The Foreign Corrupt Practices Act (FCPA) makes it illegal for companies to influence officials in foreign countries with personal payments or rewards—in other words, for companies to pay bribes in foreign countries. The complaint for this class action claims that OSI Systems, Inc. did just that, and did not disclose that or other adverse information, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
The class for this action is all persons and entities who acquired OSI Systems securities between August 21, 2013 and December 6, 2017.
OSIS claims to design and make specialized electronic systems, which it purportedly sells in various markets, such as homeland security, healthcare, defense, and aerospace.
At the beginning of the class period, on August 21, 2013, the company put out a press release entitled “OSI Systems Receive Fifteen-Year Agreement to Provide Turnkey Screening Services in Albania.” The complaint quotes the press release as saying that the company’s Security Division was awarded the contract to provide cargo and vehicle screening services at different sites throughout the country.
The contract purportedly included an X-ray screening equipment, maintenance, staffing, and systems integration. The press release also said, “The company anticipates that total gross revenues may range from $150 million - $250 million over the term of the agreement.”
As time went on, the company continued to put out press releases and quarterly and annual reports that discussed revenues and profits and the fortunes of the Security Division, and that did not mention problems or risks concerning its Albanian program.
But on December 6, 2017, Muddy Waters Research published a report on OSIS with the provocative title, “OSIS: Rotten to the Core.” One of its main claims, according to the complaint, was that corruption was involved in the 2013 award of the Albanian contract; the complaint quotes from the report as saying that OSI “likely bribed somebody by giving half of it away for $4.50” because “[t]here was an unannounced transfer of 49% of OSIS’s project company, S2 Albania SHPK, to a holding company owned by an Albanian doctor, for consideration of less than $5.00.” It further claimed that OSIS’s accounts “do not reflect the transfer” and “February 2017 bond offering documents appear to show the subsidiary as 100% owned” by OSIS.
The report claimed that interviews with former OSIS employees yielded anecdotes of “rot” at the Security Division, including “knowledge of improper sales, cash payments to government officials, fraud in a significant contract, and that OSIS had narrowly avoided being debarred from dong business with the US government.” This behavior, the report said, “puts at significant risk OSIS’s Security Division’s contracts with US and European government agencies” and may make the company liable under the FCPA, which could cost it hundreds of millions of dollars.
The company had mentioned none of these illicit acts or risks in its filings. After the report appeared, the company’s stock price fell by nearly 30%.