Case 1:13-cv ER Document 1 Filed 12/26/13 Page 1 of 36 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK. Plaintiff, Defendants.

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1 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 1 of 36 JG RAMOS UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK DANIEL ELSTEJN, Individually and On No. 1 3 N UL 0 0 Behalf of All Others Similarly Situated, V. Plaintiff, CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS NET I UEPS TECHNOLOGIES, INC., SERGE CHRISTIAN P. BELAMANT, and HERMAN GIDEON KOTZE, DEMAND FOR JURY Defendants. Plaintiff Daniel Elstein ("Plaintiff'), individually and on behalf of all other persons similarly situated, by his undersigned attorneys, for his complaint against defendants, alleges the following based upon personal knowledge as to himself and his own acts, and information and belief as to all other matters, based upon, inter aim, the investigation conducted by and through his attorneys, which included, among other things, a review of the defendants' public documents, conference calls and announcements made by defendants, United States Securities and Exchange Commission ("SEC") filings, wire and press releases published by and regarding Net 1 UEPS Technologies, Inc. ("Net 1" or the "Company"), analysts' reports and advisories about the Company, and information readily obtainable on the Internet. Plaintiff believes that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.

2 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 2 of 36 NATURE OF THE ACTION 1. This is a federal securities class action on behalf of a class consisting of all persons other than defendants who purchased or otherwise acquired Net I securities between August 27, 2009 and November 27, 2013, both dates inclusive (the "Class Period"), seeking to recover damages caused by defendants' violations of the federal securities laws and to pursue remedies under 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder against the Company and certain of its top officials. 2. Net I holds a nonexclusive worldwide license to the Universal Electronic Payment System ("UEPS"). The Company commercializes the smart card based service through alliances with banks, card services, and retail organizations. 3. Throughout the Class Period, defendants made materially false and misleading statements regarding the Company's business, operational and compliance policies. Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (i) the Company's practices to secure contracts in South Africa were in violation of the Foreign Corrupt Practices Act ("FCPA"); and (ii) as a result of the above, the Company's financial statements were materially false and misleading at all relevant times. 4. On December 4, 2012, the Company disclosed that it was under investigation by the U.S. Department of Justice, Criminal Division and the Division of the Enforcement of the Securities and Exchange Commission to determine whether the Company has "violated provisions of the Foreign Corrupt Practices Act and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with SASSA to provide social welfare and benefits payments." 2

3 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 3 of On this news, Net 1 stock declined $4.62 per share, or nearly 59%, to close at $3.22 per share on December 4, Then, on November 29, 2013, the Company announced that the South African Constitutional Court ruled that the tender process followed by the SASSA in awarding a contract to Neti's wholly owned subsidiary Cash Paymaster Services (Proprietary) Limited ("CPS") was constitutionally invalid. 7. On news of the South African Court's decision, the Company's shares fell $3.34 per share to close at $8.19 per share, a one day decline of over 28%, on unusually high trading volume. 8. As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the Company's securities, Plaintiff and other Class members have suffered significant losses and damages. JURISDICTION AND VENUE 9. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C. 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17 C.F.R b-5). 10. This Court has jurisdiction over the subject matter of this action pursuant to 27 of the Exchange Act (15 U.S.C. 78aa) and 28 U.S.C Venue is proper in this District pursuant to 27 of the Exchange Act, 15 U.S.C. 78aa and 28 U.S.C. 1391(b), as a significant portion of the defendants' actions, and the subsequent damages, took place within this District. 3

4 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 4 of In connection with the acts, conduct and other wrongs alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mail, interstate telephone communications and the facilities of the national securities exchange. PARTIES 13. Plaintiff, as set forth in the attached Certification, acquired Net I securities at artificially inflated prices during the Class Period and was damaged upon the revelation of the alleged corrective disclosures. 14. Defendant Net 1 is a Florida corporation with its principal executive offices located at Cnr Jan Smuts Avenue, Bolton Road Rosebank, Johannesburg 2196, South Africa. Net l's common stock trades on the NASDAQ Global Stock Market ("NASDAQ") under the ticker symbol "UEPS." 15. Defendant Serge Christian P. Belamant ("Belamant"), co-founder of the Company, was, at all relevant times, the Company's Chairman of the Board of Directors and Chief Executive Officer. 16. Defendant Herman Gideon Kotze ("Kotze") was, at all relevant times, the Company's Chief Financial Officer, Treasurer and Secretary. 17. The defendants referenced above in J 15 and 16 are sometimes referred to herein as the "Individual Defendants," SUBSTANTIVE ALLEGATIONS Background 18, Net 1 is a leading provider of payment solutions and transaction processing services across multiple industries and in a number of emerging economies. The Company

