Securities Suit Risks From Covid Pandemic Still Linger Years Later

The impact of the Covid-19 pandemic, even as it recedes into history, is expected to provide fodder for new securities litigation in the year ahead after buoying activity in 2024.

The longevity of the trend surprised legal observers, with one saying that some business effects from the public health crisis may be still recent enough to generate a number of investor lawsuits in 2025.

Suits against ZoomInfo Technologies Inc., Rent the Runway Inc., and Humana Inc. were among those filed in 2024, alleging changes in demand for software, clothing rentals, and medical services , respectively, as the pandemic progressed and abated. Other business effects of Covid could persist in litigation in the coming year.

Overall, the number of new securities class actions held steady in 2024, according to newly released data analyses. That’s unusual, said Jill Fisch, a professor at the University of Pennsylvania Carey Law School. “We tend to see more securities fraud filings when there’s a market downturn, and the public markets have been pretty robust over the last few years,” Fisch said. “Usually when the stock price rises, even if you think you were lied to, you don’t actually have an actionable securities fraud claim.”

Some 229 class actions were filed in both 2023 and 2024, according to a National Economics Research Associates Inc. report on securities class action trends released Jan. 22. A Cornerstone Research report released Jan. 29 comparably shows 225 such complaints filed last year.

New investor suits over cryptocurrency and initial public offerings declined from previous years, according to the groups’ data. Those trends may reverse in 2025, attorneys say. But suits over artificial intelligence, already on the rise, are expected to increase further.

Covid’s Long Shadow

Nineteen Covid-related suits were filed in 2024, up from 13 in 2023, according to NERA. Cornerstone counted 15 such suits in 2024, up from 11 in 2023.

The increase “is interesting because you’d think we were past those types of cases,” said Jonathan Youngwood of Simpson Thacher & Bartlett LLP. “My prediction would be you don’t see an increase in these in ’25 over ’24 because you’re starting to get even more distant from the pandemic.”

But Fisch said it depends on the nature of the claims. “Is it that a company wasn’t accurately disclosing Covid-related effects on its business? That seems a little bit untimely,” she said. But if a company had a problem with its entitlement to Covid relief money, or failed to realize Covid-related opportunities, or a vaccine maker’s product was unsuccessful and misrepresentations are alleged, those events could be more recent, she said. “Things like that could have a long tail in terms of possible lawsuits,” she said.

The pandemic might also have a role in NERA’s data showing a higher percentage of dismissals in 2024 over previous years.

That increase could be at least partially due to courts “catching up post-Covid, back in chambers full time, and perhaps reducing some of the backlog,” said Scott Musoff of Skadden, Arps, Slate, Meagher & Flom LLP.

Musoff also attributed some of the rise to some plaintiffs’ firms “pushing quantity over quality in the types of cases they bring, and as those percolate through the system, the number of dismissals has increased.”

Crypto Down, AI Up

NERA and Cornerstone both show a decline in the number of digital asset cases filed in 2024. According to NERA, filed cases—including cases alleging the offer of unregistered securities and those brought by shareholders—stood at 29 in 2022, 17 in 2023, and eight in 2024. Cornerstone shows 23, 15, and seven for the three sequential years.

The direction of crypto litigation in the next year raises a broader question, according to Fisch, who serves on an advisory board for the plaintiff-side Institute for Law and Economic Policy: Should private securities litigation mirror SEC enforcement trends or fill a gap?

Skadden is watching for regulatory changes with the new administration and whether private plaintiffs step in to fill a gap, firm partner Lara Flath said. “If in fact there is a change in regulatory priority and approach, but also as the capital markets open up, if the crypto industry also continues to expand in a more friendly regulatory environment, plaintiff attorneys can be very creative in looking for ways to find cases,” she said.

Suits alleging securities fraud related to artificial intelligence more than doubled to 13 in 2024 from six in 2023, according to NERA, with Cornerstone showing a jump to 15 from seven.

“We would certainly expect that to continue as AI continues to proliferate” in many areas of life, Flath said—including in the business world, where companies make statements “about their use of AI, how it’s impacting their business.”

Meanwhile IPO-related suits have declined in number. NERA found only 16 fraud or prospectus and registration misstatement cases related to IPOs, “a 62% decline relative to 2022 and the lowest level of such filings over the past decade,” the report said. That relatively low number is “more of a reflection of the IPO market over the last one or two years,” said Youngwood. “It takes IPOs to make IPO cases.”

That decline isn’t surprising, agreed Musoff. But “if people are correct that 2025 may see an increase in the capital markets, meaning more IPOs, we may be in store for an increase in overall filings in 2025,” he said.