil Procedure 12(f), a “court may strike from a pleading an

insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R.

Civ. P. 12(f). “A court possesses considerable discretion in disposing of a motion to strike under

Rule 12(f).” Wiseberg v. ToyotaMotor Corp., No. 11-3776 (JLL), 2012 WL 1108542, at *13

(D.N.J. Mar. 30, 2012) (quoting Kim v. Baik, No. 06-3604, 2007 WL 674715, at *5 (D.N.J. Feb

27, 2007)). Motions to strike are “disfavored and are usually denied ‘unless the allegations have

no relation to the controversy and may cause prejudice to one of the parties, or if the allegations

confuse the issues in the case.” Id. (quoting Kim, 2007 WL 674715, at *5); see Alan Wright,

Arthur Miller et al., Fed. Prac. & Proc. Civ. § 1382 (3d ed.) (“[T]here appears to be general

judicial agreement, as reflected in the extensive case law on the subject, that [motions to strike]

should be denied unless the challenged allegations have no possible relation or logical

connection to the subject matter of the controversy and may cause some form of

significant prejudice to one or more of the parties to the action.”).

Defendants argue that statements in the complaint attributed to Former Employee 1 (FE1)

should be struck because they are unreliable. Defs.’ Strike Br. at 10. Defendants argue that

unreliable statements are “both ‘immaterial’ and ‘impertinent’ matter and, therefore, may be

stricken under Rule 12(f).” Id. (citing Porter v. Fairbanks Capital Corp., No. 01 C 9106, 2003

WL 21210115, at *7 (N.D. Ill. May 21, 2003)). Defendant claims that given the heightened

pleading requirements of the PSLRA, courts have found repudiated statements by confidential

22 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 23 of 75 PageID: 1465

NOT

witnesses

7143,

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Circuit

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or Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 32 of 75 PageID: 1474

NOT FOR PUBLICATION

information made available.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011)

(internal citations omitted).

Materiality requires a “delicate assessment of the inferences a ‘reasonable shareholder’

would draw from a set of facts.” TSCIndus., Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976);

EDMedsystems, Inc. v. EchoCath, Inc., 235 f.3d 865, 875 (3d Cir. 2000). In the Third Circuit,

“the 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). While fact-specific assessments of this

kind are “peculiarly ones for the trier of fact,” TSCIndus., Inc., 426 U.S. at 450, some statements

may be so facially insignificant to a reasonable investor that they are inactionable “puffery.” City

of Edinborough Council v. Pfizer, Inc., 754 F.3d 159, 172 (3d Cir. 2014). For that reason, courts

have held that “vague and general statements of optimism ‘constitute no more than “puffery” and

are understood by reasonable investors as such.” In re Advanta Corp. Sec. Litig, 180 F.3d 525,

538—39(3d Cir. 1999) abrogated on other grounds, as recognized in City of Edinborough

Council, 754 F.3d at 172, (quoting Burlington Coat Factoiy, 114 F.3d at 1428 n.14).

Although omissions can give rise to liability, Section 10(b) and Rule 1Ob—5“do not

create an affirmative duty to disclose any and all material information.” Matrixx, 563 U.S. at 44.

Disclosure is required “only when necessary ‘to make. . . statements made, in the light of the

circumstances under which they were made, not misleading.” Id. (quoting 17 C.F.R. §240.1Ob—

5(b)). Further, “[s]ome statements, although literally accurate, can become through their context

and manner of presentation, devices which mislead investors.” In re Merck & Co., Inc. Sec.,

Derivative, & ERISALitig., Nos. 05-1151(SRC), 05-2367 (SRC), 2011 WL 3444199, at *9

(D.N.J. Aug. 8, 2011) (quoting McMahon & Co. v. WherehouseEnt’t, 900 F.2d 576, 579 (2d Cir.

32 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 33 of 75 PageID: 1475

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puts true, Matrixx that

1990)). consider the 472 controlling

highlighting

financial corruption improperly address

investment misconduct Defendants

2016 allege occupancy

issue

subject.”

