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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

Item 303: innocuous sounding, but now before U.S. Supreme Court

So-called "Item 303" needs a bit of fleshing out and clarification, and the U.S. Supreme Court is just the body to do that.

And what the nation's highest judicial tribunal decides will ultimately determine whether a group of investors alleging large-scale securities fraud will be able to claw back some or all of the money they say they are owed from information technology firm Leidos.

Following is a synopsis of what underlies the dispute currently before the Supreme Court on appeal.

New York City hired Leidos several years back to upgrade its payroll systems. Somewhere along the line a Leidos manager cheated on assigning subcontractors, taking kickbacks in the process. Notwithstanding its knowledge that illegal conduct might be occurring, Leidos officials never probed the matter.

Subsequently, Leidos settled a contractual dispute with the city, which cost the company $500 million.

Now the investors are making a claim on that money, alleging that Item 303 -- a Securities and Exchange Commission clause -- entitles them to a recovery. As noted in a recent Bloomberg article, that provision mandates that companies adequately disclose "trends and uncertainties that could affect their business."

The investors argue that company knowledge of claims regarding a massive kickback scheme coupled with subcontracting irregularities unquestionably required a 303 disclosure and that Leidos' silence on the matter worked a securities fraud.

The ability of investors to sue for securities fraud based upon an Item 303 violation is not presently a firmly agreed-upon matter across the federal court system. The investors say that a violation alone suffices to establish fraud. Leidos and the securities industry counter that company disclosure is required in a given case only when it is necessary to correct previous statements to investors that materially misinformed them.

The case is on the court's docket in its upcoming term that starts later this year

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