Securities Class Action Filings: The Rise of AI-Related Cases in 2024
The landscape of securities class action filings is undergoing a significant transformation in 2024, primarily driven by the emergence of cases related to artificial intelligence (AI). According to a recent report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, the first half of 2024 has seen a notable increase in securities class actions, with AI-related claims becoming a prominent category. This shift underscores the growing influence of AI technologies in various business models and the corresponding legal complexities that arise from their use. The report reveals that out of 112 securities class actions filed in federal and state courts in the first half of 2024, six were directly related to AI, marking a new trend in the legal landscape.
The rise in AI-related securities class actions can be attributed to several factors. First and foremost is the increasing integration of AI into business operations across various sectors, including technology and health technology services. Companies are leveraging AI to enhance their products and services, promising greater efficiency and effectiveness. However, these promises often come with risks, particularly when companies overstate the capabilities of their AI technologies. For instance, one of the notable cases involves Innodata, a digital services provider accused of misrepresenting the use of AI in its software. Similarly, Evolv Technologies Holdings faced allegations of overstating the effectiveness of its AI-based weapons detection products. These cases highlight the potential for liability when companies fail to deliver on their AI-related promises.
The report by Cornerstone Research also sheds light on the broader trends in securities class action filings. While AI-related cases are on the rise, other categories are experiencing declines. Cryptocurrency-related filings, for example, have decreased significantly, with only three cases filed in the first half of 2024. This decline reflects the waning interest in cryptocurrencies and the regulatory challenges associated with them. Similarly, cybersecurity-related filings have also continued to decline, with no new cases reported in 2024. This trend suggests that companies may be becoming more adept at managing cybersecurity risks, or it could indicate a shift in focus towards other emerging issues, such as AI.
Another interesting trend highlighted in the report is the decline in COVID-19-related filings. The pandemic had initially led to a surge in securities class actions, as companies faced disruptions in product demand and supply chain challenges. However, as the world gradually recovers from the pandemic, the number of COVID-19-related filings has decreased, with only seven cases reported in the first half of 2024. This decline is indicative of the shifting priorities in the legal landscape, as new challenges and opportunities emerge.
The report also provides insights into the outcomes of securities class actions in the first half of 2024. Out of the 100 cases resolved during this period, there was an almost equal split between dismissals and settlements. Interestingly, the average settlement amount has decreased compared to the previous year, suggesting that companies may be more willing to settle cases to avoid prolonged litigation. This trend could also reflect the evolving strategies of plaintiffs and defendants in navigating the complexities of securities class actions.
In addition to the trends in the United States, the report by Cornerstone Research highlights the increasing activity in class action litigation in Europe. Countries like Portugal and the UK are seeing a rise in class actions, with Portugal surpassing the Netherlands as the second most active country in Europe for such cases. This increase in activity is partly driven by the implementation of faster processes for foreign lawyers to practice in the region, facilitating cross-border litigation. The UK Competition Appeal Tribunal’s approval of the country’s first class-action with a ‘sub-class’ of claimants further underscores the growing momentum in European class action litigation.
The growing use of AI in business models presents both opportunities and challenges. On one hand, AI has the potential to revolutionize industries by automating processes, enhancing decision-making, and improving customer experiences. On the other hand, the complexity and opacity of AI technologies can lead to misunderstandings and misrepresentations, resulting in legal disputes. As companies continue to integrate AI into their operations, they must navigate the legal and ethical implications of these technologies to mitigate the risk of securities class actions.
The American Bar Association has recognized the need for guidance on the use of AI, releasing its first set of guidelines addressing concerns around fees, confidentiality, and disclosure. These guidelines aim to provide a framework for the responsible use of AI in legal practice, helping lawyers and companies navigate the evolving landscape of AI-related securities class actions. The guidelines emphasize the importance of transparency and accountability in the use of AI, encouraging companies to clearly communicate the capabilities and limitations of their AI technologies to stakeholders.
As we move forward, it is essential for companies to adopt best practices in the development and deployment of AI technologies. This includes conducting thorough due diligence, ensuring transparency in communications, and implementing robust risk management strategies. By doing so, companies can mitigate the risk of legal disputes and build trust with their stakeholders. Furthermore, regulators and policymakers must continue to evolve their frameworks to address the unique challenges posed by AI, ensuring that the legal landscape keeps pace with technological advancements.
In conclusion, the rise of AI-related securities class actions in 2024 marks a significant shift in the legal landscape. As companies increasingly integrate AI into their operations, they must navigate the complex legal and ethical implications of these technologies. The report by Cornerstone Research highlights the growing trend of AI-related claims, underscoring the need for companies to adopt best practices and for regulators to evolve their frameworks. By doing so, we can harness the potential of AI while mitigating the risks, paving the way for a more transparent and accountable future.
The evolving landscape of securities class actions also presents opportunities for legal professionals to specialize in this emerging field. As AI technologies continue to advance, there will be a growing demand for lawyers with expertise in AI-related legal issues. This presents an exciting opportunity for legal professionals to develop new skills and contribute to shaping the future of AI regulation. Additionally, the collaboration between legal professionals, technologists, and policymakers will be crucial in addressing the multifaceted challenges posed by AI, ensuring that the legal framework remains robust and adaptable.
Looking ahead, it is clear that AI will continue to play a transformative role in various industries. As companies leverage AI to drive innovation and growth, they must also be mindful of the legal and ethical implications of these technologies. By adopting best practices, engaging with stakeholders transparently, and collaborating with regulators, companies can navigate the complexities of AI-related securities class actions. Ultimately, this will contribute to a more sustainable and equitable future, where the benefits of AI are realized while minimizing the risks and ensuring accountability.