5 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 5 of 36 develops and markets a comprehensive transaction processing solution that encompasses its smart card-based alternative payment system for the unbanked and under-banked populations of developing economies and for mobile transaction channels. The Company also provides secure transaction technology solutions and services, by offering transaction processing, financial and clinical risk management solutions to various industries. The Company has extensive expertise in secure online transaction processing, cryptography, mobile telephony and integrated circuit card (chip/smart card) technologies. Materially False and Misleading Statements Issued During the Class Period 19. On August 27, 2009, Net I issued a press release announcing its financial and operating results for the quarter and year ended June 30, For the quarter, the Company reported net income of $18.2 million, or $0.33 diluted earnings per share ("EPS") and revenue of $61.6 million, as compared to net income of $21.5 million, or $0.37 diluted EPS and revenue of $62.2 million for the same period a year ago. For the year, the Company reported net income of $86.6 million, or $1.54 diluted EPS and revenue of $246.8 million, as compared to net income of $86.7 million, or $1.50 diluted EPS and revenue of $254 million for the same period a year ago. 20. On August 27, 2009, the Company filed an annual report for the year ended June 30, 2009 on a Form 10-K with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-K contained signed certifications pursuant to the Sarbanes- Oxley Act of 2002 ("SOX") by Defendants Belamant and Kotze, stating that the financial information contained in the Form 10-K was accurate and disclosed any material changes to the Company's internal control over financial reporting. 5

6 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 6 of The 10-K represented the following concerning the CPS and the Company's compliance with the FCPA: Our CPS business unit deploys our UEPS - Social Grant Distribution technology to distribute social welfare grants on a monthly basis to 3.5 million beneficiaries in five provinces of South Africa. These social welfare grants are distributed under a contract with SASSA. Our current contract with SASSA expires on March 31, 2010, but may be extended if SASSA has not completed a new tender process prior to expiration. During our 2009, 2008 and 2007 fiscal years, we derived 65%, 67% and 70% of our revenues, respectively, from CPS' social welfare grant distribution business. We must comply with the Foreign Corrupt Practices Act, or FCPA, which prohibits US companies or their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. In addition, the US Department of Treasury's Office of Foreign Assets Control, or OFAC, administers and enforces economic and trade sanctions against targeted foreign countries, entities and individuals based on US foreign policy and national security goals. 22. On November 5, 2009, the Company announced financial and operating results for the quarter ended September 30, For the quarter, the Company reported net income of $17.9 million, or $0.37 diluted EPS and revenue of $65.5 million, as compared to net income of $26.3 million, or $0.45 diluted EPS and revenue of $67.9 million for the same period a year ago. 23. On November 5, 2009, the Company filed a quarterly report for the period ended September 30, 2009 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants B clamant and Kotzc, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. M.

7 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 7 of 36 24, On February 9, 2010, the Company announced financial and operating results for the quarter ended December 31, For the quarter, the Company reported net income of $193 million, or $0.42 diluted EPS and revenue of $73.8 million, as compared to net income of $27.8 million, or $0.49 diluted EPS and revenue of $61.4 million for the same period a year ago. 25. On February 9, 2010, the Company filed a quarterly report for the period ended December 31, 2009 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants B clamant and Kotze, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 26. On March 31, 2010, the Company announced in a press release a three month extension of the SASSA contract. The press release stated the following in relevant part: Net 1 UEPS Technologies, Inc. ("Neti" or the "Company") (NASDAQ: UEPS, JSE: NT1) today announced a three month extension of its contract for the payment of social welfare grants with the South African Social Security Agency ("SASSA"), on the same terms and conditions as the existing agreement, which was scheduled to expire on March 31, The three month extension allows Neti to maintain its high level of service delivery while the Company and SASSA conclude negotiations. Our ongoing discussions with SASSA include the evaluation of a number of proposals including a further contract extension, a new fixed-term contract and the commencement of a new tender process. Further announcements will be made once discussions have been concluded. "Although we would have liked to finalize a definitive agreement with SASSA prior to March 31, 2010, this process will provide us a further opportunity to demonstrate the breadth of our technology and various business models to SASSA," said Dr. Serge Belamant, Netl 's Chairman and Chief Executive Officer, "We remain committed to deliver the most efficient and cost-effective solution to SASSA and the most vulnerable citizens of South Africa," he concluded. VA