(E.D.

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8-K

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material,

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ensure

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permits, recording

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SEZ

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benefits turn.

to

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(quoting they

at

that

companies

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argue

play’

45

c)

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that

say

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the

Complaint investors

2014)

statements

i. other

(“Even

scheme

obtain

makes

of

the

and

to the company that Shapiro

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SEZ

were

the

as

amended permits.”

“improper (finding

business can

assumes

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with

capital

SEZ

market.”); involving are an

licenses;

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control

statements

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made not

respect

licenses

UJB

false

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Cognizant expenditures; factors; a Highlighting

misled

payments”

duty,

what

favorable

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Cognizant’s b)

SEZ

five

and In

to

statements

“as about

re

under

information

by Corp.,

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misleading. they

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licenses.

material

33

Viropharma

opposed

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overstatements

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referenced have

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to

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securities

Defendants

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that

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characterization SOX disclose

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permits,

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it Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 34 of 75 PageID: 1476

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principally F.3d ¶ According a delivery operations. senior to given allowed acquisition Cognizant’s knowledge,

statement including

indicia”).

bribery

39.

$EZ

“improper licenses

once

698,

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management

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FE1

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2016)).

to

because

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SEZ

of

the Plaintiffs

tout

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take

thousands the

permits

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licenses.

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licenses.

for was

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red

69,

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for

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the complaint to

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complaint

his (quoting

employees

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flag

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new

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corroborative

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payments

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plausibility

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sought

the business.

facilities

obtaining

specificity

revenue,

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SEZ

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confidential

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sufficiently

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and

making

and

263

he

licenses,

at

specifically in

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are

nature

in

$EZ identified

as

reduced

obtained

of

44—45.

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its

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alleges

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sources,

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to

quarter

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confidential

and

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a

over

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flag

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duty facts

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licenses

connection

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payments.

operating

sources’

accordingly

2016

payments

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and

to

alleged,

SEZ

Cognizant

competitors.

¶

disclose

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were

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similar for

84.

10-Q

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India

license

engaged

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cost,

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of and

was

to

Id.

in Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 35 of 75 PageID: 1477

NOT FOR PUBLICATION

compliance. Am. Compl. ¶ 62. Further, FE1‘s statement that he discovered red flag payments

related to SEZ licenses is corroborated by Cognizant’s announcement that improper payments

were made in relation to permits. FE1‘s statements are also coherent and plausible. The amended

complaint alleges that Cognizant relied on $EZ licenses to keep operating costs down and,

therefore, would have a motive to acquire them quickly before the Indian government scaled

back their availability.

In light of these allegations, the Court finds that Plaintiffs have adequately alleged a

bribery scheme to acquire $EZ licenses. At the motion to dismiss stage, Plaintiffs “need only

allege ‘enough facts to state a claim for relief that is plausible on its face.” Matrixx, 563 U.S. at

45, n.12 (quoting Twornbly,550 U.S. at 570). Taken together, the amended complaint plausibly

alleges that the “permits” referenced in Cognizant’s 2016 10-Q were SEZ licenses.

To the extent that the Cognizant Defendants contend that the improper payments are not

material because they involve only a “small number” of Cognizant’s Indian facilities and $6

million over six years, the argument is rejected. A bribery scheme involving Cognizant senior

management affecting its core India operations would “significantly alter the total mix of

information made available” to investors. liatrixx, 563 U.S. at 3$.

