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Tuesday, July 23, 2024 | Back issues
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Class Action Over NYC Payroll System Boosted

MANHATTAN (CN) - Months after affirming three men's convictions in the CityTime fraud case, the Second Circuit breathed new life into a class action brought by retirement and pension funds that lost money in what has been called "the single largest fraud ever perpetrated on the city of New York."

SAIC, short for Science Applications International Corp., had been the lead contractor for New York City's automated payroll system, known as CityTime.

Four years ago, U.S. Attorney Preet Bharara announced that the program had been "corrupted to its core," prosecuted several of its executives, and charged the company $500 million in restitution and penalties.

A federal jury ultimately convicted Mark Mazer, an ex-consultant for the city's payroll office, and his associates Dimitry Aronshtein and Gerard Denault, of conspiring to defraud the city into paying more than $700 million for a project originally budget at $63 million.

The Second Circuit affirmed their 20-year sentences late last year.

In the fallout of the scandal, six retirement and pension funds led by the Indiana Public Retirement System accused SAIC and five of its executives of misleading investors about the corporation's liabilities for employee fraud.

On Sept. 30, 2014, a federal judge denied the funds' motions for relief on judgment.

Partially reversing that ruling on Tuesday, the Second Circuit found that two of SAIC's filings may have been misleading: the corporation's Financial Accounting Standard No. 5 and Item 303 of SEC Regulation S-K.

"We conclude that the allegations support the inference that SAIC acted with at least a reckless disregard of a known or obvious duty to disclose when, as alleged, it omitted this material information from its March 2011 10-K in violation of FAS 5 and Item 303," Judge Raymond Lohier wrote for a three-judge panel.

Lawyers for the parties did not immediately respond to a request for comment.

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