New York (Aug. 9, 2004) -- The number of securities litigation cases with accounting allegations so far this year is well above historical averages, and mega-settlements are driving average settlement values higher than ever, according to a study by PricewaterhouseCoopers.
Accounting-related cases comprised more than 60 percent of the 175 cases filed in 2003 and 57 percent of the 111 cases filed during the first seven months of 2004, according to PricewaterhouseCoopers' 2003 Securities Litigation Study and a preliminary analysis of 2004.
The No. 1 allegation made in accounting-related cases continues to be revenue recognition, alleged in over 50 percent of these cases in 2003, followed by allegations related to accounting estimates and internal controls, each of which appeared in over 40 percent of the accounting cases in 2003, PwC reported.
In 2003, average settlement values rose 20 percent to $23.2 million, fueled in large part by six settlements that topped $100 million each, PwC said. Excluding several partial settlements, including the recent $2.65 billion partial Worldcom settlement, the average settlement in the first six months of 2004 surged to over $32 million.
So far in 2004, PwC said, 14 settlements have been announced for $30 million or greater, five of which settled for $100 million or more. The average accounting case, led by five case settlements of over $100 million each, settled for over $38 million. In addition, the median 2004 settlement is approximately $6.3 million and the median accounting settlement is greater than $7 million, both up from the 2003 numbers.
PwC noted that the dynamic of securities litigation has changed dramatically in cases of what it calls "triple jeopardy" -- where companies are subject to securities class actions along with Securities and Exchange Commission and Department of Justice investigations. PwC reported an all-time high of 40 such cases in 2002, with 2003 levels dropping to only eight instances, marking a return closer to historic norms. However, preliminary 2004 research indicates that at least 13 companies are facing “triple jeopardy” this year.
-- WebCPA staff
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