After an increase in new filings of accounting class actions in 2011, according to a new report by Cornerstone Research, “Accounting Class Action Filings and Settlements—2012 Review and Analysis,” filings fell sharply in 2012. However, accounting case settlements continued to represent a high percentage of total settlement dollars for all cases settled in 2012. The report said that “new accounting case filings decreased from 78 in 2011 to 45 in 2012, the lowest number in recent years.”
A reduction of filings against Chinese issuers listed on U.S. exchanges through reverse mergers (Chinese reverse mergers) and a considerable slowdown in filing activity in the second half of the year contributed to the sharp decline in class action filing activity overall. This also affected the share of filings that include accounting allegations. It was reported that the decrease in Chinese reverse merger cases alone accounted for approximately two-thirds of the drop in new accounting cases from 2011 to 2012. For the third consecutive year, the majority of new accounting cases that were filed included allegations of internal control weaknesses. Approximately one in three new cases involved the restatement of a financial statement.
Despite the decline in new case filings, accounting case settlement dollars represented more than 90 percent of all settlement dollars for securities class actions in 2012. The average and median settlements for accounting cases were higher than for non-accounting cases. For cases with General Accepted Accounting Practices (GAAP) allegations, settlements in relation to shareholder losses were highest for those that involved a financial statement restatement and/or accounting irregularity. Cases involving company announcements of internal control weaknesses increased to almost 45 percent of all settled cases in 2012 from 34 percent in 2011, and were associated with higher settlements. The report named a number of factors as “watch areas” for future accounting-related litigation. One area that definitely should be watched involves the Dodd-Frank whistleblower program.
Source: Claims Journal
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