Cornerstone Research Reports on Accounting Class Action Filings

Financial fraud cases have been a staple in the securities area for years. The SEC, for example, has long focused on these cases. There is no doubt that over the years the agency has brought a number of very significant cases based on financial fraud issues. Equally clear, however, is the fact that in recent years the Commission has struggled to identify and file significant numbers of financial fraud cases, although there have been exceptions.

Cornerstone Research recently published a report focused on accounting cases in the class action area which often link to SEC enforcement actions, titled Accounting Class Action Filings & Settlements 2022, Review and Analysis. (here). The Report is one of a series published by Cornerstone Research presenting data and research in the securities area.

The Report on accounting cases in the class action area makes findings that in some ways are similar to the results reflected in the cases initiated by the Securities and Exchange Commission. For example, the Report concludes that in 2022 the number of accounting class actions filed increased to 51 compared to 46 filed in the prior year. As the same time, the number of non-accounting class actions decreased last year.

While the increase in accounting class actions is interesting, it should be viewed in context. Cornerstone goes on to note that the the 51 cases initiated is significant there were more in 2013. This finding in many ways mirrors the experience of the SEC which has at times filed significant numbers of financial fraud actions but has never reached the level in terms of numbers of cases initiated in a number of past years.

The Report also notes that while the number of cases filed last year increased, 24% of those actions were tied to SPACS. That finding at least supports to some extent the significant criticisms of that vehicle.

Cornerstone also found that about 35% of the cases filed in 2022 were tied to GAAP revenue issues. Similarly, the Report also concluded that 33% of the cases filed last year were based on restatements. That is the largest percentage since 2014. As the same time the number is below the average filed between 2013 and 2021.

Cornerstone’s findings throughout the Report are measured. Stated differently, while the number of cases filed last year in some areas reflects and increase, the new results tend to be below the numbers filed in past peak years.

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