Laura E. Simmons is Senior Advisor, Elaine M. Harwood is Vice President, and Frank T. Mascari is a Principal at Cornerstone Research. This post is based on their Cornerstone memorandum.
Executive Summary
Securities class action filings involving accounting allegations reached a record level as the overall trend of core filings against larger defendant firms continued.
While the total value of accounting class action settlements declined, the median accounting case settlement amount rose in 2019.
- There were 169 securities class actions involving accounting allegations (accounting case filings) during 2019, nearly double the historical average.
- Accounting class actions as a percentage of total class action filings reached the highest level since 2011.
- Merger and acquisition (M&A) accounting cases alleging failure to reconcile a non-GAAP measure to a GAAP measure increased 29 percent.
- Market capitalization losses for core accounting case filings 3 were 58 percent higher than the historical average as the trend of filings against larger defendant firms continued.
- In 2019, 19 percent of core accounting filings involved allegations of improper revenue recognition.
- The number and proportion of securities class action settlements involving accounting allegations (accounting case settlements) continued to decline, with the proportion of accounting settlements relative to all case settlements at the lowest level over the past decade.
- The median settlement for accounting cases increased over 2018, reflecting a shift in the size of the typical case.
- The total value of accounting case settlements can fluctuate substantially from year to year due to the presence or absence of very large settlements. In 2019, the total value declined, reflecting a lack of any settlements exceeding $500 million, as well as only two mega settlements (settlements above $100 million) involving accounting allegations.