Facts

OSI Systems Inc. manufactures and sells electronic scanning systems and components for different industries including homeland security, healthcare, defense and aerospace. More than 50 percent of its revenue came from its Security division, primarily through its Rapiscan Systems Inc. subsidiary, which sells and provides services for inspection systems that detect explosives, weapons, drugs and other illegal goods. Before the lawsuit, Rapiscan's largest customer was the U.S. government. However, from about 2011 to 2013, OSI was embroiled in scandals involving its U.S. government contracts. This led to the termination of a $67.1 million contract with the Department of Homeland Security and a federal civil securities fraud lawsuit that settled in 2015 for $15 million. Thereafter, OSI's executives sought deals with foreign entities and secured contracts in Mexico and Puerto Rico. In 2013, it announced a 15 year contract with the government of Albania. Then in 2017, Muddy Waters Research issued a detailed report exposing an undisclosed transfer of 49 percent of OSI's project company, S2 Albania SHPK, to a holding company owned by an Albanian doctor, for less than $5.00. The price of OSI securities plummeted and the Arkansas Teacher Retirement System and others brought a federal securities lawsuit against OSI and its executive officers. On March 31, 2021, the court denied OSI's motion to dismiss. OSI had argued that reasonable investors would not have been deceived because although certain documents were available on Albanian websites in Albanian, those documents could have been translated via Google Translate. But the court stated that putting aside Google Translate's capability to accurately translate complex financial or legal documents, it would be unreasonable to require investors to sift through foreign websites in other languages to determine if the company they have invested in has disclosed important information material to their investment.

PLAINTIFF'S CONTENTIONS: Plaintiff shareholders alleged that defendants OSI and its executive officers, made misrepresentations and concealed wrongful conduct that artificially inflated or maintained the value of OSI securities. OSI and its management concealed that it obtained major foreign contracts through bribery and false representations. Specifically, the shareholders contended that in the wake of declining business prospects, OSI executives announced a new contract with the Albanian government which promised substantial revenue. As they continued to tout success, unbeknownst to the investors, OSI had entered into a hidden arrangement where it, through their Albanian subsidiary, would enter into a profit sharing agreement with an Albanian dentist. OSI then transferred 49 percent of the subsidiary to an Albanian holding company for a nominal price without disclosing the transfer to the investors.

DEFENDANTS' CONTENTIONS: Defendant OSI and its executives contended that fraud claims have a higher pleading standard and under that heightened standard, the shareholders failed to allege an actionable misstatement or omission, could not establish a strong inference of scienter, and failed to allege loss causation.

Result

The parties reached an agreement wherein defendant OSI admitted no wrongdoing but will pay $12.5 million to settle class members' claims.