Having found that Plaintiffs have adequately alleged a material bribery scheme, the Court

also finds that Cognizant’s statements touting the benefits of SEZ licenses were misleading. By

highlighting the benefits of the SEZs, Cognizant put the underlying bribery at play. See In re Par

Pharm., Inc., Sec. Litig., 733 F. Supp. 668, 678 (S.D.N.Y. 1990) (finding statements touting

company’s ability to obtain FDA approval materially misleading because it failed to disclose that

the approvals were obtained through bribery). Cognizant stated in SEC disclosures that its

“Indian subsidiaries. . . are eligible for certain income tax holiday benefits granted by the Indian

35 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 36 of 75 PageID: 1478

NOT benefits the government

Compl. WL context subject SEZs. of Policy, compliance

of asserts senior 95. Am statements illegal significant fail

an

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management disclose

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Defendants Cognizant

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in Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 46 of 75 PageID: 1488

NOT FOR PUBLICATION

(3d Cir. 2007); Advanta, 180 F.3d at 538, abrogated on other grounds, as recognized in City of

Edinborough Council, 754 F.3d at 172 (citing Serabian v. Amoskeag Bank Shares, Inc., 24 f.3d

357, 361 (1st Cir. 1994)). Similarly, absent an allegation that the data are false, “a violation of

federal securities law cannot be premised upon a company’s disclosure of accurate historical

data.” In re Sanofi Sec. Litig., 155 F. $upp. 3d 386, 404 (S.D.N.Y. 2016) (quoting In re Sofamor

Danek Grp., Inc., 123 F.3d 394, 401 & n.3 (6th Cir. 1997)).

Plaintiffs contend that a company has a duty to disclose any improper or illegal

businesses that contribute to a company’s success “when a company puts at issue the cause of its

success.” Pls.’ Opp. at 33. In Plaintiffs’ view, by speaking about the source of its success, a

company triggers an obligation to disclose to avoid liability under Section 10(b).Id. at 36. While

certain district courts have articulated such a rule, see Steiner v. Medquist, Inc., No. 04-5487

(JB$), 2006 WL 2827740 (Sept. 29, 2006 D.N.J.); In re VanDer Moolen Holding N.V.Sec.

Litig., 405 F. Supp 2d. 388 (S.D.N.Y. 2005); In re Providan Fin. Corp. Sec. Litig., 152 F. Supp.

2d 814 (E.D. Pa. 2001), the Third Circuit has not. In Galati v. Commerce Bancorp, Inc., 220 F.

App’x 97, 101—02(3d Cir. 2007), the defendant bank had stated that “the strong performance of

Commerce Capital Markets was led by the public finance division,” and that “the unique

Commerce business model continues to produce strong top-line revenue growth driven by strong

deposit growth which significantly increases our net interest income and net income.” Id. The

court found that this did not create a duty to disclose the alleged bid-rigging scheme which

fueled the growth of these deposits, reasoning that the statements did not put the integrity of the

bank’s practice “at play.” Instead, the statements were all unactionable “factual recitations of

past earnings” and puffery. Id.; see also Boca Raton Firefighters and Police Pension Fund v.

Bahash, 506 F. App’x 32, 37 (2d Cir. 2012) (“Whatever the scope of the responsibility not to

46 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 47 of 75 PageID: 1489

NOT FOR PUBLICATION

make statements that constitute ‘half-truths,’ that surely does not apply to the reporting of

unmanipulated corporate earnings.”); Sanofi, 155 F. Supp. 3d at 404 (finding “accurate

statements of past earnings and growth” not actionable without a closer connection to the alleged

misconduct).

Not only is Plaintiffs’ proposed rule inconsistent with Third Circuit precedent, it is also

overbroad. Because every company will at some point publicly reference the sources of its

revenue, Plaintiffs’ approach would rewrite the statute to impose an affirmative duty to disclose

all material information that affects revenue. Such a duty runs counter to the clear command

from the Supreme Court that Section 10(b) and Rule 1Ob—5“do not create an affirmative duty to

disclose any and all material information,” Matrixx, 563 U.S. at 44—45,and that “[s]ilence,

absent a duty to disclose, is not misleading under Rule lOb—5,”Basic, 485 U.S. at 239 n.17. If

Congress wanted to create a regime of mandatory disclosure of all known misconduct, it would

have done so more clearly.

Like any other statement, public announcement of past earnings and sources of revenue

create a duty to disclose other material information to the extent necessary to make those

statements not misleading. 17 C.F.R. §240.lOb—5(b)5.This is most likely to occur when the

public statement has a close connection to the underlying misconduct. See Sanofi, 155 F. Supp.

