Small companies, big targets: 2015 Securities litigation study

Overview

• With 195 new filings in 2015, the number of federal securities class action lawsuits increased for the third year in a row.
• Two-thirds of cases filed in 2015 were against micro-cap and small-cap companies. These suits are likely to increase as the new US. Generally Accepted Accounting Principles (GAAP) revenue recognition rules come into effect next year, and as many of the companies who took early advantage of the JOBS Act reach the EGC status expiration date.
• Improper revenue recognition is still the most commonly alleged primary accounting issue. The SEC has agency-wide emphasis on internal controls and a smooth transition to new revenue-recognition standards.
• Public companies and their legal counsel need to keep a watchful eye on marketplace trends, accounting controls and financial reporting and disclosure requirements.