Semler Scientific (SMLR), a maker of medical devices for doctors, has been the target of a federal fraud probe for nearly a decade but kept the matter a secret from investors.

In its latest annual report, Semler inserted new language revealing the Department of Justice (DOJ) has for years been investigating improper reimbursement of claims for testing using the company’s QuantaFlo in-office blood flow testing device.

The previously undisclosed investigation dates back eight years, when Semler received its first civil investigative demand (CID) from the DOJ in July 2017:

“...pursuant to the federal False Claims Act investigating whether we and others may have violated the False Claims Act by marketing tests on devices that use photoplethysmography technology as reimbursable by Medicare in alleged contravention of applicable laws and regulations.”

It would be the first of five related CIDs, with Semler receiving the last four demands between 2019-2023— none of which were disclosed in Semler’s previous seven annual reports.

Why the sudden disclosure after nearly a decade?

It appears the DOJ became increasingly dissatisfied with Semler’s responses ad in February 2025 gave the company an ultimatum:

“On February 6, 2025, DOJ asked if we wished to engage in settlement discussions to resolve any potential claims by February 11, 2025 and if so that we make a settlement offer by such deadline.”

Investors should not be surprised by a harsh penalty, based on Semler’s brief settlement discussion with the DOJ:

“On February 11, 2025, Semler began initial settlement discussions with the DOJ, but ceased initial discussions on that date.”

Semler seems now to expect the DOJ to file a complaint or complaint in intervention in a civil False Claims Act lawsuit seeking damages.

The company says a potential loss cannot be estimated.

If fined, Semler may have to convert some of its bitcoin, which the company recently adopted as its treasury reserve asset.

Separately, Semler awarded its auditor a 68.7% fee increase in 2024.

With an Enterprise Value (EV) of approximately $320 million, Semler is priced as if it will grow annual sales to more than $250 million, up from an estimated $56.5 million in 2025. To justify its current share price of $33.60 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Semler must:

—Grow sales 18% annually between 2026-2034, significantly faster than the company’s estimated 2025 sales growth of 1.1% and 3-year average of 3.2%
—Increase NOPAT margin to 30%, higher than our 2024 estimate of 19.09% and our 3-year average estimate of 23.99%
—Increase Invested Capital (IC) Turns to 1.5, up from our 2024 estimate of 0.25 and our 3-year average estimate of 1.4

Notably, the current share price also implies Semler increases Return on Invested Capital (ROIC) to 45% from our 2024 estimate of 3.03% and 3-year average estimate of 16.68%: