By John Filar Atwood
Despite a lower-than-average number of securities class action filings involving accounting allegations in 2022, the total value of accounting case settlements grew by more than 67% from 2021 levels to $1.4 billion, according to an analysis by Cornerstone Research. Cornerstone attributed the significant increase partly to a year-over year jump in the average settlement amount from $24.7 million to $31.7 million, and a 30 percent rise increase in the number of settled cases to 43 from 33.
The number of non-accounting-case filings in 2022 was 139 with less than half of them (62) going to settlement. By comparison, 2022 saw 51 securities class action filings involving accounting allegations with 43 of them reaching settlement, Cornerstone stated.
The report indicates that the median value of settled accounting cases nearly doubled from the previous year to $15.5 million. The 91 percent year-over-year increase was the largest jump since 2012. A Cornerstone analyst said that the substantial increase in the median settlement amount reflects a broad shift in the size of accounting case settlements due in part to unusually large issuer defendants that were involved in accounting cases settled in 2022.
Cornerstone found that the median pre-disclosure market capitalization of issuer defendants in accounting cases settled in 2022 increased by 111 percent from 2021 to almost $4 billion. That is nearly three times the average annual median for 2013–2021 and more than 85 percent greater than any year in the last nine, Cornerstone said.
According to the report, accounting cases took longer to settle in 2022 than in recent years, with the average time to settlement rising to 3.7 years in 2022 from 3.2 years in 2021. In addition, three accounting case settlements were valued at $100 million or greater last year compared to just one in 2021.
Accounting case filings. Cornerstone stated that the number of securities class action filings involving accounting allegations rose 11 percent in 2022 to 51. Other than 2021’s 46 filings, 51 was the lowest annual total since 2013 (47). Overall, 2022’s total came in below the nine-year average of 62, according to the report.
Accounting-related cases comprised 27 percent of all securities class action filings in 2022, up slightly from 24 percent in 2021. 2022’s level was the second lowest by percentage and third lowest by volume in the past 10 years, Cornerstone reported.
About 24 percent of 2022’s accounting case filings involved SPACs, the report notes, which is consistent with 2021 levels. After hitting their lowest point in nine years in 2021, filings referencing financial statement restatements or internal control weaknesses rebounded in 2022. There were five filings that referenced restatements in 2021 and 17 in 2022.
Cornerstone said that the median number of days between the end of a class period and the filing date of an accounting case in 2022 was 24 days, the longest median filing lag in 10 years. The filing lag was still four days shorter than for non-accounting actions.
Cornerstone defines an accounting case as one that involves allegations related to GAAP violations, violations of other reporting standards, auditing violations, or weaknesses in internal controls over financial reporting. There port focuses on federal securities class action filings containing Rule 10b-5, Section 11, or Section 12(a) claims.