On behalf of OSI Systems, the City of Irvine filed a civil lawsuit against multiple defendants. The lawsuit is based on allegations of the defendants manipulating testing results for the company, misleading the company about its financial health through reports and creating products beyond the scope of the company’s contracts.
All of the defendants reportedly held top management positions at OSI. The lawsuit is a shareholder derivative one. OSI’s clientele includes the Department of Homeland Security and the Transportation Safety Administration for the company’s electronic components manufacturing business.
The government first became aware of the alleged manipulation in 2012, resulting in OSI’s shares dropping by 28 percent in November 2012. The technology that is central to the complaint was the Advanced Imaging Technology program. In 2013, both TSA and DHS terminated their contracts for the AIT program. According to the lawsuit, the company attempted to repair the issues without prior governmental approval. Finally, according to the lawsuit, no managerial changes were made at the company despite the alleged ethical problems. The lawsuit is seeking a company restructuring as well as reimbursement of fees incurred.
Drops in shareholder and derivatives prices can lead to disputes, as it may appear as if manipulation occurred. In the event that a dispute arises, business litigation may become necessary. It is important that companies draft contracts that are clear with respect to the responsibility of all parties. Additionally, companies should be aware of the reporting requirements necessitated by the Securities and Exchange Commission as well as by the contracts at issue. It is important that financial reports are accurate and that companies conduct their business in a transparent manner. Owners may be advised to seek the assistance of a business and commercial law attorney.
Source: Legal Newsline, “California city’s benefits plan files shareholder derivative suit against OSI Systems”, Jan. 7, 2015