Securities and Derivative Litigation: Report

A Look Back at the 2025 Securities Class Action Landscape

The 2025 securities class action landscape presents a paradox that issuers and their boards should take note of: although overall filing volume declined, the financial magnitude of these cases reached unprecedented levels. Fewer suits were filed, but the ones that were filed targeted larger companies and alleged greater losses, signaling a shift in plaintiff strategy that warrants close attention heading into 2026.

The total number of securities class-action filings declined in 2025, driven by a slowdown in the second half of the year.¹ Despite this decline, the aggregate dollar value of investor losses based on stock price declines following corrective disclosures reached a record US$694 billion,² driven in part by technology sector filings, more than a quarter of which had value of at least US$5 billion.³ For boards and legal teams, this trend underscores the importance of robust disclosure controls and proactive risk assessment, particularly in high-growth sectors where market expectations are greatest.

The Ninth Circuit, the leading forum for securities litigants in 2024, saw a 30% decline in securities actions,⁴ falling to second place behind the Second Circuit in 2025. Favorable precedent and a high concentration of public companies continue to draw litigants to both circuits, which once again dominated class action filings.⁵

The subject matter trends noted in our last update continued in 2025, with COVID-19 and SPAC-related filings declining – from 15 to 3 and 11 to 10, respectively⁶ – while AI-related filings (discussed in greater detail below) increased slightly from 15 to 16.⁷ If AI-related stocks begin to settle from their meteoric rise, this number is likely to continue increasing.

New in 2025 was the emergence of tariff-related filings, with at least three such cases filed since August.⁸ As the United States’ tariff policy continues to evolve, it is possible we will see this emerge as a new trend later in 2026.

Finally, new federal filings against non-U.S. issuers continued to fall, hitting a 15-year low of just 11%.⁹

AI-Washing: Disclosure Risks in a Shifting Litigation Environment

Securities class actions targeting AI-related disclosures – commonly referred to as “AI washing” claims – have increased markedly over the past two years, and private plaintiffs are devoting attention to this area. AI washing occurs when companies overstate or misrepresent their artificial intelligence capabilities to attract investors or gain competitive advantage. When companies misrepresent their technology as market-ready when it is still in development or label products as AI-driven when they actually rely on conventional methods or human input, those statements may constitute AI washing. Claims in this space generally fall into several categories: misleading statements regarding maturity, performance and real-world applications of purported AI products are also commonly the subject of AI washing securities class actions; misrepresentations that a product is AI-driven when it relies on conventional methods or manual processes; and, increasingly, inadequate disclosure of the competitive threats that rivals’ AI advancements pose to a company’s core revenue streams. Recent cases, discussed below, illustrate how plaintiffs are increasingly willing to treat AI-related disclosures as actionable misrepresentations, highlighting the importance of caution and precision in public disclosures.

In Hoare v. Oddity Tech Ltd., plaintiffs in the Southern District of New York alleged that the company’s IPO offering documents overstated its AI capabilities and AI’s contribution to sales to capitalize on the market’s focus on AI.¹⁰ The defendants moved to dismiss, arguing that Oddity never attributed their sales to be primarily driven by AI.¹¹ The motion remains pending in the district court and its resolution will be telling. If the court allows the claim to proceed, it may signal that exploiting investors’ appetite for AI-driven growth is sufficient to establish scienter in AI washing securities actions, a theory that plaintiffs’ counsel are likely to rely on with increasing frequency.

In Tamraz v. Reddit, Inc., investors filed suit in the Northern District of California alleging that Reddit misled investors on declining user metrics and failed to adequately disclose the risk that Google’s AI capabilities posed to its revenue.¹² Specifically, that Google’s AI search feature reduces users’ need to click through to Reddit from Google search results, threatening the advertising revenue that Reddit’s business depends on. Defendants’ motion to dismiss is currently pending in the Northern District of California. If plaintiffs survive the motion to dismiss, public companies may face increased litigation for failing to accurately assess and disclose the risks posed by the technological developments of other companies.

Although many of these AI washing cases remain in their early stages, at least one court has allowed such claims to proceed. In Helo v. Sema4 Holdings Corp., the U.S. District Court for the District of Connecticut found that the alleged misrepresentations, including the company’s alleged overstatement of its health intelligence platform’s capabilities, to “deliver improved and personalized health insights...”¹³ were sufficient to survive a motion to dismiss.¹⁴ In support of its claim, plaintiff relied on former employees’ allegations that the platform never existed and lacked the ability to use data in accordance with defendant’s stated objectives.¹⁵ The court ultimately found that the company’s disclosures coupled with the former employees’ allegedly contradictory statements, were sufficient to survive a motion to dismiss.¹⁶ This ruling highlights an emerging strategy among plaintiffs’ counsel: recruiting former technical employees to clear the dismissal hurdle in AI securities cases.

Implications for Public Companies. Securities class actions targeting AI-related disclosures are growing in both frequency and sophistication, with claims extending beyond outright misrepresentation to include inadequate disclosure of competitive threats posed by rivals’ AI advancements and failures to maintain consistency across public-facing communications. Legal teams should treat this expanding litigation landscape as a call to strengthen disclosure governance frameworks around AI-related communications.

