Herley may have mislead investors by knowingly making public financial statements that were based on illegally over billing the US government.

This is a securities fraud class action lawsuit against Herley Industries and certain of its officers and directors in which Herley is charged with violations of the Securities Exchange Act of 1934.

The class action complaint alleges that Herley failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them:

(a) that Herley's financial results were achieved through illegal conduct, specifically the misrepresentation of manufacturing costs on contracts with the U.S. Government and the falsification of a bid in order to win the award of a contract;

(b) that Herley lacked adequate internal controls; and

(c) that, as a result of the foregoing, Herley would likely be subject to enhanced governmental scrutiny, governmental fines for improper conduct, and Herley's ability to receive new contract awards from the U.S. Government and its ability to reap future revenues would be in serious doubt.

On June 5, 2006 Herley announced that its fiscal 2006 third quarter earnings would be below Herley's expectations and analyst consensus estimates. Curiously, Herley made no mention of an impending indictment against Herley and its Chairman, Lee N. Blatt, and its effect on the Company's present and future prospects. Upon this announcement, shares of Herley fell $1.88 per share, or approximately 10 percent, to close at $17.50 per share, on heavy trading volume. On June 6, 2006, Herley revealed that the U.S. Attorney's office for the Eastern District in Pennsylvania had indicted Herley and its Chairman Lee N. Blatt on multiple charges in connection with excessive profits improperly earned by the Company on three contracts with the U.S. Department of Defense. Upon this announcement, shares of Herley fell $0.98 per share, or 6 percent, to close at $16.52 per share, on heavy trading volume.

Shares of Herley stock continued to decline on the next trading day as news leaked out on the details of the indictment. On the next trading day, June 7, 2006, shares of Herley's stock fell an additional $1.48 per share, or 9 percent, to close at $15.04 per share, on heavy trading volume. Subsequently, on June 9, 2006, Herley announced that Lee N. Blatt resigned as Chairman of the Board and as a director of Herley on June 8, 2006. On June 13, 2006, Herley announced that its operations in Lancaster, Pennsylvania, Woburn, Massachusetts, Chicago, Illinois and Herley's subsidiary in Farmingdale, New York were suspended from receiving new contract awards from the U.S. Government. Following this announcement, shares of Herley plunged $5.19 per share, or 34 percent, to close at $10.06 per share, on heavy trading volume.

On June 14, 2006, t Herley issued a press release announcing its financial results for the fiscal third quarter of 2006, the period ended April 30, 2006. Herley also announced that its quarterly report on form 10-Q would be delayed since its auditors need to complete its review of procedures in connection with Herley's recent indictment. Upon this announcement, shares of Herley continued to fall, losing an additional $0.85 per share, or 8 percent, to close at $9.21 per share, on heavy trading volume.