- FCPA Professor - http://fcpaprofessor.com -

Perhaps OSI Systems Should Have Some Recourse

As highlighted in this prior post [1], in late 2017 Muddy Waters Research (a short seller investment firm) accused OSI Systems (a California based company that develops and markets security and inspection systems such as airport security X-ray machines and metal detectors) of corruption in Albania. (See here [2] for more). A Muddy Waters representative confidently stated [3] that it had “smoking-gun proof that, when this company got a turn-key contract a few years ago in Albania, worth $150-$250 million top line, that they paid a bribe or kickback of almost half of that concession. To me, this is damning evidence.”

Thereafter, OSI’s stock price fell approximately 30% and sure as dogs bark and the sun rises in the east, plaintiff’s lawyers mobilized and very soon securities fraud class actions and derivative actions were filed which closely tracked the allegations set forth in the short-seller’s report.

As highlighted in this prior post [4], OSI Systems then disclosed: “Following a report by a short seller, the Securities and Exchange Commission (SEC) commenced an investigation into the Company’s compliance with the Foreign Corrupt Practices Act (FCPA).  The U.S. Attorney’s Office for the Central District of California (DOJ) has also said it intends to request information regarding FCPA compliance matters.”

Yesterday, OSI Systems issued this release [5] stating: “the U.S. Department of Justice and Securities and Exchange Commission have informed the Company that they have closed their respective investigations into possible violations of the Foreign Corrupt Practices Act by the Company.”

The company stock closed up approximately 4.5%.

As highlighted in this recent post [6], the securities fraud class action was recently dismissed.

Some companies under FCPA scrutiny disclose pre-enforcement action professional fees and expenses. However, best I can tell after reviewing OSI’s recent filings, it has not. However, if its FCPA scrutiny followed a typical path, it likely spent millions in professional fees because of its FCPA scrutiny and related civil litigation.

The question arises: ought OSI (and its shareholders) have some recourse for this?

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