8 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 8 of On May 6, 2010, the Company announced financial and operating results for the quarter ended March 31, For the quarter, the Company reported net income of $18.8 million, or $0.41 diluted EPS and revenue of $72.3 million, as compared to net income of $14.4 million, or $0.26 diluted BPS and revenue of $55.9 million for the same period a year ago. 28. On May 6, 2010 the Company filed a quarterly report for the period ended March 31, 2010 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants Belamant and Kotze, stating that the financial information contained in the Form 10- Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 29. The Form 10-Q represented the following in relevant part: Our one-year contract with the South African Social Security Agency, or SASSA, for the payment of social welfare grants in the five provinces we serve, was scheduled to expire on March 31, 2010, and was extended for a further three months until June 30, 2010, provisionally under the same terms and conditions. We are currently in discussions with the South African government and expect to conclude such discussions over the next four to six weeks. Following the election of a new president and cabinet, the economic crisis and reduced spending requirements and austerity measures imposed on South African government bodies by the new Minister of Finance, SASSA must reduce the cost of grant administration and distribution and has communicated this requirement to its largest suppliers, including us. We have tabled a number of proposals to government including further contract extensions, a new fixed-term contract, and the commencement of a new tender process and various permutations of the foregoing. The terms of any agreement reached with SASSA, whether a further contract extension or a new fixed-term contract, may vary significantly from the current contract in terms of pricing, volume and service delivery criteria. Such new terms and conditions may be applied retrospectively to become effective from April 1, 2010 in order to coincide with the commencement of SASSA's fiscal year and the South African National Treasury's budget allocation period. Should we fail to reach any [41 []

9 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 9 of 36 agreement with SASSA, our current contract will terminate on June 30, 2010, unless the current contract is further extended. We are and expect to remain an integral supplier to the South African government. 30. On July 1, 2010, in a press release, the Company provided an update on the SASSA contract. The press release stated the following in relevant part: Net 1 UEPS Technologies, Inc. ("Neti" or the "Company") (NASDAQ: UEPS, JSE: NTI) today announced that negotiations regarding the current agreement with the South African Social Security Agency ("SASSA") for the payment of social welfare grants which expired on June 30, 2010, have not been finalized and are ongoing. Neti is committed to delivering the highest level of service to the South African government and its citizens, and continues to provide its payment service to SASSA, having commenced payment activities for the July payment cycle. The Company's ongoing discussions with SASSA include the evaluation of a number of proposals, including a further contract extension, a new fixed-term contract and the commencement of a new tender process. Further announcements will be made when an agreement is reached regarding the terms and conditions of any contract extension. "Our negotiations provide an opportunity to demonstrate the breadth of our technology and various business models to SASSA. However, our ability to accurately predict the timing of any decisions is more challenging given certain factors outside the Company's control" said Dr. Serge Belamant, Nett 's Chairman and Chief Executive Officer. "We remain committed to deliver the most efficient and cost-effective solution to SASSA and the most vulnerable citizens of South Africa," he concluded. 31. On August 26, 2010, Net 1 issued a press release announcing its financial and operating results for the quarter and year ended June 30, For the quarter, the Company reported a net loss of $17 million, or ($0.37) diluted BPS and revenue of $683 million, as compared to net income of 18.2 million, or $0.33 diluted FPS and revenue of $61.6 million for the same period a year ago. For the year, the Company reported net income of $39 million, or $0.84 diluted EPS and revenue of $280.4 million, as compared to net income of $86.6 million, or $1.53 diluted BPS and revenue of $246.8 million for the same period a year ago. 32. The press release stated the following in relevant part: 9

