March 04, 2021 - An investor in shares of Leidos Holdings, Inc. (NYSE: LDOS) filed a lawsuit in the U.S. District Court for the Southern District of New York over alleged violations of Federal Securities Laws by Leidos Holdings, Inc. in connection with certain allegedly false and misleading statements made between May 4, 2020 and February 23, 2021.
Reston, VA based Leidos Holdings, Inc. provides services and solutions in the defense, intelligence, civil, and health markets in the United States and internationally. Leidos Holdings, Inc. reported that its annual Total Revenue rose from $11.09 billion in 2019 to $12.97 billion in 2020, and that its Net Income declined from $667 million in 2019 to $$628 million in 2020. On February 16, 2021, Spruce Point Capital Management LLC ( Spruce Point ) published a research report, alleging, among other things that Leidos is potentially covering up at least $100m of fictitious sales, mischaracterizing $355 - $367m of international revenue.
The report also alleged that the Company was concealing numerous product defects from investors, notably faulty explosive detection systems at airports and borders. On February 23, 2021, Leidos Holdings, Inc announced its fourth quarter and full year 2020 financial results in a press release. Therein, the Company reported $89 million revenue related to the SD&A businesses for the fourth quarter, meaning that after two full quarters, the acquisition generated only $163 million in sales (or $326 million annualized), falling well short of projected $500 million sales. The Company expected cash flow of $850 million, well below analyst estimates of $1.083 billion. On February 24, 2021, Spruce Point highlighted that Leidos had materially expanded the risk disclosures in its annual report for the year ended December 31, 2020. Spruce Point tweeted: We believe it is validating all the major points of our report.
On this news, the Company’s stock price fell $3.13, or 3.3%, to close at $90.38 per share on February 24, 2021, on unusually heavy trading volume. Shares of Leidos Holdings, Inc. (NYSE: LDOS) declined from $113.75 per share in January 25, 2021, to as low as $87.97 per share on February 25, 2021. According to the complaint the plaintiff alleges on behalf of purchasers of Leidos Holdings, Inc. (NYSE: LDOS) common shares between May 4, 2020 and February 23, 2021, that the defendants violated Federal Securities Laws. More specifically, the plaintiff claims that between May 4, 2020 and February 23, 2021, the Defendants failed to disclose to investors that the purported benefits of the Company’s acquisition of L3Harris’ Security Detection & Automation businesses were significantly overstated, that Leidos’ products suffered from numerous product defects, including faulty explosive detection systems at airports, ports, and borders, that, as a result of the foregoing, the Company’s financial results were significantly overstated, and that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.