AI-related securities suits will continue to test the boundaries between promoting innovation and maintaining accurate disclosure. Companies seeking to reduce their exposure should consider the following practical steps: First, frame descriptions of in-development AI technologies as forward-looking and pair them with substantive, tailored cautionary language – not boilerplate – that identifies the specific risks and uncertainties associated with the technology’s development and commercialization. Second, ensure that public statements about AI capabilities accurately reflect the technology’s current state, distinguishing clearly between operational features and aspirational goals. Third, proactively assess and disclose material competitive threats posed by third-party AI developments, particularly where those developments may affect core revenue streams. Fourth, implement protocols for reviewing AI-related claims across all public communications – including earnings calls, investor presentations, marketing materials, and SEC filings – to ensure consistency and accuracy. Fifth, recognize that departing employees may become confidential witnesses in future litigation; companies should ensure that internal documentation and communications accurately reflect the state of AI development, and should consider the litigation implications of any gap between internal knowledge and external messaging. Finally, boards should ensure that management reporting on AI initiatives includes candid assessments of technological readiness, competitive positioning and associated legal risks.

Implications of the Ninth Circuit’s Decision in Jaeger v. Zillow Group, Inc.

The Ninth Circuit’s recent decision in Jaeger v. Zillow Group, Inc.¹⁷ has significant implications for how courts evaluate the presumption of reliance at the class certification stage – and for the strategic calculus facing defendants in securities class actions across different circuits.

The Supreme Court’s 2021 decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System¹⁸ and the subsequent Second Circuit decision¹⁹ restructured the analysis of the presumption of reliance²⁰ at the class certification stage. In Goldman, the Supreme Court made clear that defendants may rebut this presumption if they “sever[] the link” between the alleged material misrepresentation and the price paid by the plaintiff.²¹ If the alleged misstatements are generic and the alleged corrective disclosures are specific (or vice versa), defendants can argue that the “mismatch” effectively rebuts Basic Inc. v. Levinson’s²² presumption.

As we reported previously,²³ the Ninth Circuit’s grant of interlocutory appeal in Jaeger v. Zillow Grp., Inc. presented an opportunity to clarify the “mismatch” analysis under Goldman. The Western District of Washington certified the class,²⁴ a decision that Zillow contested as an incorrect application of Goldman. On September 26, 2025, a unanimous three-judge panel affirmed the district court’s class certification.²⁵

First, the panel clarified the legal standard applicable to rebut reliance at class certification. The panel acknowledged that under a price impact standard, courts must look for “a closer fit in the level of generality and substance when comparing front- and back-end statements.”²⁶ However, the panel cautioned that the district court did not err by looking at loss-causation principles for guidance.²⁷ The panel concluded that the district court was allowed to consider circumstantial evidence of the price drop immediately after corrective disclosures,²⁸ thus muddying the separation between the price impact and loss-causation analysis. Second, the panel found that Zillow failed to overcome the presumption of reliance because the alleged disclosures revealed “new information” that showed the extent of Zillow’s home pricing struggles.²⁹ Critically, the panel noted that a disclosure does not have to refer directly to an alleged misrepresentation; it is sufficient if the disclosure reveals concealed “true facts”³⁰ or new information that renders some parts of the earlier statements false.³¹ In the panel’s view, Zillow’s front-end representations about its pricing model’s strength were adequately matched to the back-end disclosures about model failure,³² thus loosening Goldman’s high evidentiary “mismatch” standard. The panel also stressed that information can still be considered “new” when analyzing a report if it was not widely discussed or displayed elsewhere.³³ Lastly, the panel explicitly countered Zillow’s contention that the district court failed to consider all evidence with cites to the record.³⁴

In January 2026, the panel denied the petitions for rehearing and rehearing en banc,³⁵ thus cementing the Ninth Circuit’s position. The Ninth Circuit now stands in tension with the Second Circuit’s rigorous interpretation of Goldman’s mismatch standard. Further, the Third Circuit has also loosened Goldman’s standard requiring that disclosures merely “relate[] to” the alleged misrepresentations,³⁶ a standard that three of its judges dissented from on a petition for rehearing.³⁷ The Second Circuit has treated the mismatch between front-end misrepresentations and back-end corrective disclosures as a more potent tool for defendants, placing heavy weight on expert testimony, quantitative evidence of price impact, and the “generic” nature of the alleged disclosures.³⁸ This high evidentiary bar reduces litigation exposure and settlement costs for defendants in the Second Circuit. The Ninth Circuit and the Third Circuit, by contrast, have now adopted a more flexible approach, making them more plaintiff-friendly jurisdictions, increasing litigation and settlement risks for companies.

The circuit split between the Second, Third and Ninth Circuits on Goldman’s application may remain unresolved given the Supreme Court’s demonstrated reluctance to engage with securities class action issues. In the interim, companies and their counsel should carefully consider forum implications. Defendants litigating in the Ninth or Third Circuits should anticipate a lower bar for plaintiffs at the class certification stage and should tailor their price-impact rebuttal strategies accordingly, marshaling robust expert testimony and quantitative evidence early in the litigation to maximize their prospects of defeating class certification.