What Triggers a Shareholder Investigation: Restatements, Auditor Resignations, and Material Weakness Disclosures
When you are buying and selling shares in a company, you are relying on that company to make accurate financial reports and to comply with securities laws. If they have violated the law, the securities litigation lawyers at Federman & Sherwood can hold them accountable through a lawsuit.
Sudden or sustained drops in a company’s share price that are the result of potential misconduct can spark a shareholder investigation that is performed by a securities litigation attorney. Specifically, when a company is forced to restate earnings, or its auditor either resigns or discloses material weaknesses, attorneys will act on behalf of shareholders who have lost money. Then, they could file a lawsuit on behalf of the shareholders who are seeking to recover their losses.
You can take the first step towards potentially recovering what you have lost by speaking with a securities litigation lawyer at Federman & Sherwood by calling us at (800) 237-1277. We can initiate an investigation that could potentially yield evidence that you can use in your case.
Shareholders have the right to sue a company when they have suffered losses from illegal actions involving securities. These actions can include material misstatements, omissions from financial statements, or other manipulative acts by these companies that can cause investor losses. Securities litigation attorneys will often perform investigations of these companies to make a preliminary determination about whether wrongdoing has occurred that can support the filing of a lawsuit.
When Securities Litigation Attorneys Will Investigate
Securities litigation investigations are usually triggered by some type of event that is either announced by the company or discovered through other types of public disclosure. Many of these investigations result after the company has made some type of announcement that typically results in their stock price falling.
One common prompt for a securities investigation is when a company restates its previous financial statements. The company may have previously announced earnings in a certain amount, only to reduce them later on in time when more information is known. The problem is that shareholders have made purchase and sale decisions about the stock based on what has already been disclosed by the company. Regardless of the reason given for the restatement, shareholders are the ones who pay the price because their investment has been affected.
Securities litigation lawyers will also perform an investigation when a company’s auditor has resigned from their role. Federal securities law requires that auditors sign off on financial statements. However, auditors may be facing circumstances in which they are either not comfortable giving their signature, or they cannot do their job. If the auditor believes that the role is being compromised, or they have detected fraud, they are required to resign. Since this is indicia of securities fraud, a securities lawyer will perform a further investigation with an eye towards potentially filing a lawsuit on behalf of shareholders.
The Sarbanes Oxley act mandates that public companies disclose when they have a significant material weakness in their financial controls. A significant material weakness means that the financial results that are presented to shareholders could include a material misstatement. Not only are these disclosures highly negative events for shareholders, but they also undermine corporate credibility going forward. The stock may become extremely volatile, and the company may need to spend heavily on remediation measures to correct the significant material weakness.
The Securities Litigation Lawsuit Process
When a company has engaged in securities fraud or other illegal behavior under federal or state securities laws, shareholders may file a lawsuit. These cases can take a considerable amount of time, but they could result in compensation that helps shareholders recover some or all of what they have lost. Here are the steps in a shareholder lawsuit:
- Once there has been a triggering event, a securities litigation attorney will conduct an investigation to determine whether there has been potential illegal conduct.
- A securities litigation lawyer will file a complaint in court on behalf of shareholders
- The company will have a chance to respond to the complaint with its own answer
- The company may seek to have the case dismissed
- If the lawsuit survives a motion to dismiss, it will proceed to the discovery phase
- In many cases, the lawsuit will reach a settlement agreement before it goes to trial
Securities litigation attorneys may rely on the filing evidence to prove your case:
- The public disclosures that contained misstatements
- Evidence of the stock price to show investor losses
- Corrective action taken by the company
- Internal communications obtained through the discovery process
Contact a Securities Litigation Law Firm
If you are an investor who has lost money through securities fraud, the experienced securities litigation attorneys at Federman & Sherwood can fight for you. Schedule a free initial consultation with one of our lawyers by filling out an online contact form or by calling us today at (800) 237-1277.