Surge in Securities Class Action Lawsuits Driven by AI Filings in 2024

According to a recently released report from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, the number of securities class action lawsuits filed in the U.S. rose for the second year in a row in 2024. Specifically, there were 225 lawsuits filed in both federal and state courts, a notable jump from 215 in 2023. The report highlighted that the increase in filings is largely attributed to a significant rise in cases related to artificial intelligence (AI), which more than doubled from seven in 2023 to 15 in 2024. This emerging trend contrasts sharply with a continued decline in traditional filings under the Securities Act of 1933, which dropped 34% to the lowest levels witnessed since 2013.

The increase in AI-related lawsuits symbolizes the growing concerns within the technology sector as businesses navigate the complexities surrounding AI technologies. Out of the 15 AI-related filings, eight were from companies in the Technology sector, four from Communications, and two from the Industrial sector, indicating where the primary litigative pressures are coming from. This reflects a wider societal apprehension regarding the implications of AI advancements and the potential securities fraud that may arise.

In addition to the surge in AI filings, the report noted that COVID-19-related lawsuits also increased by 36% compared to the previous year, although they still remained below the record high seen in 2022. Conversely, there was a dramatic decline in filings related to special purpose acquisition companies (SPACs) and cryptocurrencies, showcasing the volatility and changing nature of the legal landscape in this arena.

Interestingly, the report found that while the overall number of filings climbed, the size of these filings, gauged by the Disclosure Dollar Loss Index (DDL Index), surged by 23%, reaching $438 billion. This figure is substantially higher than the historical annual average, signaling that when lawsuits are being filed, they involve significant financial stakes.

In contrast, the aggregate filing size, as measured by the Maximum Dollar Loss Index (MDL Index), dropped sharply by 52% to $1.6 trillion, reflecting a complex interplay between the quantity and magnitude of these legal actions. A notable aspect of the report was the identification of 35 mega filings, which are cases exceeding $10 billion. These filings accounted for $1.3 trillion of the total MDL, demonstrating the high-profile nature of certain cases that attract substantial attention from financial markets and investors alike.

Legal experts, including former SEC Commissioner Joseph Grundfest, have expressed concerns that the U.S. Supreme Court may become increasingly selective in choosing which securities cases to hear in the future, further shaping the landscape of securities litigation. Furthermore, the implications of potential regulation changes regarding cryptocurrencies remain a topic of discussion, especially as definitions of securities may evolve, potentially reducing litigation in that sector.

Key Insights from the 2024 Report:

1. Core Filings Increase: The report received emphasis on 'core' filings—those excluding mergers and acquisitions—which reached 220, exceeding the historical average of 193 by 14%.
2. Trends in Filings: AI, COVID-19, and SPACs made up nearly 20% of core federal filings, indicating the primary factors currently driving litigation.
3. Sector Breakdowns: The Consumer Non-Cyclical sector showcased a large increase in filings, particularly against biotechnology firms, particularly noted in the latter half of 2024.
4. Geographical Trends: For the second consecutive year, the Ninth Circuit saw more core federal filings than the Second Circuit, highlighting regional differences in litigation patterns within the U.S.

This report underscores a pivotal year in which innovations in technology have driven changes in litigation trends. As the legal community continues to adapt to these dynamic conditions, the intertwining of technology and securities law will likely remain a focal point of interest and scrutiny in the years ahead.