10 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 10 of 36 On August 24, 2010, the Company entered into a new service level agreement with the South African Social Security Agency ("SASSA") which replaces its previous SASSA contract that expired on June 30, The new agreement is retroactively effective from July 1, 2010 and expires on March 31, Under the new contract, the Company will continue to provide its social welfare grants distribution service to SASSA in five of South Africa's nine provinces. As was the case with the Company's previous contract with SASSA, the new contract contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month. However, the new contract provides for a reduction in both the level of the transaction fee per beneficiary paid and the guaranteed minimum number of beneficiaries. Because the Company continues to derive a substantial percentage of its revenues from the SASSA contract, it expects that the terms of the new contract will materially reduce its revenues, operating income, net income and cash flow for the year ended June 30, , On August 26, 2010, the Company filed an annual report for the year ended June 30, 2010 on a Form 10-K with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-K contained signed certifications pursuant to SOX by Defendants Belamant and Kotze, stating that the financial information contained in the Form 10- K was accurate and disclosed any material changes to the Company's internal control over financial reporting. 34. The 10-K represented the following concerning the CPS and FCPA: Our CPS business unit deploys our UEPS Social Grant Distribution technology to distribute social welfare grants on a monthly basis to roughly 3.2 million beneficiaries in five provinces out of the nine South African provinces. These social welfare grants are distributed on behalf of SASSA, During our 2010, 2009 and 2008 fiscal years, we derived 66%, 65% and 67% of our revenues respectively, from CPS' social welfare grant distribution business. As discussed above, on August 24, 2010, we signed a new service level agreement with SASSA. We must comply with the FCPA, which prohibits US companies or their agents and employees from providing anything of value to a foreign official for the 10

11 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 11 of 36 purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. In addition, OFAC administers and enforces economic and trade sanctions against targeted foreign countries, entities and individuals based on US foreign policy and national security goals. On August 24, 2010, we entered into a new service level agreement with SASSA which replaces our previous SASSA contract that expired on June 30, The new agreement is retroactively effective from July 1, 2010 and expires on March 31, Under the contract, we continue to provide our social welfare grants distribution service to SASSA in five of South Africa's nine provinces (KwaZulu- Natal, Limpopo, North West, Northern Cape and Eastern Cape), As was the ease with our previous contact, the new contract contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month. However, the new contract provides for a reduction in both the level of the transaction fee per beneficiary paid and the guaranteed minimum number of beneficiaries. We expect that our future revenues, operating income, net income and cash flow will be negatively impacted by these reductions unless we are able to offset the reductions by increasing our revenues from our other business activities, reducing expenses, or both. 35. On November 9, 2010, the Company announced financial and operating results for the quarter ended September 30, For the quarter, the Company reported net income of $7.4 million, or $0.16 diluted EPS and revenue of $64.3 million, as compared to net income of $17.9 million, or $0.37 diluted EPS and revenue of $65.5 million for the same period a year ago. 36. On November 9, 2010, the Company filed a quarterly report for the period ended September 30, 2010 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form lo-q contained signed certifications pursuant to SOX by Defendants I3elamant and Kotze, stating that the financial information contained in the Form 11

12 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 12 of Q was accurate and disclosed any material changes to the Company's internal control over financial reporting, 37. The Form 10-Q stated the following in relevant part: On August 24, 2010, we entered into a new service level agreement with SAS SA which replaced our previous SAS SA contract that expired on June 30, The new agreement is retroactively effective from July 1, 2010 and expires on March 31, Under the contract, we continue to provide our social welfare grants distribution service to SASSA in five of South Africa's nine provinces (KwaZulu- Natal, Limpopo, North West, Northern Cape and Eastern Cape). As was the case with our previous contract, the new contract contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month, However, the new contract provides for a reduction in both the level of the transaction fee per beneficiary paid and the guaranteed minimum number of beneficiaries. As we previously announced when we signed the new contract, we continue to derive a substantial percentage of our revenues from our SASSA contract, and thus we expect that its terms will materially reduce our revenues, operating income, net income and cash flow for fiscal 2011, unless we are able to offset reduced fees from SASSA by increasing our revenues from our other business activities, reducing expenses, or both. 38, On January 12, 2011, the Company issued a press release announcing a six month extension on the SASSA contract. The press release stated the following in relevant part: Net 1 UEPS Technologies, Inc. ("NetI" or the "Company") (NASDAQ: URPS, JSE: NT1) today announced a six month extension of its contract for the payment of social welfare grants with the South African Social Security Agency ("SASSA"), on the same terms and conditions as the existing agreement, which is scheduled to expire on March 31, SASSA has indicated that it intends to commence with a new tender process shortly and has requested the six month extension to allow it to conclude the tender process. 39. On February 3, 2011, the Company announced financial and operating results for the quarter ended December 31, For the quarter, the Company reported net income of $9.9 12

