Even though the overall number of federal court securities class action lawsuit filings decrease in 2020 relative to 2019, the number of securities suits involving accounting allegations increased slightly, according to a new report from Cornerstone Research. The report, which is entitled “Accounting Class Action Filings and Settlements: 2020 Review and Analysis” also notes that the number of and value of settlements of accounting-related securities suits increased in 2020, as well. The April 7, 2021 report can be found here. Cornerstone Research’s April 7, 2021 press release about the report can be found here.
According to the report, there were 70 federal court securities lawsuits in 2020 involving accounting allegations in 2020, compared to 67 in 2019, representing an increase of 4.4 percent. The 70 accounting-related suits in 2020 is also 13% above the 2011-2019 annual average number of accounting cases of 62. The 70 accounting-related securities suits is the highest number of accounting suits since 2011, when there were 77.
The 70 accounting-related securities suits in 2020 represented 31% of the “core” or traditional federal court securities suit filings in 2020 (that is, cases alleging Rule 10b-5, Section 11, or Section 12(a) claims); by contrast, the 67 accounting related lawsuits in 2019 represented 27% of all federal court “core” securities suit filings that year. The 31% of all securities suit filings that the 2020 accounting-related suits represented was the highest proportion of accounting cases since 2016, when accounting cases represented 34% of all “core” filings.
The number of settlements of accounting-related cases increased slightly in 2020 compared to 2019. There were 38 settlements of accounting-related suits in 2020, compared to 34 in 2019. However, while the number of accounting-related settlements increased in 2020 compared to the year before, the 34 accounting settlements in 2020 was below the 2011-2019 annual average number of settlements of 42.
The 38 accounting related settlements in 2020 represented 49% of all securities class action lawsuit settlements during the year, while the 34 accounting settlements in 2019 represented 46% of all securities suit settlements that year.
Primarily because of a small number of very large settlements during the year, the total value of all accounting settlements more than tripled in 2020 to $3.45 billion, compared to $932 million in 2019. The 2020 accounting suit settlement totals included six mega settlements (settlements valued at greater than or equal to $100 million); two of the 2020 settlements exceeded $500 million.
As a result of the number of larger settlements in 2020, the average accounting related securities suits settlement in 2020 was $93.3 million, representing an increase of 240% over the $27.4 million average for accounting settlements in 2019. The median accounting related settlement in 2020 was $10.8 million, compared to a $10.6 million median for accounting settlements in 2019.
In a particularly interesting observation, the report notes that “For 2020 accounting case settlements in which the D&O liability insurance contribution was publicly available, 89% of the total settlement fund, on average, was contributed by one or more D&O liability insurance carrier.”
Of the 70 accounting-related securities suit filings in 2020, 11 involved restatement allegations, representing 16% of all accounting-related filings. By way of comparison, in 2019, 19 of the 67 accounting-related securities suit filings involved restatements, representing 28% of all accounting-related securities suit filings. The 11 accounting-related suits involving restatement allegations in 2020 was 42% below the 2011-2019 annual average number of restatement cases of 19. The 11 restatement cases in 2020 is also the lowest annual number of restatement cases during the period 2011 to 2020.
Of the 38 accounting-related securities suit settlements in 2020, 10 involved restatement allegations, representing 26% of all accounting-related settlements during the year. By contrast, of the 34 accounting-related settlements in 2019, 15 involved restatement allegations, representing 44% of all accounting settlements during the year. The ten restatement settlements in 2020 is the lowest annual number of restatement settlements in any year during the period 2011-2020, and well below the 2011-2019 annual average number of restatement settlements of 18.