Securities-Fraud Clash Will Get U.S. Supreme Court Scrutiny

The U.S. Supreme Court agreed to use a case stemming from a New York City contract fraud to clarify investors’ ability to sue companies for omitting information from shareholder reports.

The justices said Monday they will hear an appeal from government contractor Leidos Inc. in a case connected to the company’s $500 million settlement with the city in 2012.

Investors are seeking to sue Leidos, claiming it should have disclosed its possible liability in the annual report it filed in March 2011. A federal appeals court in New York let the suit go forward.

At issue is a Securities and Exchange Commission provision known as Item 303, which requires companies to disclose trends and uncertainties that could affect their business.

Lower courts disagree on whether a violation of Item 303 is enough to let investors sue for securities fraud. Leidos, backed by the securities industry, argues that investors must also show that the omitted information was necessary to correct a misimpression left by another statement the company had made.

The investors, led by the Indiana Public Retirement System, urged the Supreme Court not to take up the dispute.

Leidos, formerly known as Science Applications International Corp., was hired by New York City to overhaul its payroll systems. In the 2012 accord, the company admitted it failed to investigate claims that a manager of the CityTime payroll project directed staffing tasks to a single subcontractor in exchange for kickbacks.

The justices will hear arguments and rule during the nine-month term that starts in October. The case is Leidos v. Indiana Public Retirement System, 16-581.

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