AI-Related Claims Lead New Wave of Securities Litigation as Legal Landscape Evolves

Securities class action filings remained robust in 2025, with artificial intelligence-related claims emerging as the dominant trend shaping the litigation landscape. According to Cornerstone Research, 207 new securities class actions were filed in federal and state courts last year, signaling continued momentum into 2026.

Notably, AI-related class actions have surpassed other categories, with plaintiffs targeting companies for various alleged misrepresentations about AI capabilities. These “AI-washing” claims focus on companies allegedly overstating AI-driven efficiencies, misleadingly rebranding legacy technology as AI, concealing licensing or performance issues, or exaggerating the pace and feasibility of AI integration.

“The rapid evolution of artificial intelligence is fueling a surge in AI-related securities claims,” noted legal experts from major law firms tracking the trend. This shift represents a significant evolution in securities litigation as the technology sector continues its transformation.

The declining number of Securities Act cases filed in state courts is also noteworthy. Only four such cases were brought in state courts during 2025, marking the lowest annual total since the U.S. Supreme Court’s 2018 decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, which confirmed state courts’ concurrent jurisdiction over Securities Act claims.

Expert Reports and Short-Seller Claims Challenge Courts

Lower courts are grappling with plaintiffs’ increasing reliance on expert opinions to support allegations at the pleading stage. This strategy gained traction following the Ninth Circuit’s decision in E. Ohman J:or Fonder AB v. NVIDIA Corp., where the court credited falsity allegations based partly on a post hoc expert analysis of NVIDIA’s reported revenues.

The Supreme Court initially granted certiorari to review this decision but ultimately dismissed the case as improvidently granted after oral argument. Without definitive Supreme Court guidance, most district courts have declined to credit expert opinions unless they are grounded in particularized facts, creating an unsettled legal landscape ripe for further development.

Similarly, plaintiffs face significant hurdles when relying on short-seller reports to establish their claims. Courts have generally been reluctant to credit allegations drawn from these reports unless corroborated by independent, well-pled facts.

The Fourth Circuit’s decision in Defeo v. IonQ, Inc. illustrates this challenge. The court affirmed the dismissal of a complaint that relied on a short-seller report, holding that because the report used anonymous sources, included disclaimers of accuracy, and disclosed a self-interested financial motive, it was not a plausible corrective disclosure for loss causation purposes.

SEC Policy Reversal on Mandatory Arbitration

In a significant policy shift, the Securities and Exchange Commission announced on September 17, 2025, that the presence of mandatory arbitration provisions in a company’s governing documents will no longer impact the agency’s decisions about approving securities registration statements.

SEC Chairman Paul S. Atkins characterized the change as one step toward his goal to “make IPOs great again.” The reversal eliminates a major obstacle that has historically deterred public companies from adopting mandatory arbitration provisions covering shareholder claims.

Arbitration agreements requiring shareholders to pursue claims individually rather than through class actions could potentially curb costly shareholder litigation, where companies often settle meritless claims due to the expense of defense and potentially enormous damage exposure.

However, companies considering mandatory arbitration provisions must weigh several factors, including state laws that might prevent enforcement, investor sentiment, and the procedural benefits of court litigation. For example, the Private Securities Litigation Reform Act (PSLRA) provides important protections for defendants, including a stay on discovery during motions to dismiss and a heightened pleading standard for plaintiffs.

“This is not a one-size-fits-all proposition,” legal experts caution. “Each company will have to analyze the factors and weigh the cost-benefit analysis.”

Emerging Issues: Private Credit Lenders and Securities Act Tracing

Looking ahead, private credit lenders may become new targets in securities class actions arising from capital raises involving retail investors. Plaintiffs have begun treating private credit vehicles like traditional issuers under Rule 10b-5, focusing on alleged misstatements about portfolio performance and asset values.

Traceability requirements for Securities Act claims also appear poised to become a major issue. In Slack Technologies, LLC v. Pirani, the Supreme Court held that Section 11 plaintiffs must plead that their shares can be traced to a particular registration statement.

On remand, the Ninth Circuit rejected statistical analysis as legally insufficient to establish traceability and concluded that Section 12(a)(2) imposes the same tracing requirement as Section 11. This requirement may prove challenging at the pleading stage in cases involving direct listings, post-lock-up expirations, or follow-on offerings, where shares are held in fungible bulk by The Depository Trust Company.

Delaware Supreme Court Reinstates Musk’s Tesla Compensation

In a closely watched corporate governance case, the Delaware Supreme Court reversed the Court of Chancery on December 19, 2025, reinstating Elon Musk’s $56 billion Tesla compensation package. While justices expressed “varying views” on whether a breach of fiduciary duty occurred, they unanimously agreed that rescission was neither possible nor equitable under the circumstances.

The court offered two primary reasons: first, Delaware courts could not restore all parties to their pre-2018 positions since Musk could not undo his work, and Tesla stockholders could not return the benefits they received; and second, Musk’s pre-existing equity stake could not serve as compensation for the 2018 package because he already owned those shares.

This decision represents a significant victory for Musk and highlights the complex issues facing courts in high-profile executive compensation disputes.

As 2026 unfolds, the securities litigation landscape continues to evolve in response to technological innovation, regulatory shifts, and novel legal theories. Companies, investors, and practitioners must remain vigilant as courts navigate these complex and rapidly changing issues.