3d at 403 (“The critical consideration. . . in determining whether a corporation must disclose

mismanagement or uncharged criminal conduct is whether the alleged omissions.. . are

sufficiently connected to the defendants’ existing disclosures to make those public statements

misleading” (citations and internal quotation marks omitted)). As example, if a company

“address[es] the quality of a particular management practice” by characterizing it as “adequate,”

“conservative,” “cautious” and the like, the subject is in play and the defendant has a duty to

47 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 48 of 75 PageID: 1490

NOT

speak increase reflected

defrauding

statements

performance of increase

market”;

Pacific) our

existing and performance

business.

our Kong,

not

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service

BPS.” Rest

adequately

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truthfully.

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2015 statements

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Coburn, allege

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expansion

and

segments”;

statements

of

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drivers

European

145,

spending customers

2015

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statements;

primarily

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is

IT 10-K,

to

was 2d misleading

162,

IS,

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by

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at

of

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driven are our and

forms

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170,

819,

Defendants were the

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discretionary

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statement

revenue

BPS

them Rest

February

market

179,

824.

are

primarily

if

was

by stated

the

services”;

of

misleading. filed

inactionable

182,

the truly

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growth

strength for

revenue

McLoughlin

stated

crediting

27,

and pursuant that

196.

Indian,

global

by

projects”;

increased

2015,

(primarily the

“the

“[iJncreased

organic

in

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in

increase

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2014”

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delivery puffery

Japan,

a

the

revenue

to

Cognizant

its

company’s

and

statements

SEC

by “[e]xpansion North

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growth

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were

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misleading

D’$ouza.

and

of

regulations,

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growth

Asia

American

IT

that “[s]olid

statements

stated revenue

of

revenue

services

do

our

they

from Hong

of not

its

and

core

are

at Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 49 of 75 PageID: 1491

NOT FOR PUBLICATION

reference licenses, tax benefits, permits, or anything else related to the alleged bribery scheme

that would be rendered misleading by the omission. See Sanofi, 155 F. $upp. 3d at 403 (requiring

that the alleged omissions be “sufficiently connected to defendants’ existing disclosures to make

those public statements misleading”). The reference to India as one of several markets does not

put “at play” the propriety of Cognizant’s acquisition of government licenses.

As none of the statements triggered a duty to disclose anything about the alleged bribery

scheme, they are not false and misleading.

2. Statements by Defendant Cobttrn

Cobum’s statements all constitute inactionable puffery, or accurate statements of

historical fact. As example, on an Earnings Call on November 4, 2015, Cobum stated “[w]e

continue to do very well and take market share on the maintenance side. . . . And we — Cognizant

just has this incredible track record of delivering very high quality services, while continuously

delivering productivity and efficiency.” Am. Compi. ¶ 166. Similarly, on May 24, 2016 Coburn

stated at an investor conference that Cognizant would respond to customer demand by “bringing

best practices to our clients for our traditional services, constantly lower[ing] their cost of

ownership while maintaining our margin.” Id. ¶ 194. Vague, general statements of this kind are

mere puffery. See Advanta, 180 F.3d at 538, abrogated on other grottnds, as recognized in City

of Edinborough Cottncil, 754 F.3d at 172 (finding statements inactionbie because they were

“vague and general statements of optimism”).

Plaintiffs argue that statements such as “strong vertical presence and investments in

building sharply focused industry-specific platforms” are at least as material as “customer-

focused approach” that was held to be materially misleading in Providan. Pis.’ Opp. at 40. But

the statement in Providan were false; the company was not engaged in a “customer-focused

49 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 50 of 75 PageID: 1492

NOT

approach,” contrast,

(7th response 551 rejected.

declining. a growth Further, argument,

facts cost licenses

of is provisions investor disclose

only

the

specific

not

a

U.S.

statements

Cir.

bribery

of

FOR

to

of

whether

Plaintiffs,

ownership.”

rate

Plaintiffs’

show

puffery

even from Plaintiffs 2006)

