Claims relating to statements about artificial intelligence (“AI”) have rapidly become a focal point in securities litigation. Similar to the past surge of “greenwashing” claims tied to climate change disclosures, in 2024 we witnessed a dramatic rise in “AI washing” securities class actions, in which companies are accused of overstating or misrepresenting the significance and capabilities of AI in their products and services. This trend underscores the growing scrutiny of AI disclosures and the potential legal pitfalls for companies navigating this complex landscape. Combined with an evolving regulatory framework and rapid advancements in AI technology, the frequency of such cases may well continue to increase in 2025.

This article identifies trends in 2024 securities-related cases challenging statements about the use, development, or deployment of AI; presents key considerations for avoiding pitfalls; and highlights important cases from 2024.

AI Securities Litigation Trends

Between 2020 and 2023, the number of AI-related securities class actions remained relatively stable. However, in 2024, that number more than doubled, and they became one of the top three trend categories according to Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. This surge underscores the growing importance of claims relating to AI in securities litigation and the heightened scrutiny of AI disclosures.

In 2024, AI-related securities litigation was brought against claims in Initial Public Offering (“IPO”) registration statements under Section 11 of the Securities Act of 1933 (the “Securities Act”) and in public statements under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. The heightened scrutiny of AI, coupled with regulatory developments, technological advancements, and market reactions, underscores the importance of accurate and transparent AI disclosures to mitigate legal risks.

Of the 2024 AI-related case filings, eight were in the technology sector, four in communications, two in industrial, and one in consumer. Based on the 2020-2023 trend, AI-related class actions were 30%-50% less likely to be resolved on a motion to dismiss compared with other securities class actions.

As a result, many AI cases are settling or continuing.

Common Themes in 2024 AI-Related Securities Class Actions

• Event-Driven Litigation: In 2024, AI-related securities litigation was often event-driven, based on widely reported data security issues, external research reports, regulatory inquiries and actions.
• Missed Projections: AI-related securities litigation has also arisen from missed projections, where companies failed to meet their publicly stated goals based on AI development and deployment.
• Market Reactions: The market’s response to AI-related disclosures and litigation has been notable, and several AI-related securities cases arose from large stock price drops.

Key Considerations to Avoid Pitfalls

• Accurate and Transparent Disclosures: Companies should ensure that their AI-related disclosures are accurate and transparent. Avoid overstating AI capabilities or potential benefits.
• Consistent Definitions: Define AI consistently and truthfully across all communications to avoid claims of misrepresentation.
• Regulatory Compliance: Stay updated with regulatory developments, and ensure compliance with new requirements.
• Risk Management: Identify and disclose potential risks associated with AI, such as quality control, privacy, intellectual property, data-use limitations, cybersecurity, bias, and transparency.
• Internal Controls: Implement robust internal controls to monitor and verify AI-related activities and disclosures. This includes regular reviews to ensure the continued accuracy of statements being made.

The remainder of this article discusses select high-profile AI-based securities-related lawsuits against companies in 2024. We are happy to answer any questions you may have about this trend.

Select 2024 Cases

• Averza v. Super Micro Computer, Inc., et al., 5:24-cv-6147 (N.D. Cal.)

Super Micro Computer (“Super Micro”) manufactures servers and storage solutions and sells its hardware to technology companies, including, but not limited to, those working with AI. Its stock was among the hottest-performing in 2024.

Five separate complaints were filed in the Northern District of California claiming violations of Section 10(b) of the Exchange Act. The complaints allege that Super Micro’s public statements were false and misleading because they suggested that the company’s financials complied with Generally Accepted Accounting Principles (“GAAP”), internal controls were effective, gross margins were sustainable, and exports complied with trade control regulations.

The complaints cite a Hindenburg Research report titled “Super Micro: Fresh Evidence of Accounting Manipulation, Sibling Self-Dealing and Sanctions Evasion At This AI High Flyer.” The report alleges that the company engaged in a fraudulent revenue recognition scheme by misallocating revenue to hardware sales instead of to services in order to inflate margins, recording revenue when equipment could not be delivered or installed, and booking revenues for faulty or incomplete products. The report also states that a number of customers had received faulty equipment from Super Micro, Super Micro’s gross margin had declined, and Super Micro had violated export controls by shipping products to Russia. The U.S. Department of Justice subsequently announced an investigation into Super Micro.

