The number of securities class action lawsuit filings raising accounting-related allegations rose in 2015, as did the number and value of accounting-related securities suit settlements, according to a new report from Cornerstone Research. In addition to the increase in the number of accounted-related lawsuit filings, the market capitalization losses associated with those new filings increased as well. The April 19, 2016 report, entitled “Accounting Class Action Filings and Settlements: 2015 Review and Analysis,” can be found here. Cornerstone Research’s April 19, 2016 press release about the report can be found here.
The Number of Accounting-Related Suit Filings: There were 71 securities class action lawsuit filings with accounting allegations in 2015, which was greater than the ten-year average of 67 filings and which also represented an increase from the 69 accounting related securities suit filings in 2014. The increase in 2015 represented the third straight annual increase in the number of accounting-related suit filings. However, while the number of filing increased, the proportion of accounting-related suits as a percentage of all securities suit filings actually decreases slightly in 2015; the accounting related suits represented about 38% of all securities lawsuit filings in 2015, compared to about 41% in 2014.
Market Capitalization Losses: The Cornerstone Research report gauges the market capitalization losses associated with the accounting-related cases using what it calls “disclosure dollar loss” (DDL), which is the dollar value change in a company’s market cap between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period. The $34.8 billion aggregate disclosure dollar loss in the accounting related securities suits filed in 2015 is significantly higher than the $28.9 billion DDL in 2014, and is the second highest level in the last seven years. The $34.8 billion DDL in 2015 accounting suits is slightly below the 2006-2014 annual average DDL in accounting-related cases of $36 billion.
Accounting Suits Involving Foreign Issuers: Of the 71 accounting-related securities suits filed in 2015, 20 involved foreign issuers, representing 28% of all accounting-related securities suit filings during the year. Both the absolute number and the percentage represent increased in 2015 compare to 2014, when 14 of the accounting-related securities suits involved foreign issuers, representing 20% of all accounting related cases. The 20 accounting suits involving foreign issuer is well above the 2006-2014 foreign issuer accounting case annual average of 15.
Race to the Courthouse?: In 2015, the median lag time between the end of the alleged class period and the filings date was eight days for accounting-related securities suits, compared to ten days for non-accounting cases. The report notes that the median filing lag for accounting class actions has never been shorter.
Accounting Cases by Industrial Sector: The number of accounting case filings against companies in the Consumer Non-Cyclical sector exceeded historical levels for the second year in a row. In 2015 and historically, more than half of accounting cases filed in the Consumer Non-Cyclical sector were against Biotechnology, Pharmaceutical and Healthcare companies.
Accounting Case Filing Specifics: For the past six years, the majority of accounting case filings have included allegations of internal control weaknesses. In 2015, 62 percent of accounting cases included internal control weakness allegations. Restatement cases comprised 30 percent of the accounting-related securities suit cases in 2015, but the restatement cases represented only three percent of the total accounting case DDL.
Accounting-Related Securities Suit Settlements: The number of accounting-related securities suit settlements during 2015 rose to the highest level since 2010. There were 50 accounting-related securities suits settlements this past year, compared to 30 in 2014. The total settlement value for accounting cases in 2015 was $2.6 billion, compared to only $402 million in 2014, representing a nearly three-fold increase. The average accounting related securities suit settlement in 2015 was $52.6 million, compared to only $20.6 million for non-accounting settlements, and compared to $13.4 in 2014. The median accounting-related securities suit settlement in 2015 was $6.8 million, compared to $5.8 million for non-accounting case settlements, and compared to $5.9 million in 2014.
The accounting-related case settlements represented 62% of all settlements in 2015. The report notes that the accounting case settlements have consistently been represented more than fifty percent of all settlements, and higher than the percentage of total case filings represented by accounting cases. The report suggests that this disproportion of accounting cases among securities suit settlements “may be attributable to the fact that accounting cases are less likely to be dismissed (and thus more likely to settle).”
Accounting case settlements represented 87 percent of the total value of the 2015 settlements. During the period 206-2014, accounting cases have averaged 80 percent of all settlements.