Accounting Class Action Count Didn’t Change Much in 2024, But Smaller Companies Were More at Risk

In its annual report on accounting-related class actions, Accounting Class Action Filings and Settlements—2024 Review and Analysis, Cornerstone Research finds that in 2024 the number of class action filings against public companies for alleged accounting violations increased – but only slightly – for the third consecutive year.  However, the size of the companies targeted in accounting class actions fell sharply.  The number of accounting case settlements was the same as in 2023, although the value of settlements declined by 36 percent.  (For a summary of the prior Cornerstone report on accounting class actions, see Cornerstone: Accounting Class Actions and Enforcement Cases Continue Their Upward Trend, April 2024 Update.)

According to Cornerstone’s press release announcing the new report, plaintiffs filed 57 accounting-related securities class action suits in 2024, up by just one from 56 filings in 2023, but below the 2015–2023 average of 61 new cases per year. New accounting cases were 26 percent of all securities class action filings, the second-lowest share in 10 years.  There were 35 accounting-related securities class action settlements in 2024, the same number as in 2023, although the value of these settlements fell from $1.6 billion in 2023 to $1.1 billion in 2024. Cornerstone explains that the decline in aggregate settlement value “was due, in part, to the fact that there was only a single mega settlement (i.e., greater than $100 million) in 2024 as compared to the historical average of four mega settlements per year.” The press release also flags a change in the most frequent basis for accounting class actions: “For many years, revenue recognition had been the most common GAAP violation alleged in accounting-related securities class action filings * * *.  That changed in 2024 when, for the first time since tracking began, allegations related to asset valuations and/or impairments were the most common.”

Other key takeaways from the Cornerstone accounting class action report include:

• Most accounting class action cases are eventually dismissed or settled. From 2015 through 2023, 39 percent of accounting cases were settled, 44 percent were dismissed, one percent were remanded, and 16 percent were continuing. In 2024, the average time from filing to settlement was 3.5 years.  Cornerstone observes, “The length of time between filing and settlement for accounting cases continues to correlate with settlement size. Small (<$10 million) and mid-range ($10 million-$50 million) cases settled in 2.9 to 3.4 years, on average, while the three settlements greater than $50 million took an average of 6.2 years to settle.”

• The size of the companies targeted in accounting class actions continues to fall. The median pre-disclosure market capitalization of defendants in 2024 accounting class action case filings was $445.6 million, just 62 percent of the $719.3 million median market capitalization in 2023.  This is the fourth consecutive year in which defendant market capitalization has declined and a ten-year low.  The size of companies that settled accounting cases also continued to drop.  As measured by median total assets and by pre-disclosure market capitalization, the size of settling issuer defendants decreased by 28 percent and 39 percent, respectively.  In 2024, settling defendants in accounting cases had a median pre-disclosure market capitalization of $745.5 million, down sharply from $1.34 billion in 2023 and $2.48 billion in 2022, but only slightly below the ten-year average of $774 million.  (Cornerstone adjusts dollar amounts in its reports for inflation.)

• The industry sector that attracted the most 2024 filings was Consumer Non-Cyclicals.  Twenty-three percent of new cases were filed against companies in the Consumer-Non-Cyclical industry sector, followed by Technology (18 percent), Financials (16 percent), and Energy (16 percent).  Last year, Financials, Consumer Non-Cyclicals, and Consumer Cyclicals each had 18 percent of case filings.  New accounting cases against companies in the Energy sector quadrupled from four percent in 2023 to 16 percent in 2024.  In contrast, only four percent of accounting case filings involved companies in the Industrial sector, a ten-year low and a 71 percent decrease from 2023.

• Class actions involving restatements reversed trend and decreased in 2024. Fourteen cases (25 percent of new filings) involved restatements. This compares to 21 restatement cases (38 percent) in 2023 and 17 cases (33 percent) in 2022.  The average during between 2015 and 2023 was 15 restatement cases filings per year.  Restatement cases hit a low of 5 (11 percent of filings) in 2021.

• Internal control weaknesses declined in popularity as a basis for litigation. The number of accounting case filings alleging internal control weaknesses decreased from 62 percent of all cases filed in 2023 to 46 percent of filings in 2024.  Only nine percent of new cases alleged only internal control weaknesses, the lowest percentage in the past five years. Fifty-four percent of new cases alleged only GAAP violations (the highest level since 2021), and 37 percent alleged both GAAP violations and internal control weaknesses.

• Inaccurate asset valuation was the most common GAAP violation alleged in 2024 cases.  Thirty-three percent of 2024 accounting case filings alleged GAAP violations related to asset valuation or impairment.  Improper revenue recognition, historically the most common GAAP violation, was involved in 23 percent of 2024 accounting case filings.

Audit Committee Takeaways

While the frequency of accounting class action filings is not at record levels, this type of litigation remains a risk for public companies and their senior management and directors.  In addition, this risk is increasing for smaller public companies that may not previously have attracted as much attention from the class action bar.  While most cases settle, the cost of settlement and the time required to reach an agreement can be a substantial burden, especially for a smaller company.  As stated in prior Updates, accounting issues are a significant line of attack for the plaintiff’s bar, and restatements and disclosure of internal control weaknesses are likely to attract litigation if they coincide with a significant drop in stock price. Investing in strong internal controls, along with audit committee care and diligence in overseeing the company’s financial reporting, reduces the risk that the company will be exposed to the cost and distraction of litigation over accounting matters.

For a discussion of the related issue of the risk of an SEC accounting investigation, see SEC Accounting and Auditing Enforcement Slumped in 2024, While PCAOB Enforcement Hit a New High, March-April 2025 Update.