The Super Micro Computer matter has drawn interest from the private securities plaintiffs’ bar: ten plaintiffs (institutional investors and individuals) filed motions to be appointed lead. The lead plaintiff battle is still progressing as of March 31, 2025, with the court ordering supplemental briefing.

• Boshart v. Sprinklr Inc., et al., 1:24-cv-06132 (S.D.N.Y.)

Sprinklr, Inc. (“Sprinklr”) is a software service platform, advertising itself as a unified AI-powered customer experience engine. Sprinklr has infused AI across four product suites: Sprinklr Service, Sprinklr Social, Sprinklr Marketing, and Sprinklr Insights.

Investors filed suit against Sprinklr, alleging violations of Section 10(b) of the Exchange Act. The plaintiffs assert that Sprinklr created a false impression of the company’s projected revenue outlook by concealing the difficulties in scaling its solutions, which resulted in slowdown in the growth of the company’s existing go-to-market initiatives. On December 6, 2023, the company announced a sequential decrease in the total number of customers spending more than $1 million and reduced its projections for the last quarter of 2024 and fiscal year 2025.

Sprinklr filed a motion to dismiss on March 17, 2025, and briefing is ongoing.

• D’Agostino v. Innodata Inc., et al., No 2:24-cv-0097 (D.N.J.)

Innodata, Inc. (“Innodata”) is a global engineering company that provides a range of business process, technology, and consulting solutions and services for AI builders and adopters, including curating large datasets to train customers’ AI algorithms.

A complaint filed in New Jersey federal court alleges that Innodata misrepresented its AI capabilities, leading to a 30% stock drop when a research firm purportedly uncovered conflicting information about the company’s operations. The lead plaintiff claims that the company made false and misleading statements on a number of earnings calls and in its filings with the SEC, in violation of Section 10(b) of the Exchange Act. According to that plaintiff, amid declining revenue in Innodata’s “largest business segment,” the company “completely misrepresented the nature of [its] business to investors,” marketing itself as an AI company and representing that it had implemented AI and machine learning into its business. The lead plaintiff alleges that despite the company’s public statements, Innodata had not developed any AI technology and “did not have the necessary resources” to do so. Plaintiff claims the truth was uncovered when a February 2024 research report allegedly concluded that Innodata’s AI marketing claims were “smoke and mirrors” and that the company had barely allocated any funding to AI research and development over the past five years.

On March 7, 2025, Innodata moved to dismiss the amended complaint; briefing is ongoing.

• Dolly v. Gitlab Inc., et al., No. 3:24-cv-6244 (N.D. Cal.)

Gitlab Inc. (“Gitlab”) is a web-based open-source software development platform that allows developers to collaborate on new programs.

A complaint filed in the Northern District of California alleges that Gitlab misled investors about how its planned AI features would increase efficiency and boost the company’s revenue. Plaintiff claims the company made false and misleading statements under Section 10(b) of the Exchange Act. The complaint alleges that GitLab’s management team hosted a series of earnings calls touting investments in AI development and incorporation for its platform as a driver in its revenue forecasts, creating the “false impression that [management] possessed reliable information pertaining to the Company’s ability to develop and incorporate AI.”

On March 4, 2024, nine months into the one-year class period, the company announced “significantly lower than expected guidance” for fiscal year 2025, owing in part to the company’s embracing a “less conservative” guidance policy than in previous years and because the company needed time to “build its pipeline and close deals on new products.” Following the announcement, GitLab’s stock price fell 21%. Plaintiff alleges GitLab overhyped the potential impact of AI on its software delivery platform when it knew or should have known there was “weak market demand for Gitlab’s touted AI features.”

The case against Gitlab remains in the early stages of litigation. Defendants had not responded to the complaint as of March 31, 2025.

• Hoare v. Oddity Tech Ltd., et al., No. 1:24-cv-06571 (S.D.N.Y.)

Oddity Tech Limited (“Oddity”) is the AI-driven consumer beauty and wellness platform behind the direct-to-consumer cosmetic brands Il Makiage and SpoiledChild. Oddity was highlighted as one of Time magazine’s “100 Most Influential Companies” in 2023. The company uses AI-backed online quizzes to identify consumer needs and develop beauty and wellness products to meet those needs.

