Rich and Wealth

Other Consequences (3)

In 1999, for example, Cendant Corp. agreed to a $2.83 billion settlement, the largest ever in a shareholder class action, in conjunction with its 1998 accounting scandal. As noted at the time, the settlement “will allow shareholders to recoup some of the losses they suffered when Cendant’s share price plunged by more than 50% after an accounting fraud was disclosed last year.”68 Also settling a lawsuit over the accounting problems at Cendant was the company’s auditors, Ernst & Young LLP, which agreed to a cash settlement of $335 million.

Delisting of a Company’s Shares In addition to the SEC, companies must also be concerned about the regulatory power of the stock exchanges and associations on which their shares are traded. National securities exchanges, securities associations, and clearing agencies are self-regulatory organizations that are registered with the SEC. In the United States, there are several such bodies, including the New York Stock Exchange, the American Stock Exchange, and the National Association of Securities Dealers, Inc. The stock of most public companies is bought and sold over one or more of these exchanges. In order to have an orderly and liquid market for their stock, affording prompt trades in a fair and honest environment, it is important that companies’ shares arelisted on a regulated exchange.

To get listed and stay listed, companies must meet certain financial and other qualitative requirements and demonstrate good corporate governance. Companies that are found to have accounting problems may be unable to meet continued listing requirements and find themselves the subject of delisting proceedings.

Taken From : The Financial Numbers Game