Securities class actions are another thing being accelerated by AI

Securities class actions are another thing being accelerated by AI
Report finds fewer filings related to cryptos, more related to AI.
AUG 01, 2024

Securities class action filings increased in the first half of 2024 as artificial intelligence related lawsuits became a trend.

An analysis of federal and state court filings by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse found that there were 112 securities class action filings between January and June 2024, up from 103 in the July-December period of 2023.

For core filings, those without M&A allegations, there were 110 filings in the first half of this year, which is more than the 101 of the previous six months and the historical semiannual average of 96.

There were six AI-related filings in the first half of 2024.

"While we've seen AI-related filings in recent years, the first half of 2024 marks the beginning of tracking these filings as a trend category. The growing prominence of AI in the business models of many companies may lead to more filings in the future," said Alexander "Sasha" Aganin, the report's coauthor and a Cornerstone Research senior vice president. "Meanwhile, SPAC-related filings are on pace to decline steeply relative to recent years, and cryptocurrency-related filings, which have been hot for the past several years, experienced a sharp decline."

The report also notes that the likelihood of a US exchange listed company facing a core filing is heading for a rise to 3.9%, above the 3.6% annualized average for 2010-2023.

Looking at the amount that a firm can shed from its market cap between the trading day immediately preceding the end of the class period (i.e., pre-disclosure market capitalization) and the trading day immediately following the end of the class period, the Disclosure Dollar Loss Index was up 9% in H1 204 to $185 billion.

Meanwhile, the Maximum Dollar Loss Index – the dollar value change in the market cap of the defendant firm from the trading day during the class period when its market capitalization was the highest to the trading day immediately following the end of the class period - decreased 9% to $908 billion.

In the first half of 2024, there were 10 mega DDL filings (those with a DDL of at least $5 billion), twice the 1997–2023 semiannual average (five) and slightly above the number of mega DDL filings in 2023 H2 (eight).

"The potential for real liability resulting from artificial intelligence is among the more interesting developments of the past six months," according to former SEC Commissioner Joseph Grundfest, now professor emeritus at Stanford Law School. "But more immediately, keep an eye on the upcoming Supreme Court term. Important decisions will issue in the NVIDIA litigation regarding pleading requirements for securities fraud claims, and in the Facebook/Cambridge Analytica litigation involving risk factor disclosure."

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