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SEC looking into Quality Systems

February 06, 2007|Martin Zimmerman | Times Staff Writer

Shares of Quality Systems Inc. dropped more than 11% in after-hours trading after the Irvine-based maker of medical software said Monday that regulators were investigating trading activity in its securities.

Quality Systems said the Securities and Exchange Commission was seeking records regarding the company's chief financial officer. According to the company's website, Paul Holt has been CFO since November 2000.

The company provided no further details of the investigation. Holt and Chief Executive Louis Silverman didn't return phone calls seeking comment.

"They're being fairly poker-faced about it, but I don't think it's going to amount to much," said analyst Gene Mannheimer at Caris & Co. in San Diego, who said the problem could stem from something as simple as a technical oversight.

Although the company's stock has risen more than 230% in the last 2 1/2 years, dissident shareholders mounted a proxy fight against management in 2005. They took issue with executive pay levels and complained that the board wasn't open enough in running the company.

Two of the dissidents -- Ahmed Hussein and Ibrahim Fawzy -- were elected to the board. But management retained a majority under Chairman Sheldon Razin, who founded the company in 1974.

News of the investigation was released after the market closed, along with the company's preliminary third-quarter results. Quality Systems stock, which ended the day at $45.13, up 99 cents, fell as low as $39.91 in the after-hours session.

An SEC spokeswoman declined to comment.

The company said it expected fiscal third-quarter net income of $8.7 million, or 32 cents a share, compared with $4.8 million, or 18 cents, a year earlier. Sales rose 44% to $38.5 million.

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