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Cognizant Tumbles as President Leaves Amid Investigation

(Bloomberg) -- Cognizant Technology Solutions Corp. tumbled the most in more than four years after a key executive left abruptly amid revelations of an internal investigation into whether some payments in India violated the U.S. Foreign Corrupt Practices Act.

Gordon Coburn, who had been at Cognizant for two decades and most recently served as its president, resigned earlier this week, the Teaneck, New Jersey-based company said in a filing Friday.The probe is focused on a small number of company-owned facilities, the company said without elaborating. The stock fell 15 percent to $46.73 at 11:04 a.m. in New York after earlier dropping as much as 17 percent.

“The shock in all of this, frankly, is the resignation of one of the most trusted and respected people in this company, who has been integral to bringing this company to where it is,” said Bloomberg Intelligence analyst Anurag Rana. “The company’s already seen slowing growth and there are many macro headwinds at this point.”

Coburn was the face of the company to investors -- second in importance only to Chief Executive Officer Francisco D’Souza -- and helped elevate Cognizant’s profile in the technology services industry, Rana said. In his previous role as chief financial officer, Coburn helped turn the company into one of the gold standards for the last fifteen years, and the market is probably reacting more to his departure than to the investigation, Rana said.

Slowing Sales

In recent quarters, however, Cognizant’s sales growth has slowed. In August, the company cut its full-year revenue forecast, citing pressures from decreased spending in the financial services and health-care industries as a result of the U.K.’s vote to leave the European Union. The two segments account for about 70 percent of total business.

The investigation is being conducted under oversight by the board’s audit committee, with assistance from outside counsel. The information technology services company has voluntarily notified the U.S. Justice Department and the Securities and Exchange Commission and is working with them, according to the filing. It’s unclear whether the agencies will take action in relation to the investigation. Cognizant also said it couldn’t predict if there would be any impact on financial results. The document doesn’t say whether Coburn’s departure and the investigation are related.

“While we have no evidence to believe these announcements are linked, we can’t rule that scenario out,” Jefferies Group LLC analyst Jason Kupferberg wrote in a note. “Had the guidance been reiterated in the filing, we suspect shares would not be trading down as much as they are, though we don’t have any reason to believe the company’s outlook is in jeopardy.”

New President

Cognizant appointed a new president, Rajeev Mehta, the chief executive officer of IT services, to replace Coburn. Mehta has been at the firm for about 20 years and was most recently responsible for market-facing activities and overseeing the IT services business. Mehta has worked closely with D’Souza on the business strategy, which probably won’t change with Coburn’s departure, Kupferberg wrote.