Fewer class-action lawsuits alleging accounting improprieties were filed last year in the United States, but those that were settled in 2012 carried a higher price tag, according to a study from Cornerstone Research.
As two major trends driving accounting class actions faded – the credit crisis and Chinese issuers listing on U.S. exchanges – new filings dropped to 45 in 2012 from 78 in 2011, said Cornerstone, which provides economic and financial consulting and expert testimony to attorneys.
The decline came in spite of an increase in financial restatements by large companies, up to 262 in 2012 from 230 in 2011, said accounting research group Audit Analytics, whose research was cited in the Cornerstone report.
The report’s authors identified a number of recent changes that could spark more lawsuits in the future. One was 2012 legislation exempting auditors of small companies from a requirement that audits review and opine on internal controls.
Another possible driver, the authors said, is the large number of whistleblower tips submitted in the past year to a new U.S. Securities and Exchange Commissions whistleblower program.
Under the program, informants can get financial rewards for providing information on problems with companies’ disclosures and financial statements, among other things.
Securities class-action lawsuits involving accounting claims tend to take longer to resolve and settle for higher amounts than cases not involving accounting claims, the report found.
The average 2012 case claiming some accounting problem settled for $73 million, compared to an average of $16 million for settled non-accounting related cases.
Cases that named an audit firm as a defendant were especially costly, settling for more than three times as much as those that did not, Cornerstone said.
Joseph Grundfest, a former SEC commissioner who now directs the Stanford Law School Securities Class Action Clearinghouse, which Cornerstone works with, said the lesson from the findings is corporate leaders should pay close attention to the numbers.
“Courts care about accounting fraud,” he said.
(Reporting by Nanette Byrnes; Editing by Kevin Drawbaugh and Leslie Gevirtz)
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