A class action lawsuit has the potential to devastate a business. While some companies have survived a crushing blow from a lawsuit, some companies have completely fallen apart from being sued. Let’s discuss some of the top examples of lawsuits that have happened in the past ten years and their impact to the business.

legal (11)

5. Nortel Networks

Nortel Networks was a fiber optics supply company that offered equipment to internet companies between the years of 2000 and 2004. Following the internet bust, the company began to suffer losses due to a heavy decrease in sales. To prevent loss of faith in the company from investors, they began to create false accounting entries showing steady equipment sales. This allowed investors to maintain faith in the company and their investments when the company was really hurting for business. When the fraud was discovered, Nortel stock dropped from a high of $124 to $0.47 a share.

Two separate class action lawsuits were filed against Nortel by investors who were defrauded by the company. The lawsuits were filed under federal securities laws for fraud and the settlement in 2006 totaled $2.4 billion.

4. AOL Time Warner

AOL Time Warner also was sued for accounting fraud. Between 1998 and 2002, dozens of advertising transactions were incorrectly documented in order to inflate the company’s value through earning statements by $1.7 billion. The earning statements created the appearance of revenue when in actuality the company was simply shifting money back and forth.

The company was sued under federal securities law by investors in AOL Time Warner stock. The settlement was reached in 2005 for $2.5 billion.

3. Tyco International

Tyco International Ltd., former officers and directors of Tyco, and PricewaterhouseCoopers received a series of class action lawsuits due to alleged false and misleading public statements. They were also accused of omitting material information about Tyco’s finances. All this was done in order to keep up appearances of being a financially successful company on the up and up in order to continually receive support from investors.

Tyco was found in violation of several sections of the Securities Exchange Act of 1934 and settled for $3.2 billion in 2007.

2. World Com

World Com was another perpetrator of falsifying earnings statements to earn and maintain support from investors who held stock in the years between 1999 and 2002. Class action lawsuits were initiated against World Com itself as well as several individuals for their part in defrauding investors based on inflated earnings claims.

The main charges came from classifying expenses as capital costs and inflating revenue statements with incorrect entries. The Securities and Exchange Commission (SEC) came to the conclusion that the earnings and assets were inflated by over $11 billion.

In the end, World Com settled in 2005 for $6.2 billion.

1. Enron

One of the biggest companies to receive a class action lawsuit was also one of the highest reported class action lawsuits of all time. Enron received a great amount of media attention for the class action lawsuit that is still today the largest payout in a shareholder securities class action lawsuit.

The primary accusation of the lawsuit was that Enron had committed fraud by concealing losses from investors through Enron controlled special purpose entities, known as the Raptors. As Enron’s primary losses were attributed to these entities, related losses were not reported in annual reports or SEC filings.

In 2006, the result was a $7.2 billion settlement to compensate shareholders who were deceived by the company when their stock became worthless during the company’s collapse. Lawsuits had been filed against Enron Corporation as well as individual officers, directors, accountants, partners, and employees.

Avoiding Class Action Lawsuits

The truth about avoiding class action lawsuits in your business is that a good majority of it is simply common sense. As you can see, all of the class action lawsuits listed here involved attempts by the company to defraud its investors. However, it is still important to note that many times fraud occurs in a business without the knowledge of the head of the company. This does not leave them free and clear of blame and damages when a lawsuit is filed due to the company defrauding investors, partners, or its own employees.

It’s important to maintain awareness of all accounting that goes on in your business. Make sure company policies are easy to understand and constantly followed. Maintain a system of checks and balances so that no single individual has too much control. Often times, fraud begins with a single individual having too much power and using it to fudge numbers and pocket company money. If you do not keep an eye on your employees, you will be held liable for any damage they cause.

While it seems obvious, it definitely demands reference that forging numbers when it comes to accounting is not only immoral, but it is also illegal. While the companies referenced in this article are all guilty of doing it in substantial numbers, that doesn’t mean it is any less reprehensible when done on a smaller scale. There are still plenty of smaller companies that receive lawsuits for doing the same thing on a smaller scale. No matter what the net worth of your company may be, you need to recognize the importance of maintaining integrity in all that you do, as well as to ensure that the employees working under you are doing the same thing.

Find a Class Action Lawsuit Attorney

Whether you need representation in filing a class action lawsuit against someone else or if you have had one filed against your own company, you need representation to ensure you the best possible chance of success with minimal loss to yourself and your company.

The attorneys at Webb & Bordson Law Group are happy to represent you in circumstances involving class action lawsuits. Call the WB Law Group at (619) 399-7700 (San Diego) or (559) 431-4888 (Fresno). You can also send an email to Office@WBLawGroup.com for more information.

Stand tall in your case with representation you can count on. Contact the WB Law Group today!

San Diego Business Attorney