LJ International, Inc. is engaged in the design, branding, marketing and distribution of jewelry to jewelers, department stores, national jewelry chains and electronic and specialty retailers.

According to a press release dated September 19, 2007, the Complaint charges LJ and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Specifically, the Complaint alleges that throughout the Class Period, Defendants provided false and misleading reports overstating the Company’s fiscal 2005 and 2006 financial results. As a result of those false statements, the Company’s stock traded at inflated prices during the Class Period, reaching a high of $13.15 by May 14, 2007.

The Complaint further alleges that on July 16, 2007, the Company announced that it was delaying the release of its fourth quarter 2006 through second quarter 2007 financial results because the Company’s new auditors were unable to sign off on the Company’s accounting. Then on September 6, 2007, LJ disclosed that it had not achieved the fourth quarter and fiscal 2006 financial results it had previously provided on January 8, 2007, and upgraded on February 15, 2007, due to a “potential tax provision,” and that its fiscal 2006 earnings report of $3 million would “likely be adversely impacted.” On this news the Company’s stock price fell on extremely high trading volume, trading below $6 per share in the weeks following the July 16, 2007 disclosure and below $5 per share after the September 6, 2007 disclosure.

According to the Complaint, the true facts, which were known by Defendants but concealed from the investing public during the Class Period, were as follows: (a) Defendants had understated LJ’s fiscal 2005 and 2006 tax liability and overstated the Company’s earnings and EPS prior to and during the Class Period and those false statements remained alive in the market during the Class Period; (b) revenues in LJ’s wholesale division had softened during the Class Period; (c) Defendants made materially false and misleading representations regarding the Company’s ability to report the earnings required to facilitate meeting its stated goal of growing its Chinese stores to 100 in advance of the 2008 Beijing Olympics; and (d) the Company did not have the financial controls in place to accurately report financial results or to provide meaningful forward guidance during the Class Period.

On February 8, 2008 the judge consolidated all related cases and appointed an aerospace union as lead Plaintiff, as well as approving selection of lead Counsel. Plaintiffs filed their First Consolidated Complaint on April 8, 2008. Motions for dismissal were filed May 27 with hearings on the motions scheduled to conclude the first week of November 2008.

Parties filed a Stipulation of Settlement and moved for preliminary approval on January 16, 2009. The settlement includes a $2 million cash payment in exchange for dismissal of all claims against the Company and its officer and director Defendants. The class would recover approximately $.12 before deduction of attorneys' fees and expenses.