March 27, 2017 / 3:00 PM / 6 months ago

U.S. Supreme Court to hear Leidos contracting fraud fight

WASHINGTON (Reuters) - The U.S. Supreme Court on Monday agreed to hear a bid by government contractor Leidos Inc (LDOS.N) to fend off an investor lawsuit alleging it omitted and misstated key information in securities filings over its role in a troubled New York City payroll contract.

Investors led by the Indiana Public Retirement System filed suit in New York federal court in 2012 alleging Virginia-based Leidos, formerly known as SAIC, had not disclosed its liability for employee fraud in connection with SAIC’s work, beginning in 2001, building a computerized payroll system for New York City.

A kickback scheme that occurred during the project led to fraud charges against two SAIC employees. One pleaded guilty and the other was convicted at trial. The company paid more than $500 million in fines as a result of a 2012 settlement.

The retirement fund alleged that SAIC did not disclose its liability related to the fraud in filings to the U.S. Securities and Exchange Commission until June 2011, months after the scheme began to unravel. It also alleged SAIC made misstatements over its internal controls and commitment to ethics.

In particular, the retirement fund said Leidos had to note the dispute in describing any known trends or uncertainties that could have a material impact on sales or operations. Leidos said the city contract was not material to its operations as a whole.

A federal judge in 2014 dismissed the lawsuit, saying its claims were not adequately supported by facts or evidence. The New York-based 2nd U.S. Circuit Court of Appeals reversed part of that ruling last year, allowing the suit to go ahead.

Leidos appealed to the Supreme Court, arguing that SEC rules do not compel the kind of disclosure the appeals court’s decision requires. What the company disclosed was not misleading, it said.

The lower court ruling has led to a spike in lawsuits, the company said.

The Supreme Court will hear oral arguments and decide the case in its next term, which starts in October.

Reporting by Lawrence Hurley and Andrew Chung; Editing by Will Dunham

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