A class action lawsuit was filed in the U.S. District Court for the Southern District of California on behalf of purchasers of Daou Systems, Inc. (NASDAQ:DAOU) common stock between August 15, 1997 and August 14, 1998 (the "Class Period") to recover damages caused by defendants' violations of the Securities Exchange Act of 1934.
The complaint alleges that defendants concealed from the investing public the fact that they had been committing gross violations of the federal securities laws, including the concealment of accounting irregularities which have caused an extraordinary overstatement of the Company's earnings. The complaint alleges that throughout the class period Daou disseminated materially false and misleading statements regarding the Company's then current financial performance. In addition, the complaint alleges that defendants misrepresented the costs associated with two recent acquisitions by Daou, by stating to analysts that expenses incurred by the Company were one-time merger expenses when in reality, they were significant recurring general and administrative expenses.

Update

On December 14, 1998, the Court appointed nine Daou Systems investors as lead plaintiffs, and appointed their counsel, Milberg Weiss Bershad Hynes & Lerach LLP, as lead counsel for the class. Following the filing of plaintiffs' second amended consolidated complaint, the Court granted defendants' motion to dismiss that complaint on March 27, 2002 and granted plaintiffs leave to file a further amended complaint. After plaintiffs filed their third amended consolidated complaint, the Court granted defendants' motion to dismiss that complaint on October 16, 2002 with prejudice. On November 13, 2002, plaintiffs timely filed a notice of appeal of the dismissal of their claims to the United States Court of Appeals for the Ninth Circuit.