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Surge in Accounting Securities Class Actions Despite Growing Filing Delay

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Key Elements of Number of Accounting-Related Securities Class Action Filings Rose in 2023

TLDR:

– Number of securities class action filings involving accounting allegations increased by nearly 10% in 2023
– Total value of settlements increased by 11% despite a decrease in the number of settlements

A new report by Cornerstone Research revealed that the number of accounting-related securities class action filings rose to 56 in 2023, marking a nearly 10% increase from the previous year. Despite cases taking longer to be filed, with a median filing lag of 43 days, the highest in a decade, the total value of settlements also increased by 11%.

One significant finding was the significant increase in the DDL Index, the dollar-value change in defendant companies’ market capitalization, reaching $76.9 billion in 2023. This was the second largest for accounting cases in the last 10 years and was largely driven by cases with a DDL of at least $5 billion.

Revenue recognition continued to be the most common GAAP violation alleged in 2023, with accounting cases in the Financial sector doubling. Additionally, financial statement restatements rebounded after a 10-year low in 2021.

Despite the increase in settlements’ total value to $1.6 billion in 2023, there were only 35 accounting case settlements, a nearly 19% decrease from the previous year. The presence of four mega settlements, representing 65% of the total value, led to an increase in average settlement amounts.

Settlement trends also showed that accounting case settlements with alleged GAAP violations but no internal control weaknesses hit a five-year peak, while the number of settled cases involving restatements fell to the lowest level since 1998.

Overall, accounting class actions have been settling at more advanced stages of litigation, with only 37% of cases settling before the motion for class certification was filed, compared to 54% of non-accounting cases. This trend has contributed to a drop in the number of settlements.


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