CompuDyne Learns That the NASD is Seeking Sanctions against Purchasers of Compudyne Common Stock in Its 2001 PIPE Transaction.

ANNAPOLIS, Md. -- CompuDyne Corporation (NASDAQ:CDCY), an industry leader in sophisticated security products, integration and technology for the public security markets, announced today that on December 21, 2004, the Department of Market Regulation of the NASD filed a complaint seeking sanctions against Hilary L. Shane, an investor who purchased common stock of CompuDyne Corporation, for violating various securities rules and laws. Shane purchased shares in a private placement in October 2001 whereby the Company sold 2,450,000 shares of its common stock at $12 per share, in a PIPE transaction arranged by Friedman, Billings, Ramsey & Co., Inc. ("FBR"). Of these shares 1.076 million were shares issued by CompuDyne with the remainder being those of a selling shareholder.

The complaint states that "by making false representations about her investment intent, Shane obtained the right to acquire 475,000 shares of CompuDyne Corporation ("CompuDyne" or "CDCY") in a private placement. Shane then engaged in unlawful insider trading by selling CDCY short while in possession of material, non-public information about the company and the private placement. Shane engaged in the unlawful distribution of unregistered securities when she sold CDCY short with the intent to cover the short sales with securities that were not yet registered."

CompuDyne and the selling shareholder are investigating this matter themselves and are evaluating their options for recovery.

Certain statements made in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including those statements concerning the Company's expectations with respect to future operating results and other events. Although the Company believes it has a reasonable basis for these forward-looking statements, these statements involve risks and uncertainties that cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors which could cause actual results to differ from expectations include, among others, capital spending patterns of the security market, competitive factors, pricing measures, regulatory requirements, the Company's ability to secure new contracts, costs related to potential acquisitions, the level of product returns, the amount of remedial work to be performed, and the risks inherent in CompuDyne's business and future uncertainties which are further described in its filings with the Securities and Exchange Commission, such as the Company's Form 10-K, Form 10-Q, and Form 8-K reports.