Securities Class Action Filing Activity on the Rise

The number of securities class action filings increased in the first half of 2024 relative to the second half of 2023, according to a recent report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

The report, Securities Class Action Filings – 2024 Midyear Assessment, found that plaintiffs filed 112 securities class actions in federal and state courts in the first half of 2024, an increase from the 103 class actions filed in the second half of 2023. The number of core filings – those without merger and acquisition (M&A) allegations – in 2024 H1 (110) was above the number of core filings in 2023 H2 (101) and the historical semiannual average (96). Tracking of the Artificial Intelligence (AI) trend category began; there were six such filings in the first half of 2024. The number of filings in all other trend categories – including cryptocurrency – is on pace to decline in 2024, except for COVID-19-related filings, which are on pace to increase.

The potential for real liability resulting from Artificial Intelligence is among the more interesting developments of the past six months.

“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 Cornerstone Research’s 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 number of filings with federal Section 11 and state claims under the Securities Act of 1933 remained low in the first half of 2024. The annualized number of these filings, 22, is in line with the number of filings, 21, in 2023. There were two federal M&A filings, on pace to be the lowest annual total since tracking of federal M&A filings began in 2009.

The Maximum Dollar Loss (MDL) Index decreased 9% to $908 billion in the first half of 2024, a continuing decline from the inflation-adjusted record high set in the first half of 2023 but remaining 51% above the historical semiannual average. The Disclosure Dollar Loss (DDL) Index increased to $185 billion in 2024 H1, a 9% increase from 2023 H2 and the sixth consecutive semiannual period with DDL at or above the historical semiannual average of $119 billion.

“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 be issued in the NVIDIA litigation regarding pleading requirements for securities fraud claims and in the Facebook/Cambridge Analytica litigation involving risk factor disclosure.”

Additional Key Trends

• The likelihood of a core filing against a U.S. exchange-listed company is on pace to increase to an annualized rate of 3.9%, surpassing the 2010–2023 average of 3.6% for core filings.
• 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 (5) and slightly above the number of mega DDL filings in 2023 H2 (8).
• The number of core federal filings in the Second and Ninth Circuits increased and comprised of 60% of the total number of core federal filings in 2024 H1. DDL in the Ninth Circuit more than tripled relative to 2023 H2, while DDL in the Second Circuit decreased by 84%.
• Core federal filings against non-U.S. issuers as a percentage of total core federal filings in 2024 H1 declined by nearly a quarter relative to 2023, reaching a 15-year low.