The Leidos Mixup and the Misunderstood Duty to Disclose in Securities Law

This article concerns an upcoming Supreme Court case, Leidos, Inc. v. Indiana Public Retirement System (Leidos), and examines the broader issues that it raises for securities law. The consensus among scholars and practitioners is that Leidos presents a direct conflict among the circuit courts over a core question of securities law—when a failure to comply with the SEC’s disclosure requirements can constitute fraud under Rule 10b-5. This article provides a much different interpretation of the case. It begins by demonstrating that the circuit split which is presumed to have brought Leidos to the Supreme Court does not in fact exist. It then shows that, rather than being riddled with disagreement, the leading judicial analysis in this area of the law instead reflects a shared set of misconceptions about how the securities regulation architecture works. By unraveling the underlying sources of the Leidos mixup, this article makes three contributions. First, it identifies overlooked aspects of the disclosure rules at issue in Leidos, and provides a novel analysis of how the case should (and likely will) be decided. Second, it explains how errors in leading interpretations of the legal authorities implicated in Leidos carry over to other prominent portions of the regulatory framework, namely Sections 11 and 12 of the 1933 Securities Act. Third, it demonstrates that a central yet ill-defined securities doctrine—the duty to disclose—functions primarily to obscure rather than clarify the legal questions at issue in disclosure fraud claims. Taken together, these points suggest that Leidos is a more unusual case than has been appreciated, and stands at a remarkable confluence of legal and scholarly confusions, many of which implicate fundamental principles of securities law.