AI Trends for 2025 - Plaintiffs’ Bar Targets “AI Washing” Disclosures.

One of the most noticeable securities litigation trends of 2024 has been the significant increase in artificial intelligence-related fraud claims. With companies in virtually all industries touting their use of AI to drive innovation and productivity, in-house counsel should be mindful that these disclosures may carry heightened risk because of the nascent or unproven nature of many AI technologies.

In 2024, the private plaintiffs’ bar filed 13 securities class action complaints alleging that defendants misled investors in violation of federal securities laws when discussing their companies’ AI strategies. As they always do, these plaintiffs evaluated the defendants’ statements with the benefit of hindsight. In general, these “AI washing” cases allege that companies overstated their AI capabilities when subsequent disclosures showed those capabilities failed to live up to the earlier hype. For example, a company offering software tools to automate repetitive business processes announced a rebranding initiative that would focus on AI-powered tools. When it later reported poor quarterly results and its stock price dropped, a lawsuit soon followed. Separately, a data management company that described itself as a leader in using AI-based software faced a short-seller report alleging that the company’s AI initiatives were “smoke and mirrors.” Its stock price fell steeply when the report was published. Plaintiffs then sued.

Given the centrality of AI strategies for many companies across sectors—and not just “AI natives”—we expect this trend to continue in 2025.

Takeaways:

• Legal should have a seat at the table to review any AI-related disclosures by technical and business teams.
• Whenever possible, frame such statements as clear forward-looking statements that express the company’s hopes and expectations about the possibilities for the technology.
• Because this technology is changing fast, take special care to review and update risk disclosures regularly to confirm they accurately capture the current risks AI capabilities entail for the company.