According to the Company’s FORM 10-K for the fiscal year ended December 31, 2004, on December 22, 2004, the court entered a final order approving the settlement and providing for notice to shareholders
In a press release dated June 14, 2004, Specialty Laboratories, Inc., announced an agreement in principle to settle the securities class action lawsuits brought in the United States District Court for the Central District of California, and subsequently consolidated as "In re Specialty Laboratories Securities Litigation." Subject to approval by the District Court, the settlement calls for payment of $12 million, the entirety of which will be paid by Specialty's insurance carriers, to resolve all claims asserted against Specialty and the individual defendants in this case.
The original complaint charges Specialty Labs and certain of its officers and
directors with violations of the Securities Exchange Act of 1934 and the
Securities Act of 1933. Specialty Labs, a research-based clinical laboratory,
develops and performs esoteric clinical laboratory tests. The Company went
public in 12/00 selling five million shares at $16.00 per share. The complaint
alleges that in June and October of 2001, California Department of Health
Services representing the State of California and acting as agent of the Centers
for Medicare and Medical Services ("CMS") inspected Specialty Labs. The
inspectors were mortified by their findings. As a result of the inspections,
Specialty Labs was initially cited by the State of California with 20
deficiencies, and then in a separate statement in February 2002 for 12
overlapping deficiencies by CMS. Specialty Labs was notified that if it failed
to correct 6 of the issues, relating primarily to personnel licensing and the
enforcement of regulatory requirements, the Company would face monetary and
other penalties, including the possible revocation of its license. Specialty
Labs' deficiencies in question relate to two broad areas, both of which focus on
the number of licensed personnel in the lab. First, historically there have been
required ratios for labs in terms of the number of licensed supervisors per the
number of testing personnel. Second, California implemented a requirement for
labs performing testing in the areas of cytogenetics and molecular genetics.
Specifically, directors of such operations must now be at least at the M.D. or
Ph.D. level and must also be Board certified in their area of focus. However,
defendants sought to avoid compliance with California's laboratory requirements
in order to inflate the Company's revenue and EPS.
On April 11, 2002, before the market opened, the Company issued a press
release which provided a more comprehensive explanation and discussion of the
compliance problems. On this news, the Company's shares plunged to an all time
low of $10-1/4, more than an 80% drop from the Class Period high.