13 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 13 of 36 million, or $0.22 diluted EPS and revenue of $89 million, as compared to net income of $19.3 million, or $0.42 diluted EPS and revenue of $73.8 million for the same period a year ago. 40, On February 3, 2011, the Company filed a quarterly report for the period ended December 31, 2010 on a Form 10-Q with the SEC, which was signed by Defendants l3elamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants Belamant and Kotze, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 41. On May 5, 2011, the Company announced financial and operating results for the quarter ended March 31, For the quarter, the Company reported a net loss of $21.6 million, or ($0.47) diluted EPS and revenue of $92.8 million, as compared to net income of $18.8 million, or $0.41 diluted EPS and revenue of $72.3 million for the same period a year ago. 42. On May 5, 2011, the Company filed a quarterly report for the period ended March 31, 2011 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants Belarnant and Kotze, stating that the financial information contained in the Form 10- Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 43. The Form 10-Q represented the following in relevant part: Under the Company's SASSA contract, it provides its social welfare grants distribution service to SASSA in five of South Africa's nine provinces (KwaZulu- Natal, Limpopo, North West, Northern Cape and Eastern Cape). The contract 13

14 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 14 of 36 contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month. As it has previously disclosed, the Company's SASSA contract has been extended and now runs through September 30, 2011, unless it is further extended. On April 15, 2011, SASSA publicly issued an invitation to bid, inviting service providers to submit proposals for the provision of payment services for social grants in any one or more of the nine provinces of South Africa by May 27, 2011, The Company will participate in the bid process. 44. On August 25, 2011, Net 1 issued a press release announcing its financial and operating results for the quarter and year ended June 30, For the quarter, the Company reported net income of $6.8 million, or $0.15 diluted EPS and revenue of $97.4 million, as compared to a net loss of $17 million, or ($0.37) diluted BPS and revenue of $68.7 million for the same period a year ago. For the year, the Company reported net income of $2.6 million, or $0.06 diluted EPS and revenue of $343.4 million, as compared to net income of $39 million, or $0.84 diluted EPS and revenue of $280.4 million for the same period a year ago. 45. On August 25, 2011, the Company filed an annual report for the year ended June 30, 2011 on a Form 10-K with the SEC, which was signed by Defendants Belarnant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-K contained signed certifications pursuant to SOX by Defendants Belamant and Kotze, stating that the financial information contained in the Form 10- K was accurate and disclosed any material changes to the Company's internal control over financial reporting. 46. The 10-K represented the following concerning the CPS and FCPA: Our CPS business unit deploys our UBPS - Social Grant Distribution technology to distribute social welfare grants on a monthly basis to roughly 3.2 million beneficiaries in five of South Africa's nine provinces. These social welfare grants are distributed on behalf of SASSA. During our 2011, 2010 and 2009 fiscal years, 14

15 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 15 of 36 we derived 47%, 66% and 65% of our revenues respectively, from CPS' social welfare grant distribution business. We must comply with the FCPA, which prohibits US companies or their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity or obtain any unfair advantage. In addition, OFAC administers and enforces economic and trade sanctions against targeted foreign countries, entities and individuals based on US foreign policy and national security goals. Under our SASSA contract, we provide our social welfare grants distribution service to SASSA in five of South Africa's nine provinces (KwaZulu-Natal, Limpopo, North West, Northern Cape and Eastern Cape). The contract contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month. 47. On October 27, 2011, the Company announced financial and operating results for the quarter ended September 30, For the quarter, the Company reported net income of $19.8 million, or $0.44 diluted EPS and revenue of $99.9 million, as compared to net income of $7.4 million, or $0.16 diluted EPS and revenue of $64.3 million for the same period a year ago. 48, On October 27, 2011, the Company filed a quarterly report for the period ended September 30, 2011 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form l0-q contained signed certifications pursuant to SOX by Defendants B clamant and Kotze, stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 49. The Form l0-q stated the following in relevant part: 15

