حل و فصل پرونده های حقوقی ناشی از ارائه مجدد پس از قانون اصلاحات شکایت های قانونی اوراق بهادار خصوصی

Using a sample of 185 restating firms that were sued between 1997 and 2005, we examine the role of accounting irregularity, other restatement characteristics and the Sarbanes Oxley Act in the resolution of litigation after the Private Securities Litigation Reform Act (PSLRA). The empirical results indicate that restatement due to an accounting irregularity and investigation of accounting misstatement by the Securities and Exchange Commission (SEC) are associated with a higher probability of settlement. Furthermore, the more negative the investor reaction to a restatement, the higher the probability that a lawsuit will be settled. Finally, we do not find any evidence that the Sarbanes Oxley Act is associated with the probability of a settled lawsuit. Our findings suggest that restatement-induced lawsuits with strong inference of fraud are settled in the period after the PSLRA. The results also highlight the importance of making a distinction between dismissed and settled restatement-induced lawsuits.

On November 28, 2011, the rejection of the proposed $285 million settlement of the Securities and Exchange Commission (SEC) lawsuit against Citigroup by U.S. District Judge Jed Rakoff triggered intense scrutiny and criticism of the policy of not requiring defendants in lawsuit settlements to admit or deny wrongdoing.1 Following Judge Rakoff’s rebuff of the Citigroup settlement on the premise that determination of its fairness was not possible under the policy of no admission of fraud, criticism of the policy has been widespread in the press, courts and Congress (Rieder, Huey-Burns, & Ott, 2012). Many are of the view that the litigation process is widely abused and settlements do not necessarily reflect wrongdoing as there is no clear evidence of a link between the settled lawsuit and fraud. Further, it is argued that when a restatement centered on an unintentional misstatement results in a significant decline in the restating firm’s market value, the restating firm may face a lawsuit and be coerced to settle and pay penalties. According to Buell (2011), SEC and securities class action settlements are largely similar and do not sufficiently deter fraud as they are both characterized by a large monetary penalty and a policy of neither admission nor denial of wrongdoing. Van Rogers and Buskirk (2009) also note that there is no consensus on whether securities litigation is an effective governance mechanism. We use a sample of 185 firms that experienced securities class actions over restatements between 1997 and 2005 to examine whether accounting irregularity and other variables are associated with the probability of settled restatement-induced lawsuit. We focus on restatement-induced litigation similar to prior studies such as Palmrose and Scholz (2004), Lev, Ryan, and Wu (2008) and Amoah and Tang (2010). We restrict our study to the period after the Private Securities Litigation Reform Act (PSLRA) as the PSLRA tightened the pleading standards for securities litigation (Grundfest and Perino, 1997, Johnson et al., 2007, Perino, 2002 and Pritchard and Sale, 2003).2 Moreover, in the post-PSLRA period, more accounting-related lawsuits are centered on restatements and inferences of fraud are expected to have a greater role in litigation resolution (Johnson et al., 2007). We find that a restatement-induced lawsuit is more likely to be settled when the restatement is due to an accounting irregularity and there is an SEC investigation. Another result from this study is that the more negative the investor reaction around a restatement, the greater the probability of a settled lawsuit. Our study also investigates the role of the Sarbanes Oxley Act (SOX) in lawsuit settlement but we do not find any evidence of a relation between SOX and the probability of settled lawsuit. The results of this study imply that restatement-induced lawsuits with a strong inference of fraud are more likely to be settled. Our findings highlight the importance of making a distinction between dismissed and settled restatement-induced lawsuits and it contributes to the debate on whether settled lawsuits are associated with fraud. The rest of the paper proceeds as follows. In Section 2 we discuss the securities litigation process, related research and the hypothesis. Section 3 documents the sample selection and methodology. Section 4 describes the descriptive statistics. In Section 5 we provide the results of the analysis of settled lawsuit. Section 6 presents the summary and concluding remarks.

Using a sample of 185 restatement-induced lawsuits, we examine the association between settled lawsuit and accounting irregularity, SEC investigation, SOX and other independent variables. Our results show that the probability of a settled restatement-induced lawsuit is higher when the restatement is centered on an accounting irregularity. We also find that SEC investigation is positively associated with the probability of settled lawsuit but we do not find any evidence of a significant relation for the SOX variable. The insignificant result for SOX may suggest that the SOX certifications are not being used to establish scienter. Another possible reason for the insignificant result is that the SOX certifications alone do not influence “motion to dismiss” decisions by the courts. Taken together, our findings imply that the stronger the inference of fraud, the greater the likelihood of a settled restatement-induced lawsuit. The results also show the significance of distinguishing between dismissed and settled restatement-induced lawsuits. It is suggested that future research examines whether the settlement of a lawsuit increases the reputational penalty on firms, executive officers and directors of the sued firm.