## Facts

- SAIC, Inc. (later renamed Leidos Holdings, Inc.) performed work as lead contractor on New York City’s CityTime timekeeping project.
- A fraud scheme involving CityTime led to a federal criminal investigation and potential contractual, financial, and reputational exposure for SAIC.
- Public pension funds that purchased SAIC common stock sued SAIC and certain executives under Section 10(b), Rule 10b-5, and Section 20(a), alleging misleading disclosures tied to CityTime.
- Plaintiffs alleged that, when SAIC filed its March 2011 Form 10-K, SAIC knew of the investigation, evidence implicating SAIC personnel, and a substantial risk of liability (including potential repayment to New York City), yet failed to:
  - accrue or disclose loss contingencies as required by FAS 5; and
  - disclose a known trend or uncertainty as required by Item 303 of Regulation S-K.
- Plaintiffs also challenged statements in SAIC’s annual report describing a commitment to ethics and integrity.
- The district court entered judgment for defendants and denied a post-judgment motion to vacate and amend, finding amendment futile.
- Plaintiffs appealed only the denial of the post-judgment motion to amend based on the proposed second amended complaint.

## Issues

1. Whether the proposed amended complaint plausibly alleged actionable omissions under FAS 5 regarding CityTime loss contingencies in SAIC’s March 2011 Form 10-K.
2. Whether the proposed amended complaint plausibly alleged an actionable omission under Item 303 for failure to disclose a known trend or uncertainty related to CityTime.
3. Whether the proposed amended complaint adequately pleaded scienter under the PSLRA for the FAS 5 and Item 303 theories.
4. Whether SAIC’s generalized statements about ethics and integrity were actionable misrepresentations.

## Decision

- The Second Circuit vacated the denial of leave to amend as to the proposed Section 10(b) and Rule 10b-5 claims premised on FAS 5 and Item 303 omissions in the March 2011 Form 10-K.
- The court held the proposed amended complaint plausibly alleged that SAIC had information making CityTime-related loss contingencies at least reasonably possible, triggering disclosure duties under FAS 5.
- The court held the proposed amended complaint plausibly alleged SAIC had actual knowledge of a known trend or uncertainty—material exposure from CityTime—triggering disclosure duties under Item 303.
- The court held the scienter allegations were sufficient as to the FAS 5 and Item 303 omissions, given allegations that senior management knew of the investigation and magnitude of potential exposure.
- The court affirmed the denial of leave to amend as to other theories, including claims based on ethics and integrity statements, which were nonactionable puffery or aspirational statements.
- The case was remanded for further proceedings on the reinstated FAS 5 and Item 303-based claims.

## Legal Principles

- A post-judgment request to amend may be denied as futile only if the proposed pleading would fail to state a claim under the Rule 12(b)(6) standard.
- Under FAS 5, an issuer must accrue a loss contingency when liability is probable and reasonably estimable, and must at least disclose the contingency when there is a reasonable possibility of a material loss.
- An omission of required information under Item 303 (known trends or uncertainties reasonably likely to have a material impact) can support a Section 10(b) and Rule 10b-5 claim if materiality, scienter, and the other elements are adequately pleaded.
- Scienter under the PSLRA requires facts supporting a strong inference of intent to deceive or recklessness; knowledge by senior management of core project risks and investigations can support that inference at the pleading stage.
- Generalized corporate statements about ethics, integrity, or codes of conduct are typically immaterial puffery and not actionable absent specific, verifiable factual assertions.

## Conclusion

The Second Circuit held that plaintiffs could amend to pursue securities-fraud claims based on SAIC’s alleged failure in its March 2011 Form 10-K to disclose CityTime-related loss contingencies under FAS 5 and a known trend or uncertainty under Item 303, while leaving in place dismissal of claims based on generalized ethics-and-integrity statements and other insufficiently pleaded theories.


Ind. Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016)