Investors filed suit against Oddity, claiming violations of Section 10(b) of the Exchange Act and Section 11 of the Securities Act.

The complaint alleges that Oddity made several false and misleading statements leading up to and following its July 2023 IPO. According to the plaintiff, while the company was portraying itself as a “disruptor in the cosmetics industry,” in reality it “overstated its AI technology and capabilities” and, more importantly, the impact AI would have on its sales. Moreover, Oddity omitted key information when reporting its repeat purchase rates and revenue and “downplayed” the scope and severity of ongoing litigation against the company, the complaint says.

The complaint alleges Oddity’s share price fell in response to a May 2024 report unmasking the company’s AI as “nothing but a questionnaire.” The same report also purportedly alleged that Oddity employed questionable business practices to beef up its “repeat purchase rates,” and revealed previously undisclosed litigation against the company.

Proceedings against Oddity are ongoing, with the company set to file a motion to dismiss by April 21, 2025.

• In re CrowdStrike Holdings, Inc. Sec. Litig., No. 1:24-cv-857 (W.D. Tex.)

CrowdStrike Holdings, Inc. (“CrowdStrike”) is a cybersecurity technology company providing endpoint security, threat intelligence, and cyberattack response services.

A group of investors sued CrowdStrike, claiming the cybersecurity company made false and misleading statements under Section 10(b) of the Exchange Act about the safety and reliability of its flagship AI-backed Falcon cybersecurity platform.

The complaint, filed in a Texas federal court, alleges that the company convinced customers and investors that its AI-powered threat detection software was “safe and reliable” when CrowdStrike knew or should have known that its software update was untested and “faulty.”

According to the plaintiff, multiple CrowdStrike executives represented “over and over” that the company “adhered to industry-standard testing and quality assurance requirements” to ensure software updates would not cause customers’ computers to crash. The truth, plaintiff claims, was that CrowdStrike “prioritize[d] speed above all else,” even the testing and federal quality control requirements the company claimed it followed. Ultimately, CrowdStrike suffered a widely reported IT outage in July 2024, which sparked a congressional investigation and caused the stock price to fall by nearly 32%.

The court has appointed a lead plaintiff, which filed an amended complaint, and the case is proceeding to brief a motion to dismiss.

• Raby v. Evolv Techs. Holdings, Inc., et al., 1:24-cv-10761-ADB (D. Mass.)

Massachusetts-based Evolv Technologies Holdings (“Evolv”) develops and sells AI-powered security scanners to detect weapons for security screening in the United States and internationally.

A complaint filed in the District of Massachusetts claims Evolv made false and misleading statements regarding the efficacy of its AI technology, in violation of Section 11 of the Securities Act and Section 10(b) of the Exchange Act. The plaintiffs allege that Evolv inaccurately stated that its technology used “artificial intelligence to reliably detect real threats” and that former CEO Peter George’s further statements in a video posted to Fox Business were false or materially misleading. The complaint follows a notable Federal Trade Commission (the “FTC”) investigation and action against Evolv, in which the FTC alleged that Evolv deceived users about its AI-powered security system. Evolv ultimately settled the FTC’s allegations without admission of wrongdoing.

Defendants have not yet responded to the complaint.

• Schlaegel v. Palo Alto Networks Inc. et al., No. 3:24-CV-01156-CRB (N.D. Cal.)

Palo Alto Networks, Inc. (“PANW”) is a global cybersecurity company based in Santa Clara, California, that offers an enterprise cybersecurity platform for network security, cloud security, and various cloud-delivered security.

A complaint was filed in the Northern District of California alleging PANW made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder regarding demand for its platform.

The plaintiff suggested that PANW damaged investors when it announced reduced billings guidance that revealed a shift in strategy and ultimately led to a share price decline.

The complaint asserts that PANW’s statements, including that it was “uniquely positioned in the industry” to be able to deliver AI-based outcomes to customers, were false and misleading. The plaintiff claims that the company’s marketing and advertising misrepresented the company’s demand and that, contrary to PANW’s statements, the business’s AI offerings did not facilitate an expansion of its platform, leading to a subsequent reduction in billing guidance and a shift in strategy.

