NYC Contractor at Heart of Fraud to Face High Court

WASHINGTON (CN) – The Supreme Court took up a class action Monday 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.

Widespread corruption soon brought federal charges against several CityTime executives, however, and the system itself was made to pay $500 million in restitution and penalties.

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.

Though a federal judge denied the funds’ motions for relief on judgment, the Second Circuit partially reversed that decision last year. The March 2016 ruling said 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,” U.S. Circuit Judge Raymond Lohier wrote for a three-judge panel.

Per its custom, the Supreme Court did not issue a comment Monday in taking up the case.

Docket records show that the class is represented by Douglas Wilens, an attorney with Robbins Geller Rudman & Dowd in Boca Raton, Florida.

SAIC, now known as Leidos, is represented by Andrew Tulumello of the Washington firm Gibson Dunn & Crutcher.  A spokeswoman for the law firm noted that Leidos has cooperated fully in the Justice Department’s investigation and “implemented a first-rate compliance program.”

Citing recent Leidos accomplishments, the spokeswoman noted that it was one of two companies to win the Pentagon’s $9 billion health care modernization contract, as well as several Air Force contracts. Leidos also received more money than any other single information-technology vendor on three of the five key IT contracts within the Defense Health Agency.

The Securities Industry and Financial Markets Association is represented by Goodwin Procter attorney William Jay, also of Washington. The National Association of Manufacturers is represented by Edward Joseph Fuhr of the Richmond, Virginia, firm Hunton & Williams.

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 in 2015.

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