The US Supreme Court said that it will hear a securities fraud lawsuit accusing Leidos Inc. (LDOS) of leaving out key information, as well as misstating other important ones, in securities filings. The lead plaintiff in the case is the Indiana Public Retirement System, which brought its complaint in 2012.
The investor fraud lawsuit is related to a kickback scam that took place when Leidos, it was called Science Applications International Corp (SAIC) at the time, was constructing a computerized payroll system for New York City. The scam resulted in fraud charges being brought against two SAIC employees. The government contractor ended up paying over $500M in fines to settle related charges.
The Indiana retirement fund contends that SAIC failed to dislose its liability connected to the fraud when it submitted its filings to the US Securities and Exchange Commission and that it only made the necessary disclosures in June 2011, which was months after the scam collapsed. Under SEC provision Item 303, companies must disclose uncertainties and trends that may impact their business. The retirement fund also is accusing SAIC of misstatements regarding ethics and internal controls, including the alleged misstatement that the contract with NY was immaterial to its operations.
In 2014, a federal judge threw out the securities fraud case against Leidos. Last year, however, the 2nd US Circuit Court of Appeals reversed part of the decision and let the case proceed.
Leidos appealed with the nation’s highest court contending that the Commissions’ rules fail to compel the type of disclosure that the appeals court’s ruling mandates. It also maintains that the facts it disclosed were not misleading.
The US’s lower courts have not been able to agree on whether violating SEC’s Item 303 is grounds for an investor fraud case. Leidos contends that investors must demonstrate that information left out of its shareholder reports was needed to remedy a misimpression that the company may have made in another statement.
Securities-Fraud Clash Will Get U.S. Supreme Court Scrutiny, Bloomberg, March 27, 2017
Leidos, Inc. v. Indiana Public Retirement System, SCOTUS Blog,
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