The number of securities class action lawsuit filings involving accounting allegations increased slightly in 2022 compared to 2021, but the number of 2022 accounting-related securities suit filings remained below the long-term annual average of such filings, according to the latest annual report from Cornerstone Research. At the same time, the total number, aggregate total value, and median and average values of accounting-related securities suit settlements increased in 2022 compared to the 2021. The Cornerstone Research report, which is entitled “Accounting Class Action Filings and Settlements: 2022 Review and Analysis,” can be found here. Cornerstone Research’s April 12, 2023, press release about the report can be found here.

According to the report, there were 51 securities class action lawsuit filings in 2022 that referenced financial statement restatements or allegations of internal control weaknesses, compared to 46 accounting-related filings in 2021, representing an increase of 11%. While the number of accounting-related securities suits increased in 2022 compared to the prior year, the 2022 accounting related filings still represented the third-lowest number of accounting-related filings since 2013, and the 51 accounting filings in 2022 were well below the 2013-2021 annual average number of accounting filings (62). Interestingly, of the 51 accounting related securities suit filings in 2022, approximately 24% involved SPAC-related suits (approximately the same percentage of such filings in 2021).

Accounting-related securities suits tend to be filed more quickly than non-accounting cases, a pattern that held in 2022. Thus, in 2022, the median lag time between the end of the class period and the filing of the lawsuit was 24 days for accounting cases, and 28 days for non-accounting cases. The 2013-2021 period the average annual median lag time (that is, the time between the end of the class period and the filing date) was 13 days.

The median pre-disclosure market capitalization of issuer defendants in accounting-related securities suit filings in 2022 was approximately $1.1 billion, well below the 2021 market capitalization of $1.4 billion, and about 12% below the 2013-2021 accounting case average annual median market capitalization of $1.2 billion. The median pre-disclosure market capitalization of issuer defendants in 2022 accounting case filings was the lowest since 2017.

The number of accounting-related securities suit filings involving restatements increased significantly in 2022, with 17 cases involving restatements in 2022 compared to only five in 2021. The number of restatement cases in 2022 was also slightly above the 2013-2021 annual average number of cases involving restatements (16).

There were 43 accounting-related securities suit settlement in 2022, compared to 33 such settlements in 2021, representing an increase of 30% in the number of settlements. The 43 accounting-related settlements was slightly above the 2013-2021 annual average number of accounting case settlements (42). The average time to settlement for the 2022 settlements was 3.7 years, compared to 3.2 years in 2021.

Consistent with the increase in the number of accounting-related settlements during the year, the total value of accounting-related settlements in 2022 increased to $1.4 billion from $817 million in 2021 (representing an increase of more than 67%). While the total value of settlements increased in 2022 compared to the year prior, the total value of accounting-related securities suit settlements as a percentage of the total value of all securities suit settlements declined to 36%, compared to 42% in 2021.

The average accounting-related settlement amount in 2022 was $31.7 million compared to only $24.7 million in 2021. The median accounting case settlement in 2022 was $15.5 million, compared to $8.1 million in 2021.

In a note that will be interesting to readers of this blog, the report observes that for the accounting case settlements in 2022 for which relevant data is available, the D&O insurance contribution toward the settlement amount represented 100% of the settlement amount in the majority of cases.