On July 15, 2004, the plaintiffs voluntarily dismissed the lawsuit, without prejudice, and the case was closed.
The complaint alleges that Defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
Specifically, the complaint alleges that during the Class Period, Defendants
engaged in a pattern of fraudulent conduct involving the issuance of a series
of false and misleading statements. The complaint additionally alleges that
these statements were materially false and misleading because they materially
described inaccurately the nature of Lancer's revenue by saying it was derived
from legitimate business transactions, when in reality, substantial revenues
were derived as a result of a scheme to artificially set the sales prices of
Lancer's products to its customers. The goal of the scheme, the complaint
further asserts, was to manipulate the sales of fountain products. In addition,
the complaint alleges that Lancer's public statements failed to fully reveal
that it had major manufacturing problems, which resulted in a high defect rate
in its products. Lastly, the complaint alleges that Lancer engaged in a
fraudulent scheme with its largest customer, Coca-Cola Co. to artificially
create demand for a new line of soda machine dispensers that Lancer was
manufacturing for Coca-Cola to sell to its commercial customers.
Further, on January 14, 2004, Lancer announced that the Securities & Exchange Commission
had launched a formal investigation into Lancer's reporting of its financial
statements, revenue and cost recognition, and internal financial and accounting
controls. On February 2, 2004, Lancer announced that the Company's longstanding
auditor KPMG LLP ("KPMG"), had resigned. Lancer also disclosed that KPMG
indicated that the reason for its resignation was that Lancer had not taken
timely and appropriate remedial actions with respect to "likely illegal acts."
KPMG's comments were in stark contrast to Lancer's statements on January 30,
2004, that its audit committee did not find sufficient evidence of "intentional
misconduct" or "accounting irregularities." Trading of Lancer shares has been
halted since February 2, 2004. When and if trading resumes, it is virtually
certain that Lancer common stock will trade far below the $7.50 trading price
at which it was halted.