NCPA - National Center for Policy Analysis

Shareholder Suits Alleging Fraud Are Down

May 29, 2001

The number of shareholder lawsuits filed in federal and state courts alleging securities fraud peaked in 1998, and has fallen in each of the past two years, according to a PricewaterhouseCoopers survey.

  • Suits were filed against 201 companies in 2000 -- down from 209 in 1999.
  • But since 1995, when Congress passed the Private Securities Litigation Reform Act, the percentage of shareholder suits alleging accounting violations has risen significantly.
  • Last year, 53 percent of all newly-filed shareholder suits contained allegations of accounting fraud -- about the same percentage as in 1999, but up from about 40 percent in 1995.
  • Experts say that settlement amounts have also been on the rise.

To avoid having their cases dismissed during preliminary stages, plaintiffs' attorneys filing complaints under the 1995 act must plead their fraud allegations with far greater specificity than previously required.

"In the plaintiffs' attorneys' minds, it makes a stronger case if they can allege that management cooked the books," observes Kerry Francis, a PricwaterhouseCoopers partner who specializes in corporate investigations.

Since 1998, 35 percent of all shareholder complaints alleging accounting violations are filed after a company announces a restatement in its financial statements. Nearly half of all companies sued for accounting violations eventually restated their earnings.

Source: Jonathan Weil, "Number of Suits Charging Fraud Fell Last Year," Wall Street Journal, May 29, 2001.

For text (for WSJ subscribers)


Browse more articles on Government Issues