By Rebecca Davis O'Brien

Allegations of spying and ethical breaches are roiling a foreign-bribery prosecution in New Jersey federal court, underscoring the potential legal peril that can arise when companies cooperate with law enforcement against their former employees.

Two executives at Cognizant Technology Solutions Corp., a professional-services company based in Teaneck, N.J., were charged in 2019 with conspiring to bribe a government official in India to secure a construction permit for a planned office campus there. Federal prosecutors say Cognizant's former president, Gordon J. Coburn, and its former chief legal officer, Steven Schwartz, directed a $2 million payment through a third-party construction company, then concealed it with falsified records.

Both men have pleaded not guilty, saying there is no evidence they approved any bribes or that the alleged bribe was ever paid.

In court filings, their lawyers say the charges arose from prosecutors' "unquestioning deference" to an internal investigation by Cognizant, which is cooperating with the government through an agreement to avoid criminal prosecution. The Justice Department "appears to have outsourced important aspects of its investigation" to Cognizant, say the lawyers, who also accuse prosecutors of helping the company avoid the defense's demands for information.

In a filing Tuesday, Mr. Schwartz's lawyers went further, accusing Cognizant of seeking to undermine his defense. The lawyers said Cognizant hired private investigators to interview employees of a law firm representing Mr. Schwartz and gathered information from Mr. Schwartz's own lead investigator, who they say was "acting as a spy in the defense camp."

Mr. Schwartz's lawyers asked U.S. District Judge Kevin McNulty to compel Cognizant and the government to provide information about the alleged efforts, including whether Cognizant shared any information they gathered with federal prosecutors, which Mr. Schwartz's lawyers say would violate their client's constitutional rights.

In a letter to the court Wednesday, a lawyer for Cognizant said there had "certainly never been an intrusion 'into the defense camp.'"

"At all times during its investigation and since, Cognizant and its counsel have acted professionally and appropriately," wrote the lawyer, Ricardo Solano Jr.

A spokesman for the New Jersey U.S. attorney's office declined to comment. In court filings, prosecutors have called the outsourcing allegations "an unsupported hunch" that had no merit.

A lawyer for Mr. Coburn declined to comment on the federal case. A spokesman for Mr. Schwartz declined to comment.

In addition to cooperating with the Justice Department, Cognizant agreed to pay $25 million to settle charges brought by the Securities and Exchange Commission. The SEC also brought civil charges against Messrs. Coburn and Schwartz to be resolved after the criminal trial, which is set for this fall.

A 2015 Justice Department guidance allows companies to cooperate with investigations and avoid criminal exposure with the expectation that they will identify any wrongdoing by employees.

Legal observers say this policy could give companies an incentive to find wrongdoing where there is none. Federal judges have expressed concern that prosecutors' reliance on internal investigations could compromise the constitutional rights of employees, who may be obligated to sit for internal company interviews that could then be used against them in federal court. Judges have also held that the government may bear responsibility for the actions of a cooperator, even if it is a private employer.

In 2016, Cognizant launched an internal investigation following a report, conveyed to the company's compliance hotline, that the company had paid kickbacks to vendors in India, court filings show. Later that year, Cognizant reported itself to the SEC and Justice Department.

Messrs. Schwartz and Coburn initially cooperated with Cognizant's investigation, their lawyers said. They left Cognizant in 2016 and were indicted in February 2019 on 12 counts including conspiracy to violate the Foreign Corrupt Practices Act and falsifying books and records.

Prosecutors say that in two April 2014 conference calls, Messrs. Coburn and Schwartz agreed with two unnamed co-conspirators to make a $2 million payment through a construction company, with the understanding that it would be paid to one or more Indian officials. In court filings, prosecutors said internal communications show that a bribe demand was holding up Cognizant's planned construction.

Lawyers for Messrs. Schwartz and Coburn soon raised questions about prosecutors' dealings with Cognizant. In a March 2020 filing, the lawyers said the government didn't re-interview some of the witnesses who had been interviewed by Cognizant, and didn't challenge Cognizant's redactions or claims of privilege.

The defense lawyers also accused the prosecutors of trying to prevent them from accessing potentially exculpatory materials from Cognizant. Prosecutors have said they have turned over all legally required materials, and with Cognizant have opposed the defense's efforts to compel more information on its claims of outsourcing.

Mr. Schwartz's claim that Cognizant spied on his legal team arose from a dispute over his legal fees, which Cognizant is required to advance. The company had objected to one of Mr. Schwartz's firms, Bohrer PLLC, on the grounds that it lacked experience but still charged more than the much larger white-collar firms involved in the case.

Last year, a Delaware chancery court judge ruled in Mr. Schwartz's favor. A spokesman for Mr. Schwartz said that Mr. Schwartz, as a former in-house lawyer, "is more than qualified to select his legal representation," adding that he chose Bohrer because of his experience in complex government investigations. Mr. Bohrer declined to comment.

But Cognizant hired a law firm and private investigators to explore possible legal claims against Bohrer, according to Tuesday's filing.

Mr. Schwartz's lawyers said Cognizant's investigators reached out to current and former Bohrer employees, including law-school interns and administrative staff, asking about the work of Jeremy Bohrer, the firm's founder. Cognizant's lawyers threatened to sue the Bohrer firm, Mr. Schwartz's lawyers wrote, using information that the company eventually disclosed came from Stephen Ward -- the lead investigator on Mr. Schwartz's defense team.

According to Tuesday's filing, Mr. Ward had been "intimately involved with nearly every aspect" of Mr. Schwartz's defense, even as he was providing confidential information to Cognizant.

Mr. Ward didn't respond to a request for comment.

In an April email to Mr. Schwartz's lawyers, included in Tuesday's motion, prosecutors described the allegations about Cognizant's investigation of Bohrer as part of a civil fee dispute, adding: "We are not going to take any actions to intervene in that matter."

Write to Rebecca Davis O'Brien at Rebecca.OBrien@wsj.com

(END) Dow Jones Newswires

06-03-21 0925ET