SEC policy shifts, rulings on investor class status and actionable company statements, and discussions about the future of artificial intelligence set the pace in 2025 and may have a lasting effect in securities cases in 2026.
A Securities and Exchange Commission pivot allowing companies to issue stock with the condition that disputes must be arbitrated remains one of the year’s most talked-about developments in securities litigation. Mandatory arbitration brings the potential to upend that area of practice by handing corporations a new means of avoiding class actions, while raising the specter of mass filings to arbitrators.
Securities litigators are also paying attention to appeals court rulings on efforts to prevent investors from achieving class status. The issue has become more acute as companies seek a second line of defense to lawsuits that survive dismissal attempts, with a potential circuit split developing.
Judges are also applying a 2024 US Supreme Court opinion about disclosure “omissions” which analogized a child’s statements about surreptitious cake consumption to suss out when companies speak in actionable “half-truths” and when they make no statements at all.
And the rise of AI has been reflected in securities litigation, attorneys say. It’s either going to involve public AI companies or companies using it, said Simpson Thacher & Bartlett LLP’s Jonathan Youngwood.
SEC Policy, Impact
The SEC said in September that it’s removing a registration statement roadblock for companies with charter and bylaw provisions requiring the arbitration of securities claims. That new view raises more questions than answers, attorneys say.
“We are still waiting to see the full implications—including how many companies take advantage—but this could significantly disrupt securities litigation practice by shifting from federal class claims to individualized arbitral claims,” said University of Colorado Law School professor Ann Lipton.
Doug Greene of Baker & Hostetler LLP similarly cautioned against “a knee jerk reaction” that this “would be great for companies” because arbitration is considered more efficient.
But “a lot of traps for the unwary” await with multiple arbitrations filed by plaintiffs and enforceability challenges, he said.
Alexander Drylewski of Skadden, Arps, Slate, Meagher & Flom LLP said he’s seen his firm’s clients and others “taking a really considered approach to this. They want to be thoughtful about it before they make a decision one way or the other.”
Companies that adopt arbitration provisions will lose advantages they have in court, including legal rules, the discovery stay, and the high pleading standard, said plaintiffs’ attorney Carol Gilden of Cohen Milstein Sellers & Toll PLLC. “Plus, lawsuits can still be brought in federal court against underwriters and accountants.”
Unlike a class action, arbitration won’t give companies “total peace,” she said. “I would not expect mandatory arbitration to be embraced by companies on a widespread basis.”
Lipton said arbitration, if adopted, “would mean less public development of the law, and more opportunities for wealthy investors to extract favorable settlements while smaller investors go uncompensated.”
Meanwhile, the first uptake has occurred: a Dallas-based firm that uses Bible verses to search for oil deposits in Israel, Zion Oil & Gas Inc., amended its bylaws Dec. 1 to mandate arbitration.
Another Trump-SEC pivot away from cryptocurrency enforcement actions has created ripples in private litigation that will extend into the new year. What crypto assets courts deem a security will “be met with even more skepticism” than at the end of Biden’s administration, Cleary Gottlieb Steen & Hamilton LLP’s Matt Solomon said.
Supreme Court Interpretations
The Supreme Court’s 2021 decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement Sys. and a 2023 follow-up ruling by the US Court of Appeals for the Second Circuit, dismantling an investor class, are continuing to drive challenges to certification. Federal judges are interpreting the high court’s ruling over a “mismatch” nationwide.
Defendants cite a Goldman mismatch between alleged misstatements and news spurring selloffs to undercut a presumption that a class of investors relied on a company’s stock price. The Third and Ninth circuits have respectively upheld classes of
The Second and Third circuits “have now taken different approaches” on that theory and there’s an “emerging circuit split,” said Davis Polk & Wardwell LLP’s Edmund Polubinski. He expects more appellate considerations next year and “would not be surprised if there were one or more” petitions to the top court.
Meanwhile, omissions questions reached appellate courts in 2025.
The Sixth Circuit undid a class of
Courts are interpreting the Supreme Court’s 2024 decision involving
Woan and others highlighted the Second Circuit’s reopening a case against
AI Everywhere
AI suits will continue growing as the technology’s rapidly adopted and investors ask pointed questions about how companies are using it, attorneys say. This year saw a surge of investor lawsuits with AI-related claims.
Companies sued for monopolization or price fixing in the AI space might see securities suits over “misleading statements about their core business operation,” said plaintiffs’ attorney David Scott of Scott & Scott Attorneys at Law LLP. “You’re going to see some of that because we’re seeing an uptick in those cases from the competition space.”
And the tech’s sheer proliferation will mean more suits. “You’re going to keep seeing AI because there’s more AI,” said Youngwood.
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