16 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 16 of 36 Under our SASSA contract, we provide our social welfare grants distribution service to SASSA in five of South Africa's nine provinces (KwaZulu-Natal, Limpopo, North West, Northern Cape and Eastern Cape). The contract contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month. In August 2011, we signed a further six-month extension of our contract with SASSA on the same terms and conditions. As a result of the extension, the contract is currently in effect through March 31, SASSA has advised that the procurement process for the social grants payment tender is still underway and has requested the extension of Netl 's current contract to ensure continuity in service delivery. We are participating in the tender process and have submitted our proposal. The proposals received by SASSA are currently being evaluated. SASSA has asked us, and we have agreed, to extend the validity period of our proposal from October 27, 2011 to March 31, 2012, to allow the various evaluation and adjudication committees to complete their work. 50. On January 18, 2012, the Company announced in a press release that its wholly owned subsidiary, Cash Payment Services (Pty) Ltd. ("CPS") "has received a Letter of Award from the South African Social Security Agency ("SASSA") for the provision of payment services for social grants in all of South Africa's nine provinces for a period of five years." The press release further stated the following: "We are overjoyed by the SASSA tender award and very proud of the confidence that SASSA has placed in our company and technology," said Dr. Serge Belamant, Chairman and CEO of Net 1. "Our biometric UEPS/EMV technology has enabled us to provide SASSA with a comprehensive, cost effective solution for the payment of approximately fifteen million monthly grants to ten million recipients in rural and urban areas and we are committed to provide the grant recipients and the South African government with the highest level of service and security. I would like to thank all of our employees and partners for their invaluable contribution towards the tender outcome. This tender award emphasizes the strategic importance of our South African operations and provides further confirmation of our business plan that will afford us, together with our Black Empowerment initiatives that we have been formalizing during the last few years, with the launch pad for our future growth in Africa and other developing economics," he concluded. 10

17 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 17 of 36 Herman Kotzé, CFO of Net 1, commented: "Given the magnitude of the SASSA tender award, we expect a significant impact on the group's financial affairs when the contract period commences as a result of new volume and pricing, additional costs, capital expenditure and additional contractual obligations. These may have different financial effects in the short-term relative to the long-term benefits to the group. We will be able to provide more detailed guidance regarding the financial effect of this tender award when the service level agreement has been concluded and hope to provide such detail during our next scheduled earnings call on Friday, February 10, 2012." 51. On February 6, 2012, the Company announced in a press release that CPS "has signed a contract and service level agreement with the South African Social Security Agency ("SASSA") in terms of the award of the national payment tender." The press release further stated the following: Under these agreements, CPS will effect payment, on behalf of SASSA, of social grants to all persons who are entitled to receive such grants in all of South Africa's provinces. CPS' primary services include the enrollment of all eligible recipients, issuance of a smart card to each recipient and the biometric validation and payment of social grants to such recipients. The term of the agreements commences on April 1, 2012 and terminates on March 31, "Now that the contract and service level agreement with SASSA has been concluded, we look forward to the implementation of our solution," said Dr. Serge 3elamant, Chairman and CEO of Nett. "We are ready and committed to provide SASSA and the grant recipients with the highest level of service and payment security and look forward to the execution of this critical responsibility for the next five years," he concluded. 52. On February 9, 2012, the Company announced financial and operating results for the quarter ended December 31, For the quarter, the Company reported net income of $25.1 million, or $0.56 diluted earnings per share ("BPS") and revenue of $92.1 million, as compared to net income of $9.9 million, or $0.22 diluted FPS and revenue of $89 million for the same period a year ago. 53. On February 9, 2012, the Company filed a quarterly report for the period ended December 31, 2011 on a Form 10-Q with the SEC, which was signed by Defendants Belamant 17

