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.