According to the PricewaterhouseCoopers 2000 Securities Litigation Study, more than half of the 201 shareholder class action lawsuits filed in federal courts last year contained allegations of financial fraud. Fifty-three percent of all cases filed in 2000 contained financial fraud allegations, and PricewaterhouseCoopers expects the number of cases containing this type of allegation to continue at this pace in 2001.
Among the factors driving the surge in financial fraud cases include increased SEC scrutiny of accounting and financial disclosure issues, and greater attention on revenue recognition policies of the software and technology sectors, according to a PwC release.
The SEC’s heightened efforts to reduce financial fraud are expected to continue. Last year, the SEC issued more new litigation releases than in any year since 1996. Future SEC activities may include actions relating to Regulation FD and to the new and heightened audit committee guidelines.
In 2000, the computer services and the telecommunications sectors accounted for over 40 percent of all companies sued. Software companies have been subject to significant scrutiny from the plaintiff’s bar, with 26 software companies sued in 2000 alone.
PwC’s research indicates that approximately 35 percent of all financial fraud cases are filed after a company announces it has, or will, restate its financial statements. Nearly half of all companies named in these cases eventually restate earnings. To date, fifty of the 107 companies sued in accounting allegation cases last year have already restated their financial filings.