Securities class action lawsuits are becoming increasingly common and demanding higher damage amounts. A securities class action is a lawsuit brought on behalf of a group of private plaintiffs demanding that a company pay damages to investors for allegedly defrauding them. They commonly arise when a public company’s stock price drops after the announcement of a negative event. Companies should maintain robust compliance and risk management procedures in order to reduce the likelihood of such claims. Securities class action cases follow predictable steps, making it essential for companies to understand the general sequence of events and deadlines.

Most securities class action lawsuits assert violations under the federal or state securities laws. More specifically, these lawsuits typically claim violations under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. These rules impose liability on companies for any misstatement or omission of a material fact to investors. A material fact is one that investors would deem important to their investment decision. Claims under Section 10(b) and Rule 10b-5 require scienter, or the intent to defraud investors. The plaintiffs are claiming that they have suffered economic losses as a result of the company’s false statements.

The class period is the specific timeframe during which investors purchased and sold securities of the company that allegedly violated U.S. securities laws and resulted in economic losses for investors. Similar to other class action lawsuits, securities class action lawsuits follow the procedural rules in Rule 23 of the Federal Rules of Civil Procedure. Four elements must be present in order to bring a class action: numerosity, commonality, typicality, and adequacy. A notice of the class action must be sent out to all identifiable class members.

The securities class action lawsuit commences once a plaintiff files a complaint with the court. The first plaintiff to file a complaint is obligated to publish a press release to inform other shareholders that the lawsuit has commenced and to provide notice that an investor seeking the “lead plaintiff” role must file a motion with the court within 60 days. The court will pick or more investors to be the lead plaintiffs based on their financial losses and ability to adequately represent the entire class.

The plaintiffs must file a motion for class certification with the court for the lawsuit to proceed further. Before class certification is granted, the lawsuit is called a putative class action. The motion for class certification is often filed after a surviving a motion to dismiss by the company. If class certification is approved, the case proceeds to the discovery stage.

While some securities class actions may go to trial, the parties reach a settlement beforehand in the vast majority of cases. In 2025, there were 74 securities class action settlements totaling $3 billion. The median settlement amount was $17.3 million in 2025. Settlement amounts are on pace to increase in 2026. In the first half of 2026, there were 39 securities class action settlements totaling $2.2 billion.