Southwest Water Company may have misrepresented its financial condition and business prospects.

This is a securities fraud class action lawsuit against Southwest Water Company.

Southwest Water is in the water utlity business. One division consists primarily of contract water and wastewater management services as well as public works. Southwest Water claims to have over 660 contracts to assist cities, municipal utility districts and other government entities in the following ten states: Alabama, California, Colorado, Georgia, Mississippi, New Mexico, Oklahoma, South Dakota, Texas and Wyoming. The second division is made up of Southwest Water's regulated public utilities, more than 100 water and wastewater systems representing more than 160,000 residential and commercial connections in six states: Alabama, California, Mississippi, New Mexico, Oklahoma and Texas.

This class action lawsuit alleges a variety of accounting violations by Southwest that had the cumulative effect of artificially inflating its revenues and therefore its stock price. Southwest, allegedly, misleading or failed to disclose or indicate the following:

(1) that in regard to certain acquired assets, Southwest Water was improperly applying a rate of depreciation for financial reporting purposes that did not consider the length of time the assets were in service prior to being acquired;

(2) that Southwest Water was improperly capitalizing and depreciating costs associated with installing water and sewer taps in Texas and Mississippi but recognizing the related tap fee revenue when received, instead of expensing the costs as incurred and recognizing the related revenue in the period the tap was actually installed;

(3) that, as a result of the above, depreciation expense related to assets acquired by acquisition since 2000 had been understated on Southwest Water's consolidated financial statements, expenses related to the installation of water and sewer taps in Texas and Mississippi had been understated, and certain assets and related depreciation were overstated;

(4) that as such, Southwest Water misstated its financial results during the Class Period;

(5) that Southwest Water's financial results were not prepared in accordance with Generally Accepted Accounting Principles;

(6) that Southwest Water lacked adequate internal and financial controls; and

(7) that as a result of the above, Southwest Water's financial statements were materially false and misleading at all relevant times.