THE ROLE OF AUDITOR CULPABILITY IN NAMING AUDITOR DEFENDANTS IN UNITED STATES SECURITIES CLASS ACTIONS

Arguments for passage by the United States Congress of the Private Securities Litigation Reform Act, 1995 (Reform Act), as well as the Securities Litigation Uniform Standards Act, 1998, center on two allegations. First, that there was a general lack of merits (i.e. management culpability did not matter) in pre-Reform Act private securities class actions. Second, that nonculpable auditors were routinely named defendants in these lawsuits. A theoretical framework consisting of the constructs auditor culpability, management culpability, and nonculpability is used to investigate whether nonculpable auditors were routinely named defendants in these lawsuits. Empirical evidence based on 446 securities lawsuits filed from April 1992 to April 1995 in federal and state courts against United States companies suggests that nonculpable auditors were not routinely named defendants in these lawsuits.