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that Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 51 of 75 PageID: 1493

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November business inactionable

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historical Defendants

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productivity

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rendered

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effectiveness

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McLoughlin

to

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2016 productivity

have

they

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to Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 52 of 75 PageID: 1494 NOT FOR PUBLICATION

iv. Overstated Earnings by Capitalizing Bribes that Should Have Been Expensed

The amended complaint asserts that Cognizant overstated its earnings by incorrectly

booking the bribery payments as capital expenditures rather than booking them as expenses. Id. ¶

209. Of the $4.1 million of capitalized expenses, $3.1 million was overstated on Cognizant’s

earnings and investment in physical assets, and understated in expenses. Id. Plaintiffs contend

that the mis-classification was material because it was a deliberate effort by senior management

to conceal corrupt payment to Indian officials. Pls.’ Opp. at 47.

Defendants argue that the $3.1 million reclassification was immaterial because it

represented less than two tenths of one percent of annual net income during the relevant period.

Cognizant Br. at 26. Defendants argue that the immateriality of the reclassification is

demonstrated by Cognizant’s stock price, which rose 5% following the reclassification. Id.

The Court finds that the misstatement was material. SEC Staff Accounting Bulletin No.

99, 64 Fed. Reg. 45, 150 (1999), which has been recognized as persuasive authority in the

Second Circuit, provides a nonexclusive list of “qualitative factors” to consider when

determining materiality. One such factor is “[wJhether the misstatement involves concealment of

an unlawful transaction.” Consequently, courts have found financial misstatements to be

material, even if the misstatement would not have been independently significant to investors, if

the misstatement was a result of attempt to conceal misconduct. See Indian Public Ret. Sys. v.

SAIC,Inc., $18 F.3d 85, 89 (2d Cir. 2016); Eletrobras, 245 F. Supp. 3d at 464-65.

This Court agrees. The misstatement occurred because, according to the Amended

Complaint, agents of Defendant Cognizant engaged in improper transactions with Indian

government officials and concealed the bribes by misbooking the payments as capital

expenditures. Consequently, the Amended Complaint alleges that $4.1 million of corrupt

52 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 53 of 75 PageID: 1495

NOT

payments

because

overstating

(3d

immaterial

two

argument the would

represented. bribery

earnings,

investors.

D’Souza them,

to does made,

complaint

make

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tenths

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Ct. Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 55 of 75 PageID: 1497

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most

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our Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 56 of 75 PageID: 1498

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material Defendants

scienter

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of Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 57 of 75 PageID: 1499

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as Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 64 of 75 PageID: 1506

NOT FOR PUBLICATION

September 2011 to March 2015, and that he/she stated that Coburn was “involved directly” in

real estate transactions, and that “[h]e used to take a special interest.” Id.

This Court finds that the facts alleged give rise to a strong inference of scienter. The

resignation of a member of senior management in the midst of an internal investigation can be

indicative of scienter. See Southeastern Pa. Transp. Auth. v. Orrstown fin. Servs., Inc., No. 12-

cv-00993, 2016 WL 466958, at *5 (M.D. Pa. Feb. 8, 2016); In re Par Pharm. Sec. Litig., 2009

WL 3234273, at *10.

To be sure, resignation of corporate officers around the time of an internal investigation

or the announcement of corporate misconduct alone is not sufficient to give rise to a strong

inference of scienter. In reHertz Global Holdings, Inc. Sec. Litig., No. 13-7050, 2017 WL

1536223, at *20 (D.N.J. Apr. 27, 2017) (“The Third Circuit and other courts have found

resignations of key officers to be insufficient to show that they acted with the requisite scienter to

commit the alleged fraud.” (citations omitted)). There are many possible motivations for

employees to resign in these circumstances that are not indicative of participation in wrongdoing.

Plaintiffs must therefore plead facts to “reflit[e] the reasonable assumption that [the defendant’s

employee] was simply fired because the errors. . . occurred on his watch or because he

adequately failed to supervise his department.” In re US. Aggregates, Inc. Sec. Litig., 235 F.