18 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 18 of 36 and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to the Sarbanes-Oxley Act of 2002 ("SOX") by Defendants Belamant and Kotze, stating that the financial information contained in the Form lo-q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 54. The 10-Q represented the following concerning the SASSA contract: On February 3, 2012, the Company and SASSA entered into a contract for the payment of social grants, together with a related service level agreement pursuant to which it will provide SASSA with its payment service for social grants in all of South Africa's nine provinces. Under the agreements, the Company will effect payment, on behalf of SASSA, of social grants to all persons who are entitled to receive such grants in all of South Africa's provinces, for a firm price of ZAR per beneficiary paid, inclusive of VAT. The Company's primary services include the enrollment of all eligible recipients, issuance of a smart card to each recipient and the biometric validation and payment of social grants to such recipients. The agreements do not provide for a minimum or maximum number of beneficiaries. SASSA is required to fund all grants two working days prior to the date on which the grant payment is to be made by the Company. The term of the agreements commences on April 1, 2012 and terminates on March 31, The agreements contain provisions for enrollment of new recipients and transition to the Company's payment service prior to the commencement date for beneficiaries who were previously paid by other service providers. As we transition into our new contract with SASSA, and provide our distribution service throughout all nine provinces in South Africa, we expect that the percentage of our segment revenues that we will derive from our pension and welfare operations will increase significantly. However, we also expect that as we roll out our distribution service on a national basis, we will incur significant increases in all our operating expenses for additional employees, security, bank charges, vehicle maintenance and fuel, insurance and telecommunications and data transmission. We expect our new contract to be beneficial to us over the contract period despite our current expectation of negative operating margins during the next three quarters due to expansion and new establishment costs to 18

19 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 19 of 36 meet the terms of the new contract. We currently expect to be fully phased-in by the second quarter of fiscal As we transition into a new service level agreement with SASSA, and provide our distribution service throughout all nine provinces in South Africa, we expect to invest significant amounts of our surplus ZAR- denominated cash balances in capital expenditures over the next 18 months, including for modified payment vehicles, information technology infrastructure and processing equipment and smart cards. We believe that we have sufficient cash reserves and credit facilities to fund these additional capital expenditures. As described above in our discussion of our pension and welfare operations, we also expect to incur significantly higher operating expenses and in the future, We expect to fund these expenses primarily from cash generated from operations under our new contract with SASSA. 55. On May 10, 2012, Net 1 issued a press release announcing its financial and operating results for the quarter ended March 31, For the quarter, the Company reported net income of $7.8 million, or $0.17 diluted EPS and revenue of $90.1 million, as compared to a net loss of $21.6 million, or ($0.47) diluted EPS and revenue of $92.8 million for the same period a year ago. 56. On May 10, 2012, the Company filed a quarterly report for the period ended March 31, 2012 on a Form 10-Q with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-Q contained signed certifications pursuant to SOX by Defendants Belamant and Kotze, stating that the financial information contained in the Form lo-q was accurate and disclosed any material changes to the Company's internal control over financial reporting. 57. The 10-Q represented the following concerning the SASSA contract: On January 17, 2012, SASSA awarded us a tender to provide payment services for social grants in all of South Africa's nine provinces for a period of five years. On February 3, 2012, we entered into a new contract, together with a related 19

20 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 20 of 36 service level agreement, with SASSA pursuant to which we pay, on behalf of SASSA, social grants to all persons nationally who are entitled to receive such grants, for a firm price of ZAR16.44 per beneficiary paid, or ZAR net of VAT. On March 31, 2012, our then-existing contract with SASSA to provide social grant distribution in five provinces expired. We are now operating under the new contract. We commenced the implementation of our new contract during the third quarter of fiscal The implementation will be conducted in two phases. The first phase involved issuing approximately 2.5 million MasterCard-branded debit cards to beneficiaries that we did not serve under our previous contract in order to establish the payment process to pay all social grants in the country. We successfully commenced the national grant payment process for approximately 9.2 million beneficiaries on April 2, The second phase will require us to re-enroll all social grant beneficiaries in South Africa. This enrollment process will require us to capture the personal and biometric information of each beneficiary and issue each grant recipient with our latest MasterCard-branded EMV/UEPS combination smart cards. These smart cards can be used across all elements of the South African National Payment System, including at ATMs and POS's, in addition to our current UEPS merchant acquiring system and mobile pay points. We expect to commence the second phase of the enrollment process in June 2012 and plan to be substantially complete by March Following the conclusion of the new service level agreement, we paid certain of our executives and key employees special bonuses of $5.4 million (ZAR 41.8 million) in recognition of their contributions to the compilation of the successful SASSA tender, the development of the new technologies and the support provided for the implementation of the tender award, In order to complete the first phase of the implementation on time, we hired approximately 2,200 of the estimated 2,600 temporary employees required to assist with the first phase of the beneficiary enrollment process. Once we have completed the second phase, we expect our permanent employee base to increase from pre-new contract levels by approximately 900 people. 58. On August 23, 2012, Net I issued a press release announcing its financial and operating results for the quarter and year ended June 30, For the quarter, the Company reported a net loss of $8 million, or ($0.17) diluted BPS and revenue of $107.6 million, as compared to net income of $6.9 million, or $0.15 diluted EPS and revenue of $97.4 million for 20

