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Accounting Stayed Real Classy In 2020

Not even a global pandemic, the likes of which we’ve never seen, could slow down the amount of accounting-related securities class actions filed in 2020.

A new report from Cornerstone Research revealed that 70 federal securities class actions involving accounting allegations—all were “core” filings containing Securities Exchange Act Rule 10b-5, Section 11, and Section 12(a) claims—were filed by plaintiffs last year, which is three more than in 2019 and the most since 2011. And accounting allegations were present in more than 30% of all federal securities class-action filings.

Of those 70 accounting case filings, improper revenue recognition was alleged in 26 of them, nearly double the amount from 2019, according to Cornerstone Research.

And 40 of those 70 accounting case filings happened during the first half of 2020, the second highest in any semiannual period in the past nine years.

The report states:

Despite the onset of the worldwide pandemic, the number of accounting case filings in the second half of 2020 was in line with the second half of 2019. For the fourth consecutive year, the pace of accounting case filings was lower in the second half of the year.

Now, if you add accounting case filings related to mergers and acquisitions to the mix, the total amount of M&A and core filings totaled 141, which is substantially lower than the 169 in 2019 and even less than the 143 in 2018.

The report also revealed that accounting cases made up 84% of total settlement dollars in 2020 ($3.5 billion of the $4.2 billion in settlements). The $3.5 billion in total accounting case settlement dollars is more than triple the total of $932 million in 2019, Cornerstone Research noted:

This increase was driven by a small number of mega settlements (those valued at $100 million or higher). The median accounting case settlement value was $10.8 million, comparable to the median settlement value of $10.6 million in 2019.

All told there were 38 accounting case settlements in 2020, more than the 34 settlements the previous year but still lower than in the peak years of 2015 to 2017. The number of accounting case settlements represented almost 50% of all securities class action settlements in 2020, according to Cornerstone Research.

Of the accounting cases settled in 2020, 29% involved Section 11 claims, either in combination with Rule 10b-5 allegations or as standalone claims. And auditors were named defendants in only three of the accounting cases that were settled, while underwriters were named in nine cases, according to the report.

There’s a ton of other information Cornerstone Research provided, so feel free to scroll through the full report below at your leisure:

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