November 09, 2017

How Did Many Issues Arise Out of One?: Leidos v. Indiana Public Retirement System

The case addresses more than whether an issuer’s failure to disclose information required by Item 303 constitutes an actionable fraudulent omission

Matthew P. Allen, Daniel Nathan, and Caitlin Sikes

Editor’s note: As of publication date, the Supreme Court had removed the Leidos case from the argument calendar on joint motion of the parties, to be held in abeyance. 

In its 2017–2018 term, the Supreme Court will hear Leidos v. Indiana Public Retirement System, an appeal from a Second Circuit decision that presents a seemingly narrow issue in the context of private securities litigation: whether an issuer’s failure to disclose information required by a specific securities regulation—in this case, Item 303 of Regulation S-K promulgated under the Securities Act of 1933—constitutes an actionable fraudulent omission under section 10(b) of the Securities Exchange Act of 1934. Ind. Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016), cert. granted, Leidos Inc. v. Ind. Pub Ret. Sys., 137 S. Ct. 1395 (2017). However, this case implicates a broad range of other issues that together will affect securities litigation in the federal courts. While passage of the Private Securities Litigation Reform Act of 1995 (PSLRA) did slow the pace of securities litigation, in deciding Leidos, the Court might address other issues that could further stem the tide of such litigation. These issues include whether any regulatory disclosure requirement could give rise to a fraudulent omission claim under section 10(b) the 1934 Act, the limits on the use of private rights of action provided by sections 11 and 12(a)(2) of the 1933 Act as substitutes for the securities law’s general antifraud provisions, the correct scienter standard applicable in private fraud actions, and the scope of enforcement by the Securities and Exchange Commission (SEC) of corporate disclosure requirements.

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