Defendants filed a motion to dismiss, arguing that the statements were not false or misleading because the company provided undisputed metrics regarding the success of platformization and AI products, which plaintiff did not challenge. Defendants further argue that the claims should be dismissed for lack of scienter. Oral argument is scheduled for April 11, 2025.

• Shiyao v. Xiao-I Corp. et al., No. 1:24-cv-7837 (S.D.N.Y.)

China-based Xiao-I Corporation (“Xiao-I”) is a holding company that develops smart technology, including AI-backed natural language processors, through its subsidiary Shanghai Xiao-I.

An investor class action against Xiao-I was filed in New York federal court claiming Xiao-I violated Section 11 of the Securities Act as well as Section 10(b) of the Exchange Act.

The plaintiff alleges that although Xiao-I “consistently represented” its AI technology as “industry-leading,” claiming its “robust research and development resources distinguished the Company from its competitors,” it omitted key financial and performance metrics in connection with Xiao-I’s AI research and development that are required by SEC Regulation S-X and that demonstrated AI was not driving company performance.

The complaint alleges that the SEC wrote Xiao-I a letter in July 2023, four months after its IPO, requesting the company to revise its initial financial statements to comply with the agency’s requirement that various categories of income must be “state[d] separately” on financial statements to ensure transparency and accuracy in financial reporting. The resulting series of amended filings, according to plaintiff, revealed that Xiao-I’s gross margins for its technology development services were “significantly lower” than its margins for software sales, undermining its earlier suggestions that AI was driving the company’s performance metrics. The plaintiff claims they would not have known about this key performance indicator but for the amended disclosures. Xiao-I’s share price fell by as much as 38% following the revised filings.

Federal court proceedings against Xiao-I are ongoing. The company is expected to file its motion to dismiss by May 7, 2025.

• Steiner v. UiPath, Inc., 1:24-cv-04702 (S.D.N.Y.)

Founded in 2005, UiPath Inc. (“UiPath”) is a global software company that makes robotic process automation software. In a complaint in the Southern District of New York, plaintiff claims UiPath violated Section 10(b) of the Exchange Act by making statements regarding its AI business platform while concealing adverse material information about UiPath’s business and revenue prospects. The complaint alleges that UiPath made false statements regarding its business model delivering results from the “whole AI movement.” UiPath rebranded as an AI-powered business automation platform and overhauled the company’s go-to-market sales strategy. statThe price of UiPath stock increased nearly 27% on the news, from $19.76 per share on November 30, 2023, to $25.04 per share on December 1, 2023. In tandem with the departure of the company’s CEO, UiPath announced “disappointing 1Q 25 financial results and significantly cut its FY 25 revenue guidance by 10%, or $150 million.” Company representatives later stated, “AI is creating a little bit of confusion with our customers.”

A motion to dismiss has been filed, and briefing is ongoing.

• Walker v. iLearningEngines, Inc. et al., No. 8:24-cv-02900 (D. Md.)

iLearning Engines, Inc. (“iLearningEngines”) is a cloud-based AI learning automation and data analytics platform that creates personalized training tools for customers in multiple sectors, including healthcare, education, and manufacturing.

In a complaint filed in Maryland federal court, plaintiff claims that iLearningEngines violated Section 10(b) of the Exchange Act by making false and misleading statements about its business operations and prospects.

The complaint alleges that an August 2024 report revealed that iLearningEngines partnered with an “undisclosed related party” to report “largely fake” revenue and expenses, including $138 million from the Indian market in 2022 when actual revenue was closer to $850,000. When the truth was revealed, according to the complaint, the stock price dropped by over 53%.

In December 2024, iLearningEngines initiated Chapter 11 bankruptcy proceedings in Delaware Bankruptcy Court, and the court administratively closed without prejudice the class action against the company.

Conclusion

As AI continues to evolve and attract significant investment from both start-ups and established companies, the landscape of AI-related securities litigation is becoming increasingly complex. Public companies are under heightened scrutiny to disclose accurately their AI capabilities and associated risks, including quality control, privacy, intellectual property, data-use limitations, cybersecurity, bias, and transparency. The surge in government and regulatory oversight further amplifies the potential for event-driven securities litigation. Moving forward, it is crucial for companies to consider meticulously their AI-related disclosures to mitigate future risks. We remain vigilant in monitoring these developments to provide strategic guidance and support to our clients navigating this dynamic and challenging environment.