Supp. 2d 1063, 1074 (N.D. Cal. 2002); see In re Great Atlantic & Pacific Tea Co., Inc. Sec.

Litig., 103 F. App’x 465, 470 (3d Cir. 2004) (“Other than a conclusory statement that nine

employees were fired as a result of the accounting irregularities, the complaint makes no specific

allegations regarding how these employees were involved in the accounting irregularities or

. . whether they knew that the accounting policies violated GAAP .

64 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 65 of 75 PageID: 1507

NOT FOR PUBLICATION

Here, Plaintiffs have alleged specific facts to refute the nonculpable explanation. The

“reasonable assumption” that Coburn may have resigned because of his performance is rebutted

by Cognizant’s public admission that members of senior management participated in or failed to

uncover the bribery. Three days later, Defendant D’Souza stated that those senior-manager

participants had resigned. Further, the resignation was announced in the same public filing that

announced the misconduct, not weeks or months after. Cf In re Hertz Global Holdings, Inc.,

2017 WL 1536223, at *20 (finding resignations insufficient evidence of scienter when one

employee resigned the day before the announcement, and others resigned weeks or months later).

Former employees have also stated that Defendant Cobum had a special interest in real

estate. The Court will consider the statements of the former employees, but will discount them

greatly. Considering the Chubb factors, neither employee provided any detail about Cobum’s

involvement in SEZ procurement. There are no corroborative facts about Cobums’ involvement

or interest in Indian land acquisition, and moreover, nothing connecting his interest in Indian

land acquisition in general with the specific improper acquisition of $EZ licenses. Still, even

given this discount, the former employees’ statements provide further allegations that Defendant

Cobum was involved in real estate, adding to the inference that he was a participant in the

alleged bribery scheme.

As the District of Delaware has explained, to find a strong inference of scienter “there

must be some reason to believe that the resignation was actually connected to the fraud.” City of

RosevilleEmps. ‘Ret. Sys., 713 F. Supp. 2d 37$, 39$ (D. Del. 2010), aff’d 442 F. App’x 672 (3d

Cir. 2011). Here, that connection is provided by Cognizant’s public statements implicating senior

management in the bribery and announcing their departure three days after Defendant Cobum

resigned. Given these circumstances, the inference that Cobum was a participant in the bribery is

65 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page of 75 PageID: 1508

NOT

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announcement was false.

Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 710 (7th Cir. 2008).

Other courts have held to the contrary, and require 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.” Soztthland

Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 366 (5th Cir. 2004); see Phillips v.

Scient,flc-Attanta, Inc., 374 f.3d 1015, 1017 (11th Cir. 2004).

The Sixth Circuit has taken a “middle ground” approach, and will consider the mental

state of”a. the individual who uttered the misrepresentation; b. any agent who authorized,

commanded, furnished information for, prepared. . . , reviewed, or approved the statement; and

c. any high managerial agent or board member who ratified, recklessly disregarded, or tolerated

the misrepresentation after its utterance or issuance.” In re Omnicare, Inc. Sec. Litig., 769 F.3d

455, 476 (6th Cir. 2014).

The Third Circuit has not squarely decided the issue, but addressed it in City of Rosevitle

Employees ‘Retirement System. v. Horizon Lines, Inc., 442 F. App’x 672, 676 (3d Cir. 2011).

There, senior corporate executives had made material misstatements involved a price-fixing

scheme which was carried out by company managers in Puerto Rico. The court affirmed the

district court’s dismissal, reasoning that although “the Puerto Rico managers acted with scienter,

they did not make material false statements on which plaintiff relied.” Id. at 674, 676

(emphasis in original). The court went on to say that it need not consider whether scienter could

otherwise be pled against the corporation, because “the facts pled here are a far cry from those in

Bridgestone or in the Seventh Circuit’s hypothetical.” Id. at 676—77.It therefore did not reject or

adopt a theory of corporate scienter that would allow liability when scienter was not alleged as to

67 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 68 of 75 PageID: 1510

NOT

viable, an reject statements.

