OSI Systems, Inc. (NASDAQ: OSIS)
The complaint charges OSI Systems, Inc. (NASDAQ: OSIS) and certain of its officers with violations of the Securities Exchange Act of 1934. OSI produces medical monitoring and anesthesia systems, optoelectronic devices, and security and inspection systems. Its subsidiary Rapiscan Systems (“Rapiscan”) provides metal detectors and X-ray machines for screening luggage and cargo.
On January 18, 2012, OSI announced that Rapiscan had been awarded a six-year $400 million contract to provide turnkey screening services to Mexico’s tax collection authority, Servicio de Administración Tributaria (“SAT”) (the “Mexico Turnkey Contract”). On August 21, 2013, OSI announced that Rapiscan had been awarded a fifteen-year contract to provide turnkey screening services throughout Albania (the “Albania Turnkey Contract”), stating that “[t]he Company currently anticipates that total gross revenues may range from $150 million-$250 million over the term of the agreement.”
The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements regarding the Company’s business and operations. Specifically, defendants made false and misleading statements and/or failed to disclose that: (i) the pricing for the Mexico Turnkey Contract was premised on misrepresentations by the Company to SAT regarding the capabilities of Rapiscan’s equipment and, accordingly, was overpriced relative to the value of the services provided to SAT; (ii) consequently, the Mexico Turnkey Contract was unlikely to be renewed or was likely to be renewed at terms less favorable to OSI, and the Company’s revenues from the Mexico Turnkey Contract were therefore unsustainable; (iii) OSI had secured the Albania Turnkey Contract by corrupt means and the Company’s revenues from the Albania Turnkey Contract were thus likewise unsustainable; and (iv) OSI suffered from systemic Company-wide problems with respect to its legal and regulatory compliance. As a result of defendants’ false statements and/or omissions, the prices of OSI securities were artificially inflated during the Class Period, with its stock trading at more than $95 per share.
On December 6, 2017, Muddy Waters Research published a report entitled “OSIS: Rotten to the Core.” Citing a number of sources – including Albanian media reports, government documents, corporate filings, statements from former OSI employees, and statements from a former SAT official – the Muddy Waters report asserted, inter alia, that: (i) OSI had secured the Albania Turnkey Contract by corrupt means; (ii) OSI had misled the SAT with respect to the capabilities of the Company’s machines and thus had secured a “greatly inflated” price for the Mexico Turnkey Contract; and (iii) a culture of non-compliance with applicable laws and regulations was endemic at OSI, with “[f]ormer employees paint[ing] a reasonably consistent picture of a company operating with disregard for the law.” On this news, the price of OSI shares fell $24.55 per share, or more than 29%, to close at $59.52 per share on December 6, 2017.
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