Thursday, April 21, 2016

Accounting-related class actions still on the rise, report finds

By John Filar Atwood

The number of securities class actions with accounting allegations rose for the third straight year in 2015, according to a report from litigation consulting firm Cornerstone Research. There were 71 accounting-related class actions last year, a slight increase over the 69 filed in 2014, the report stated.

The report said that the increase in total filings is not the result of non-traditional filings, such as the Chinese reverse merger class actions in 2010 and 2011. Rather, the recent increases are from more traditional accounting-related filings, with a majority being allegations of internal control weaknesses. In 2015, 62 percent of accounting case filings involved internal control weaknesses, according to the report.

Settlement dollars. The report found that accounting case settlement dollars reached $2.6 billion in 2015, from 50 settled cases. In 2014, 44 settled accounting-related cases generated $1.1 billion in settlement dollars. In terms of total securities class action settlement dollars for 2015, accounting cases represented 87 percent of the total value.

Market cap losses. Cornerstone found that the increase in accounting-related class action filings was accompanied by an increase of just over 20 percent in market capitalization losses in 2015. The total losses of $34.8 billion were the second highest total in the past seven years, second only to 2013’s $44.8 billion.

In 2015, cases were almost evenly split between NYSE and Nasdaq companies, the report noted. However, the market capitalization losses associated with the cases filed against NYSE firms were over 4.5 times greater than the amount associated with cases filed against Nasdaq firms.

Non-U.S. companies. Cornerstone said in a press release that in 2015, 37 percent of accounting cases were filed in the Ninth Circuit, more than any other circuit, and the number of accounting cases against companies with headquarters outside the U.S. increased 43 percent to its second highest level in the last 10 years. Cases against China-headquartered companies increased 75 percent between 2014 and 2015, the report noted.

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