The securities litigation landscape in 2025 has seen a remarkable shift, characterized by a sharp rise in class action lawsuits against companies accused of what has been termed “AI-washing.” This refers to the troubling practice of exaggerating the capabilities of artificial intelligence while downplaying the associated risks. A report from ClassActionLawyerTN highlights that AI-related securities litigation surged by an astonishing 56% in the first half of 2025, with the Disclosure Dollar Loss Index hitting $403 billion. This figure showcases the immense financial stakes at play for both investors and corporations as they navigate this complex environment.
The Rise of AI-Washing and Legal Vulnerabilities
The legal underpinnings for these lawsuits are rooted in Section 10(b) of the Securities Exchange Act and Rule 10b-5, which outlaw fraudulent statements or omissions that could deceive investors. Courts have begun to apply these legal standards more rigorously to AI-related claims. Reports indicate that AI-washing cases are surviving motions to dismiss at rates 30% to 50% higher than traditional securities lawsuits. A notable example is DoubleVerify Holdings, Inc. (DV), which faced a lawsuit in July 2025, where executives allegedly concealed critical flaws in their AI-driven ad verification systems, including instances of overbilling for bot-generated impressions.
Similarly, PubMatic, Inc. (PUBM) is entangled in legal scrutiny for purportedly misleading its shareholders regarding its AI-enhanced programmatic advertising technologies. Numerous law firms are currently encouraging investors to join class actions, highlighting a broader trend where companies overstating AI’s transformative potential are experiencing significant legal repercussions. According to insights from Skadden Arps’ 2025 legal update, courts are now placing increased emphasis on whether companies have adequately disclosed related risks, such as inaccuracies in AI models, potential regulatory challenges, and competitive threats.
Sector-Wide Implications and Financial Fallout
While the technology sector has been the primary target of these lawsuits, the ramifications extend far beyond. Throughout 2024 and 2025, AI-related cases have involved a diverse array of firms, including C3.ai, Zillow, and Upstart, touching on issues like inflated revenue forecasts and faulty AI algorithms. For example, Zillow Group Inc. has faced claims regarding the unreliability of its AI-powered Zestimate tool, while Upstart Holdings Inc. has been accused of failing to deliver on promised efficiencies through its AI loan systems.
The financial implications of these lawsuits are staggering. Settlements in 2025 have averaged around $43 million, and some cases have reached settlements totaling in the billions. The Maximum Dollar Loss Index, which measures potential investor losses, soared to $1.85 trillion early in 2025, revealing the scale of market disruptions instigated by these class actions. The pressure is particularly pronounced for smaller firms; recent data shows that the median market capitalization of companies embroiled in AI-related lawsuits is 40% lower than industry averages, leading to heightened liquidity risks.
Investor Protections and Strategic Considerations
This surge in litigation serves as a critical reminder for investors to conduct thorough due diligence. Legal experts emphasize the importance of closely examining companies’ disclosures related to AI risks, particularly in earnings reports and SEC filings. In a 2025 analysis conducted by Woodruff-Sawyer, it was noted that plaintiffs are increasingly leveraging specific technical critiques related to AI systems—such as issues with data quality or algorithmic biases—to develop more compelling legal cases.
For investors in firms like PubMatic and DoubleVerify, the stakes are growing clearer. For instance, shareholders of DoubleVerify have a deadline of October 20, 2025, to seek lead plaintiff status in the ongoing lawsuit, while similarly, PubMatic stakeholders must act by the same date to join associated class actions. These critical timelines underscore the necessity for proactive engagement with legal counsel. Investors are also encouraged to track regulatory developments, especially with the SEC’s focus on AI transparency, which could significantly influence litigation trends moving forward.
Conclusion: Navigating Risk in an AI-Driven Era
The landscape of securities litigation in 2025 serves as a pivotal moment in understanding the implications of AI within corporate strategies. While the promise of AI remains enticing, the legal and financial risks associated with misrepresentation are more apparent than ever. It’s imperative for investors to balance a hopeful outlook on AI’s potential with a healthy skepticism towards corporate claims. Staying informed about ongoing litigation trends, utilizing legal safeguards, and demanding transparency are vital strategies for navigating this rapidly evolving landscape.
Source:
[1] Securities Litigation Cases in 2025: An Instructive and ClassActionLawyerTN
[2] Inside the Courts – An Update From Skadden Securities Skadden
[3] Scoreboard Shows Filings and Settlements for Federal AJG
[4] Securities Class Actions 2024 Recap: An Uptick in Filings Woodruff-Sawyer