SourceCorp, Inc.In the summer of 2005, Cohen, Milstein, Hausfeld and Toll, P.L.L.C., Lead Counsel for the proposed class, filed an amended complaint alleging that SourceCorp, Inc. (or the "Company"), Edward H. Bowman (the Company’s Chief Executive Officer), Barry Edwards (the Company’s Chief Financial Officer), Image Entry (a subsidiary of the Company), and Bill D. Deaton ("Deaton") (Image Entry’s President) violated Section 10(b) of the Securities Exchange Act of 1934. Specifically, the amended complaint alleges that: (i) the Company’s internal controls were woefully deficient and allowed Deaton to improperly receive an earn-out payment from SourceCorp due to Image Entry’s reaching certain predetermined revenue targets in the amount of $25 million to the detriment of SourceCorp shareholders; and (ii) Deaton, in an attempt to receive his massive earn-out payment, improperly and prematurely recognized revenue prior to delivering contractually required output to a certain customer and recognized revenue for services that were performed and delivered to customers that were in excess of the volume and/or revenue limits set by the contract with the customer. Deaton, as President of Image Entry, sent these false financial statements to SourceCorp knowing that they would be incorporated into the Company’s public filings. Due to these improper practices, the Company was forced to issue a restatement adjusting its revenues for 2001 through 2003 and the first 2 quarters of 2004 by at least $16.6 million and its earnings per share by $.31 for 2002 and $.26 for 2003.
In June, 2006, the Court granted the motion to dismiss the amended complaint filed by SourceCorp, Edward Bowman, Barry Edwards, and Image Entry (the "Released Defendants"). However, the Court denied the motion to dismiss filed by Deaton because the amended complaint "adequately alleges facts evidencing a strong inference of scienter on Deaton’s part in making misstatements in connection with securities fraud for which he is primarily liable." Deaton requested an immediate appeal of the denial of his motion to dismiss, which the District Court granted, and he is now seeking permission from the Fifth Circuit to file an appeal. Cohen Milstein has opposed that requested permissive appeal and the briefs are currently pending before the Fifth Circuit. In addition, Cohen Milstein has filed a Notice of Appeal regarding the District Court’s granting of the Released Defendants’ motion to dismiss. |