21 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 21 of 36 the same period a year ago. For the year, the Company reported net income of $44.7 million, or $0.99 diluted EPS and revenue of $390.3 million, as compared to net income of $2.5 million, or $0.06 diluted EPS and revenue of $343.4 million for the same period a year ago. 59. On August 23, 2012, the Company filed an annual report for the year ended June 30, 2012 on a Form 10-K with the SEC, which was signed by Defendants Belamant and Kotze, and reiterated the Company's previously announced quarterly financial results and financial position. In addition, the Form 10-K contained signed certifications pursuant to SOX by Defendants Belamant and Kotze, stating that the financial information contained in the Form 10- K was accurate and disclosed any material changes to the Company's internal control over financial reporting. 60. The 10-K represented the following concerning the SAS SA contract: On January 17, 2012, SASSA awarded us a tender to provide payment services for social grants in all of South Africa's nine provinces for a period of five years. On February 3, 2012, we entered into a new contract, together with a related service level agreement, with SASSA pursuant to which we pay, on behalf of SASSA, social grants to all persons nationally who are entitled to receive such grants, for a firm price of ZAR16.44 per beneficiary paid, or ZAR net of VAT. The new pricing terms became effective on April 1, 2012, upon the March 31, 2012 expiration of our then-existing contract with SASSA to provide social grant distribution in five provinces. Thus, our fiscal 2012 results of operations include three quarters of operations under the prior contract, which contained a standard pricing formula for all five provinces based on a transaction fee per beneficiary paid, regardless of the number or amount of grants paid per beneficiary, calculated on a guaranteed minimum number of beneficiaries per month. We commenced the implementation of our new contract during the third quarter of fiscal The implementation is being conducted in two phases. The first phase involved issuing approximately 2.5 million MasterCard-branded debit cards to beneficiaries that we did not serve under our previous contract in order to establish the payment process to pay all social grants in the country. We commenced the national grant payment process for approximately 9.2 million beneficiaries on April 2, 2012 and thus successfully completed the first phase of implementation. 21

22 Case 1:13-cv ER Document 1 Filed 12/26/13 Page 22 of 36 The second phase requires us to re-enroll all social grant beneficiaries in South Africa. This enrollment process will require us to capture the personal and biometric information of each beneficiary and issue each grant recipient with our latest MasterCard-branded UEPS/EMV combination smart cards. These smart cards can be used across all elements of the South African National Payment System, including at ATMs and POSs, in addition to our current UBPS merchant acquiring system and mobile pay points. We commenced the second phase of the enrollment process in early July 2012 and plan to be substantially complete by March In order to complete the first phase of the implementation on time, we hired approximately 2,500 temporary employees required to assist with the first phase of the beneficiary enrollment process. Once we have completed the second phase, we expect our permanent employee base to increase from pre-new contract levels by approximately 900 people. Additionally, following the conclusion of the new service level agreement, we paid certain of our executives and key employees special bonuses of $5.4 million (ZAR 41.8 million) in recognition of their contributions to the compilation of the successful SAS SA tender, the development of the new technologies and the support provided for the implementation of the tender award. During fiscal 2012 we incurred direct implementation expenses (excluding the bonuses discussed above) of approximately $10.9 million (ZAR 83.9 million) including staff, travel, premises hire for enrollment, stationery, delivery and advertising costs. We are unable to quantify the value of time spent by our executives and pension and welfare operations managers and staff that service the five provinces in which we operated under the previous contract and that have assisted in the implementation of the national award. We also incurred approximately $21.2 million in capital expenditures, primarily to acquire registration workstations, payment vehicles and the branch infrastructure required for the national implementation. We anticipate cumulative capital expenditures related to the ramp of our national contract to be in the $45 to $50 million range, of which roughly two-thirds should be incurred by the end of the second quarter of fiscal Impact of new SASSA contract: Our new SAS SA contract has resulted in higher revenues from SASSA during the fourth quarter of fiscal We commenced implementing the new contract during the third quarter of fiscal 2012 and incurred additional implementation and staff costs of approximately $10.9 million, excluding cash bonuses of $5.4 million which were paid as a result of the tender award to us. 22