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Why OSI Systems Shares Got Clobbered

By Evan Niu, CFA - Nov 15, 2012 at 4:26PM

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What: Shares of OSI Systems (OSIS -2.00%) have gotten clobbered today by as much as 36% on reports that the company manipulated test results related to its Rapiscan security unit.

So what: The company's Rapiscan division is one of two key suppliers of body-scanning machines to the TSA, and a congressman said that the company may have tried to defraud the government by falsifying an operational test related to the machines. The company staunchly denies these allegations and says it is "fully cooperating" with the TSA in the subsequent investigation.

Now what: OSI Systems has now received a show cause letter from the TSA alleging that Rapiscan didn't disclose relevant issues in a "timely or complete manner." The company says it could not have manipulated data since the tests are government-controlled. In the press release, OSI Systems says that TSA testimony confirms this. The company will still have its work cut out to clear its name.

Interested in more info on OSI Systems? Add it to your watchlist by clicking here.

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