Accounting-related class-action lawsuit filings and settlements both increased in 2023, according to a new report, even though the cases took longer to be filed.
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The filing lag for cases increased substantially for the second year in a row, and at 43 days, was the longest in the past decade.
Revenue recognition continued to be the most common GAAP violation alleged last year. The first-year dismissal rate of 2023 accounting case filings was 36% lower than the average first-year dismissal rate over the last 10 years. Accounting case filings in the financial sector doubled in 2023 and returned to historical levels. Accounting case filings involving financial statement restatements continued to rebound after a 10-year low in 2021 and were the second highest in the past 10 years.
Almost 90% of the total value of all accounting cases settled was attributable to settlements involving institutional lead plaintiffs.
Despite the uptick in value, there were only 35 accounting case settlements in 2023, nearly a 19% decrease from 2022 and the third fewest seen over the past 20 years.
Securities class-actions have recently settled at more advanced stages of litigation and that has led to the drop in the number of settlements, according to Laura Simmons, a Cornerstone Research senior advisor who co-authored the report. "This is especially true for accounting class actions, which have progressed even further before settling than non-accounting cases," she said in a statement. "In particular, only 37% of accounting cases were settled before the motion for class certification was filed, compared to 54% of non-accounting cases."
The total value of accounting-related securities class action settlements increased slightly from $1.4 billion in 2022 to $1.6 billion in 2023. That growth was led, in part, by the presence of four mega settlements that equaled or exceeded $100 million. They made up 65% of the total value of all accounting case settlements and resulted in the average settlement amount zooming from $33.3 million in 2022 to $45.7 million in 2023. In contrast, the median settlement amount fell from $16.1 million in 2022 to $15.0 million in 2023.
In 2023, accounting case settlements with alleged GAAP violations but no internal control weaknesses hit a five-year peak. The size of issuer defendants in accounting cases settled in 2023, as measured by total median assets, declined 70%. Last year, the number of settled accounting cases involving restatements fell to the lowest level since 1998, while the number of accounting case settlements alleging internal control weaknesses declined to the lowest level in 10 years. Median "simplified tiered damages" last year were lower for settlements involving accounting allegations than for non-accounting cases.
