Investor Suits Challenging Corporate Accounting Continue to Rise

A global pandemic and economic slowdown didn’t deter investors from holding corporations responsible for their financial reporting, as class action filings concerning accounting issues rose for the third year in a row and defendants shelled out billions to settle previous cases.

Shareholders filed 70 accounting-related securities class actions in 2020, three more than the previous year, driven in part by a surge in revenue recognition cases, even as other types of securities class actions dropped, according to a Cornerstone Research Inc. review of class action litigation released Wednesday. More than a third of the new cases filed involved revenue recognition, nearly double the case count in 2019, the report said.

• It was also a good year to be a plaintiff. Settlements of accounting suits resulted in $3.5 billion in combined payouts, triple the cost of settlements reached in 2019, which were worth $932 million. The payouts represented 84% of all securities class action settlements combined for the year.
• “Accounting issues remain at the forefront of the largest securities class action settlements, and recent trends in case filings suggest that is unlikely to change in the near future,” Laura Simmons, a senior adviser at Cornerstone, said in a statement.
• Six mega-settlements drove the price tag, including Valeant Pharmaceuticals, now known as Bausch Health Companies Inc., which agreed to pay $1.2 billion to resolve a shareholder’s suit, and Signet Jewelers Ltd., which agreed to pay $240 million to end a separate court fight.