The number of securities class action lawsuit filings involving accounting allegations increased in 2023 compared to 2022, but the 2023 accounting-related filings remained below the long-term annual average number of such filings, according to the latest annual report from Cornerstone Research. The number of accounting-related settlements decreased during 2023, as did the median settlement value, though the aggregate and average value of accounting related settlements increased. The Cornerstone Research Report, which is entitled “Accounting Class Action Filings and Settlements: 2023 Review and Analysis,” can be found here. Cornerstone Research’s April 3, 2024, press release about the report can be found here.

According to the report, there were 56 securities class action lawsuit filings in 2023 that containing allegations related to GAAP violations or violations of other reporting standards, auditing violations, or weaknesses in internal controls over financial reporting, compared to 51 accounting-related filings in 2022, representing an increase of nearly ten percent. The accounting-related securities suit filings represented 27% of the 207 total securities class action lawsuit filings in 2023. While the 56 accounting-related filings represented an increase in the number of such filings compared to 2022, the 2023 accounting-related filings remained below the 2014-2022 average annual number of accounting case filings of 62.

Accounting-related securities suits tend to be filed more quickly than non-accounting cases, a pattern that held again in 2023. However, the median number of days between the end of the class period and the lawsuit filings date (“the lag time”) in connection with accounting-related securities suit filings increased substantially for the second year in a row; the lag time for the filing of accounting cases during 2023 was 43 days, the longest period in the last ten years, and only slightly below the lag time for non-accounting cases (46). The lag time for accounting cases in 2023 of 43 days was well above the 2014-2022 annual average median number of lag time of 14 days.

The median pre-disclosure market capitalization of issuer defendants in accounting-related securities suit filings in 2023 was $719.3 million, well below the 2022 market capitalization of $1.04 billion, and well below the 2014-2022 annual average accounting case-disclosure market capitalization of $1.34 billion. The 2023 median pre-disclosure market capitalization in accounting cases was the smallest in the last ten years.

While the market capitalization of the issuer defendants in accounting-related securities suits filed in 2023 declined, the disclosure dollar loss (DDL) for accounting-related case filings increased. DDL is the dollar value change in the defendant firm’s market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period. While total DDL for all securities filings declined by 44% in 2023, the DDL for accounting cases more than doubled, from $30.6 billion in 2022 to $76.9 billion in 2023. The 2023 accounting-related suit filing DDL was the second highest in ten years. There were three accounting cases filed in 2023 with DDL of $5 billion or greater; these three cases accounted for about half of the total accounting suit-related DDL in 2023.

The number of accounting-related securities suit filings involving restatements increased in 2023, with 21 accounting case filings involving restatements in 2023 compared to 17 in 2022 (and just five in 2021). The number of securities suit filings involving restatements in 2023 (21) was well above the 2014-2022 annual average number of restatement cases (16). The restatement cases as a percentage of all accounting-related cases were also elevated in 2023 compared to recent prior years; the restatement cases represented 38% of all accounting related cases in 2023, compared to 33% in 2022 (and just 11% in 2021). The number of accounting case filings involving restatements in 2023 reached its second highest level in the last ten years both with respect to the number of accounting cases and as a percentage of accounting cases.

Interestingly, accounting-related securities cases appear less likely to be dismissed and more likely to settle. Accounting cases filed from 2014 through 2022 were about 12% less likely to be dismissed as compared to non-accounting cases, and accounting cases filed from 2014 through 2022 were 31% more likely to settle than non-accounting cases.

There were 35 accounting-related securities suit settlements in 2023, compared with 43 in 2022, representing a decrease of almost 19%. The total of 35 accounting-related securities suit settlements in 2023 was below the 2014-2022 annual average number of accounting suit settlements of 42. The report notes that over the last 20 years fewer accounting suit settlements were observed only twice. Interestingly, accounting cases settled in 2023 at more advanced stages than non-accounting cases. 54% of non-accounting cases were settled before the motion for class certification was filed, compared to only 37% of accounting cases.

The total value of accounting-related settlements increased to $1.6 billion in 2023, compared to $1.4 billion in 2022, representing an increase of about 11.4%. But while the total settlement amount increased in 2023 compared to 2022, the 2023 total settlement amount remained below the 2014-2022 accounting case annual average total settlement amount of $2.8 billion.

The average accounting case securities suit settlement amount also increased, from $33.3 million in 2022 to $45.7 million in 2023. The average accounting-related securities suit settlement amount in 2023 was driven by four settlements of over $100 million; the four large settlements along represented about 65% of the 2023 total value of all accounting-related securities suit settlements. While the average settlement amount increased in 2023, the median settlement amount declined, from $16.1 million in 2022 to $15.0 million in 2023, representing a decrease of about 7.1%,