According to a Press Release dated October 29, 2002, the U.S. District Court for the
Eastern District of Louisiana has ordered the dismissal of the class action
lawsuit alleging securities fraud filed against Orthodontic Centers of America, Inc. and certain members of its senior management. In its ruling, the Court found that the plaintiffs had failed to allege sufficient facts to support their claim that the Company or its officers and directors violated federal securities laws. The Court also ruled that the plaintiffs will not be permitted to amend the lawsuit and stated that "the Court dismisses plaintiffs' Amended Complaint with prejudice because 'another pleading attempt would be an inefficient use of the parties' and the Court's resources, would cause unnecessary and undue delay, and would be futile."'
The original class action lawsuit was commenced charging that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. Besides issuing a series of false and misleading press releases concerning OCA's financial condition, the complaint alleges that the Company improperly recognized revenues in violation of Generally Accepted Accounting Principles ("GAAP"). As a result, the price of the Company's common stock was artificially inflated throughout the Class Period, reaching as high as $35.313 per share, allowing defendants to collectively sell or propose to sell millions of dollars worth of shares in personally held OCA Stock. However, on March 16, 2001 the true state of the Company's finances were revealed when the Company disclosed that as a result of an SEC inquiry, OCA must change its revenue recognition policy to conform with GAAP. In response, the stock price of OCA plummeted approximately 20% in inter-day trading on heavy trading volume.