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as Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 73 of 75 PageID: 1515

NOT FOR PUBLICATION

Having found an underlying violation by Cognizant, the only question is whether the

Individual Defendants D’Souza, McLougfflin, and Cobum are “controlling persons” who were

“culpable participants” in the fraud.

The Court finds that the Amended Complaint adequately alleges that all three Individual

Defendants are “controlling persons” for purposes of Section 20(a) by virtue of their positions as

the highest ranking executives of Cognizant.

The Court also finds that the Amended Complaint adequately alleges that Defendant

Cobum was a culpable participant, for the reasons that gave rise to a strong inference of scienter.

However, the Amended Complaint fails to allege that Defendant D’Souza or McLoughlin were

culpable participants. See Lapin, 506 F. Supp. 2d at 248—49(dismissing Section 20(a) claim

against individual defendants for failing to plead culpable participation). The Court therefore

grants the motion to dismiss the Section 20(a) claims against Defendants D’Souza and

McLoughlin, and denies the motion to dismiss as to Defendant Cobum.

III. Plaintiffs are entitled to amend their complaint.

If a complaint fails to state a claim upon which relief can be granted, a plaintiff should

ordinarily be granted the right to amend his complaint. The Supreme Court has instructed that:

The grant or denial of an opportunity to amend is within the discretion of the District court, but outright refusal to grant the leave without any

justifying reason. . . is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules.

Foman v. Davis, 371 U.S. 178, 182 (1962). In the Third Circuit, plaintiffs whose complaints fail

to state a cause of action are entitled to amend their complaint unless doing so would be

inequitable or futile. Fletcher-Harlee Corp. v. Pote Concrete Contrs., Inc., 482 F.3d 247, 252

Partners, Inc., 708 F.3d 470, 484 n.20 (3d Cir. 2013) (discussing the disagreement between district courts on the requirement).

73 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 74 of 75 PageID: 1516

NOT FOR PUBLICATION

(3d Cir. 2007). In Shane v. fauver, 213 F.3d 113 (3d Cir. 2000), the Third Circuit stated:

[W]e suggest that district judges expressly state, where appropriate, that the plaintiff has leave to amend within a specified period of time, and that application for dismissal of the action maybe made if a timely amendment is not forthcoming within that time. If the plaintiff does not desire to amend, he may file an appropriate notice with the district court asserting his intent to stand on the complaint, at which time an order to dismiss the action would be appropriate.

Slzane,213 F. 3d at 116 (citing Borelli v. City of Reading, 532 F.2d 950, 951 n.1 (3d Cir. 1976)).

Allowing Plaintiff to seek to amend the complaint in this case is appropriate. Plaintiffs

have adequately alleged violations of Section 10(b) and Rule 1Ob-5as to Defendant Cognizant

and Section 20(a) as to Defendant Cobum. Plaintiffs are granted forty-five (45) days to seek to

amend their complaint, if they wish.

CONCLUSION

The Court dismisses the claims based on Cognizant’s Code of Conduct and

Anticorruption Policy, the statements touting low-cost services and attributing the company’s

financial results to legitimate business factors, and the SOX certifications. Am. Compl. ¶ 122—

2$, 132—35,140—208,210—12.Further, because Plaintiffs failed to allege that Defendant Cobum

made any material misstatement, the claims against him under Section 10(b) are dismissed. That

dismissal is with prejudice.

Because Plaintiffs have failed to allege scienter or culpable participation on the part of

Defendants D’Souza and McLoughlin, the claims against them are dismissed without prejudice.

The Court denies Defendants’ motions to dismiss as to the balance of the claims.

74 Case 2:16-cv-06509-WHW-CLW Document 66 Filed 08/08/18 Page 75 of 75 PageID: 1517 NOT FOR PUBLICATION

Plaintiffs are granted leave to seek to amend their complaint within 45 days of the date of

this opinion. An appropriate order follows.

DATE:

Senior United States District Court Judge

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