Accounting class actions up, but settlement sizes plummet
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Accounting class action suits filed in 2017 reached record highs, driven by a record number of merger & acquisition-related cases, said Cornerstone Research Inc., in a report issued Wednesday.
However, the pace of these filings declined in the second half. And although the number of accounting case settlements remain relatively high, the size of the settlements declined dramatically, reflecting fewer moderate to large settlements, according to the report.
Cases are considered accounting cases if they involve allegations related to violations of Generally Accepted Accounting Principles, auditing violations or weaknesses in internal control over financial reporting, according to San Francisco-based Cornerstone.
There were 165 accounting class action filings during 2017, compared to 88 in 2016, said Cornerstone. The increase was driven by 107 “nontraditional” fillings that related to mergers and acquisitions.
Traditional accounting cases, which reflect issues including financial statement restatement and allegations of internal control weaknesses, decreased to 58 in 2017 from 64 in 2016.
Total accounting case filings, however, decreased by 28% in 2017’s second half compared to the first half, according to the report. This was the first time in five years there were significantly fewer accounting cases filed in the second half, the report said.
The total value of accounting case settlements declined from $4.9 billion in 2016 to $861.6 million in 2017, which was the lowest value since 1999, with only two accounting-related settlements reaching $100 million or more, according to the report.
Cornerstone reported in March that a large percentage of settlements under $5 million, combined with the absence of any settlement more than $250 million, led to a dramatic drop in the value of class action settlements in 2017 to $1.5 billion from $6.1 billion in 2016.
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