Sarbanes-Oxley reaps larger securities fraud payouts

By Scott Files

Published on May 03, 2006

According to PricewaterhouseCoopers, the average value of settlements rose 156 per cent to $71.1 million (U.S.) in 2005, up from $27.8 million in 2004 -- excluding settlements related to Enron Corp. and WorldCom Inc.

"The jump in settlements values is partly due to persistence of institutional investors and higher market capitalizations for many companies," said Daniel Dooley, senior partner in PricewaterhouseCoopers' forensic accounting department.

The firm also reported that in 2005, 29 cases settled for more than $20 million, and of those 20 involved payouts of more than $60 million Of that 20, 11 involved settlements of more than $100 million.

"Institutional investors don't settle for a couple of cents on the buck. And when you have a $9-billion stock price drop, the damages are so huge that that they drive larger settlements."

The aggressive actions of Sarbanes-Oxley Reform are also helping to bolster these settlements as more stringent financial guidelines for company reporting have been enacted. Many in the industry feel that these types of lawsuits are unlikely to slow down any time soon.

"The level of fraud seen in the past 10 years in Corporate America goes so far beyond what any plaintiff's lawyer ever imagined," said Richard Schiffrin of Pennsylvania law firm Schiffrin & Barroway.

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