OSI Systems Hit With Class Action After Damning Report by Short-Seller

(CN) – Shareholders claim in a class action that top officers at OSI Systems Inc. allowed the company to enter into overpriced and corrupt contracts that caused the company’s stock price to crash when the news hit the market.

Based in Hawthorne, California, OSI produces medical monitoring and anesthesia systems, optoelectronic devices, and security inspection systems, while its subsidiary Rapiscan Systems provides metal detectors and X-ray machines for screening luggage and cargo.

According to the lawsuit, on Jan. 18, 2012, the company announced that Rapiscan secured a $400 million, six-year contract with Mexico’s tax collection authority, Servicio de Administracion Tributaria (SAT). On August 21, 2013, the company announced a second lucrative 15-year contract to provide screening services throughout Albania, with anticipated gross revenues of $150-$250 million.

But, the class claims, pricing for the SAT contract was allegedly based on misrepresentations made by OSI to SAT, and that the deal was overpriced compared to the value of the services provided. In addition, the class accuses OSI of procuring the Albania contract through “corrupt means.”

Meanwhile, Muddy Waters Research published a report citing Albanian sources who claimed, among other alleged misdeeds, there was an unannounced transfer of a project company owned by OSI to a company owned by an Albanian doctor for less than $5.00. As far as the SAT contract, an official from the company was quoted as saying that “they [OSI] were selling something that this equipment can’t do,” and that the company’s promises as to the equipment constituted a “lie.”

Following the dismal report, shares of OSI stock fell by $24.55 to close at $59.52 on December 6.

OSI’s actions, shareholders say, jeopardized the renewal of the SAT contract, making the company’s revenues unsustainable. The lawsuit also states that OSI “suffered from systemic, company-wide problems with respect to legal and regulatory compliance.”

Investors are represented by Jennifer Patiti of Pomerantz LLP in Beverly Hills with Jeremy A. Lieberman and J. Alexander Hood in New York and Patrick V. Dahlstrom in Chicago; Peretz Bronstein of Bronstein, Gewirtz & Grossman LLC in New York.

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