|  | | 2011 News and Press Releases | | |
HEADLINE NEWS:
Frequently Maligned Class Action Lawsuits Actually Deter Financial Wrongdoing
Staff Writer
PR Newswire. September 29, 2011
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EXCERPT: Though often criticized as frivolous and lacking economic benefit, new research by finance and accounting professors at Rutgers and Emory universities' business schools finds that class action lawsuits are a strong deterrent to misrepresenting corporate financial results and other wrongdoing. And, in many instances class actions are a stronger deterrent that SEC enforcement actions.
"Our research found statistically and economically significant deterrence associated with both SEC enforcement and class action lawsuits," said Simi Kedia, Ph.D., MBA, associate professor of finance at Rutgers University School of Business in an interview with The Investor Advocate. "We looked at firms in the same industry as the enforcement target and found that the average peer firm subject to SEC action and/or litigation reduces discretionary accruals (i.e., reporting as sales transactions for which payment has not been received) equivalent to 14 percent to 22 percent of the media return on assets in the aftermath of such enforcement." The study, a working paper presented at conferences and now being circulated for comment before publication, measured the effectiveness of the two primary methods of federal securities regulatory and law enforcement: "public" enforcement by the Securities and Exchange Commission; and, "private" enforcement through securities class action lawsuits. […] "When federal authorities don't fulfill their obligation to enforce the law, they essentially give an imprimatur to the financial entities to do whatever they want and disregard the law," said Kathleen C. Engel, a professor at Suffolk University Law School in Boston. "To the extent there are places where shareholders and borrowers can pursue claims, they are really serving the function of the government. They are our private attorneys general." "Lawsuits have long been a crucial method for shareholders to recover losses. A February letter to the Securities and Exchange Commission from the general counsel of the California Public Employees' Retirement System noted that private litigants in the 100 largest securities class action settlements had recovered $46.7 billion for defrauded shareholders." |
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