OSI Systems’ (NASDAQ: OSIS) Rapiscan unit, one of two suppliers of passenger-scanning machines in U.S. airports, may have falsified tests of software intended to stop the machines from recording graphic images of travelers, a U.S. lawmaker said.
The company “may have attempted to defraud the government by knowingly manipulating an operational test,” Representative Mike Rogers, Chairman of the House Transportation Security Subcommittee, said in a letter to Transportation Security Administration chief John Pistole November 13. Rogers said his committee received a tip about the faked tests.
If wrongdoing is proven, Rapiscan could face fines, prison terms and a ban on government contracting, said Dan Gordon, former head of federal procurement for President Barack Obama’s administration.
“Fake test results are incredibly serious,” said Gordon, now a dean at George Washington University Law School in Washington. “Every false statement is a criminal act, sending someone in that company to jail.”
The Transportation Security Administration (TSA) intends to keep the machines in a warehouse until the privacy-protection software works, John Sanders, assistant administrator for the agency’s office of security capabilities, said at the hearing.
Sanders said the agency does not have evidence that tests on the backscatter machines were manipulated.
“At this point we don’t know what has occurred,” Sanders said. “We are in contact with the vendor. We are working with them to get to the bottom of it.”
Kant said Rapiscan received a so-called show-cause letter from the TSA on November 9 seeking detailed information about the testing of technology used in the machines.
Rapiscan became aware of an issue related to software under development months ago and promptly notified the TSA, Kant said. The company is fully cooperating with the agency’s investigation, which does not relate to software that detects anomalies on passengers’ bodies, Kant said. He added that passenger safety was never affected.
Show-cause letters are sent when the government believes a contractor is not complying with terms, said Gordon, the former federal procurement administrator. It is a last chance for the company to demonstrate that it has not violated the contract, he said.
“At no time did Rapiscan falsify test data or any information related to this technology or the test,” Peter Kant, an executive vice president with the company, said in an interview yesterday.
OSI Systems’ stock plunged more than 30% yesterday in light of the aforesaid accusations and is now firmly below its 200-day moving average.