On April 18, the SCOTUS heard oral argument in Kokesh v. Securities and Exchange Commission, an action concerning whether the five year statute of limitations of 28 U.S.C Section 2462 applies to disgorgement. This was the first securities case involving Justice Gorsuch at the SCOTUS level.

The wait will not be long for Gorsuch’s second securities case. SCOTUS has agreed to hear Leidos, Inc. v. Indiana Public Retirement System, which will resolve a circuit split over whether Item 303 of SEC Regulation S-K creates a duty to disclose under Section 10(b) of the Securities Exchange Act. The Second Circuit in Leidos held that Item 303 does trigger actionable liability whereas the Ninth and the Third Circuit have held that it does not.

Item 303 of Reg. S-K requires a company to describe in its periodic reports to the SEC “any known trends or uncertainties that have had or that the registrant reasonably expects will have a materially favorable or unfavorable impact” on the company. In Leidos, the plaintiffs claim that Leidos’s predecessor failed to disclose federal, state, and internal investigations and the related risk of civil and criminal fines and penalties in connection with an overbilling scheme.

The Court’s decision could place significant 10(b) liability on companies that fail to disclose internal and external investigations in periodic reports to the SEC. This blog will provide updates on the case as it develops.