The original complaint charges SOURCECORP and certain of its officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10In response to the judge's dismissal of defendants Sourcecorp and select individuals, plaintiffs filed a notice of appeal on December 7, 2006. However, on January 15, 2007 the US Court of Appeals denied the plaintiff's attempts to appeal the judge's ruling.
Specifically, the Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that the Company had materially overstated its net income and earnings per share; (2) that defendants prematurely recognized revenue in its Information Management and Distribution Division; (3) that the Company's financial statements were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP"); (4) that the Company lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company; and (5) that as a result, the value of the Company's net income and financial results were materially overstated at all relevant times.
The complaint further alleges that on October 27, 2004, SOURCECORP announced that based on information provided by, and the recommendation of, corporate management, the Company's Audit Committee concluded on October 25, 2004 that the Company's previously issued financial statements and related independent auditors' report for the year ended December 31, 2003, as well as its previously issued financial statements for the 2004 quarterly periods ended March 31, 2004 and June 30, 2004, should no longer be relied upon. The Company, under the guidance of the Audit Committee, had initiated an investigation of the financial results of one of the Company's operating subsidiaries in the Information Management Division of the Company's Information Management and Distribution reportable segment. Following this announcement, shares of SOURCECORP fell $6.59 per share, or 29.67 percent.
On March 25, 2005, the Court consolidated related actions under "In re SourceCorp, Inc. Securities Litigation, Civil Action No. 3:04-CV-2351." Dale R. Templin was appointed as Lead Plaintiff, Cohen, Milstein, Hausfeld & Toll PLLC was approved as Lead Counsel and Claxton & Hill as Liaison Counsel. On June 15, 2005, the lead plaintiff filed a Consolidated Amended Complaint. On September 6, 2005, the defendants responded by filing motions to dismiss the Consolidated Amended Complaint. On June, 6, 2006, the motions to dismiss were granted with leave to amend. On June 6, 2006, the lead plaintiff filed a Second Amended Consolidated Complaint. On November 7, 2006, District Court Judge David C. Godbey signed Rule 54(b) Final Judgment ordering that the Plaintiffs take nothing by their claims against Defendants SourceCorp, Bowman, Edwards, and Image Entry, Inc., and that those claims are dismissed with prejudice. The Court also granted the motion for certificate of appealibility. On December 7, 2006, the plaintiff filed a Notice of Appeal from the November 7th orders. On December 6, 2007, the District Court entered the Mandate from the U.S. Court of Appeals, affirming the Judgment of the District Court.
According to an article dated February 2, 2009, the plaintiffs in a class action brought by shareholders of SourceCorp Inc. over losses stemming from an alleged illegal accounting scheme have asked a judge to grant preliminary approval of a $3 million settlement with the only remaining defendant. In a motion filed Friday in the U.S. District Court for the Northern District of Texas, counsel for the plaintiffs asked the court to give the green light for the settlement between the class and the only remaining defendant, Bill D. Deaton, the founder and president of SourceCorp subsidiary Image Entry Inc.
On March 23, 2009, Judge David C. Godbey preliminarily approved the proposed settlement. A Settlement Hearing is scheduled for July 23, 2009, to determine whether the proposed settlement of the Litigation on the terms and conditions provided for in the Stipulation would be fair, just, reasonable and adequate to the
Class and should be approved by the Court. On July 23, 2009, the settlement was approved. The Court entered the Final Judgment and Order of Dismissal with Prejudice.