Indiana Public Retirement System v. Saic, Inc.

818 F.3d 85 (2nd Cir. 2016)

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Nature of the Case

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Facts

In 2000 D became the prime government contractor on a project with New York City to develop and implement an automated timekeeping program known as CityTime for employees of various City agencies. In 2002 D hired Gerard Denault as Deputy Program Manager in charge of the project. In 2003 D enlisted Technodyne, a small, relatively unknown company, to provide staffing services on the project. The relationship gave rise to an elaborate kickback scheme in which Technodyne illegally paid Denault and Carl Bell for each hour a Technodyne consultant or subcontractor worked on the project. Denault and Bell hired more Technodyne workers than the project required and began to inflate billable hours and hourly rates. D suffered large losses but the contract became profitable in 2006 after Denault negotiated an amendment to the contract that transferred the risk of any cost overruns to the City. As a result of the amendment and the cost overruns associated with the kickback scheme, D billed the City approximately $635 million for CityTime through May 2011, well over the $63 million that the City initially budgeted for the contract. By late 2010, the scheme began to unravel. D removed Denault, placed him on administrative leave, and hired an outside law firm to conduct an internal investigation of possible fraud with the help of D's internal auditors, who were tasked with reviewing Denault's timekeeping practices. Mayor Bloomberg announced that he was reevaluating D's role in the CityTime project and reviewing whether to seek recovery of the City's payments to SAIC in connection with that project. On March 9, 2011, the audit team reported the results to D. D's Form 10-K, filed on March 25, 2011, did not disclose SAIC's potential liability related to the CityTime project. D touted its commitment to high standards of 'ethical performance and integrity.' By the end of May 2011 Denault, Bell, the Technodyne principals, and others were charged in a federal criminal complaint with defrauding the City. Denault was fired in May 2011 and D offered to repay the City the amount billed after the 2006 amendment of the CityTime contract-a total of $2.5 million. In a Form 8-K filed with the SEC on June 2, 2011, D finally disclosed the details and a criminal investigation. D also held a conference call with analysts and investors to discuss D's earnings. Havenstein referred investors to the 8-K for detailed information about the CityTime project and the ongoing criminal investigation. On June 3, 2011, D filed a Form 10-Q that repeated the representations made in the 8-K about the project. On July 1, 2011, D filed a second 8-K that included a letter from Mayor Bloomberg formally demanding that SAIC reimburse the City in the approximate amount of $600 million. On August 31, 2011, D issued a press release announcing losses for the fiscal period ending July 31, 2011, due in part to the winding down of the CityTime contract and 'probable' restitution to the City for wrongful conduct. From June 2, 2011, until September 1, 2011, the day after it announced the termination of the CityTime contract, D's stock price fell from $17.21 to $12.97 per share. In March 2012 D agreed to reimburse the City approximately $500.4 million and to forfeit $40 million in unpaid receivables. SAIC also agreed to cooperate with the Government's investigation of the CityTime fraud and to issue a 'Statement of Responsibility' in which it acknowledged that it had defrauded the City through its managerial employees. Ps sued D. Eventually the court dismissed all of Ps' claims with prejudice. Ps appealed.