Sec Lit IQ: MoFo’s Quarterly Federal Securities Litigation and Delaware Corporate Litigation Newsletter (Q1 2026)

In our latest edition of MoFo’s Quarterly Federal Securities and Corporate Litigation Newsletter, we provide a rundown of select developments from the first quarter of 2026, including:

• A decline in securities class action filings in 2025, with exposure increasingly concentrated in higher-value “mega” cases;
• A jury verdict of securities fraud based on an executive’s social media statements about a proposed acquisition;
• A pending Supreme Court decision that may resolve a circuit split over the SEC’s authority to seek disgorgement;
• SEC guidance on the application of federal securities laws to certain digital assets;
• Updates to the SEC’s Enforcement Manual for the Wells process and settlements; and
• A Delaware Supreme Court decision upholding key amendments to the Delaware General Corporation Law.

Securities Class Action Volume Declines, While Exposure Concentrates in Mega Filings

According to new data published by Cornerstone Research,[1] the number of new securities class actions declined in 2025, while the economic impact of those cases increased significantly. There were 207 new securities class actions in 2025, which is down from 226 cases in 2024. The decline was more pronounced in the second half of the year.

The estimated market-capitalization losses associated with new filings grew last year, with cases increasingly concentrated in “mega filings.” The Disclosure Dollar Loss (DDL) measures the dollar-value change in a defendant’s market capitalization between the day immediately preceding the end of the class period and the trading day immediately following it. After adjusting for inflation, the median DDL for new filings increased from $410 million in 2024 to $503 million in 2025, which is the highest on record. The number of “mega filings,” with a DDL over $5 billion, accounted for 81% of the total DDL across all securities class actions, which is well above the historical average of 65%. The number of mega filings was about the same (with 25 new cases in 2025), but the aggregate DDL increased from $315 billion in 2024 to $564 billion in 2025.

Filing risk also varied by industry, sector, and jurisdiction. Among the S&P 500, health care companies faced the highest likelihood of a traditional federal securities class action, at 16.7%. In the technology sector, the number of new filings decreased, but the dollar amounts at issue increased significantly. The AI industry is a growing target for plaintiffs, with the number of AI‑related filings rising to 16 in 2025. In the consumer cyclical sector, however, filings dropped nearly 50%. And COVID-19-related filings fell to their lowest level since 2020.

As in prior years, federal complaints were dominated by Rule 10b-5 claims, present in over 90% of all filings, as compared to only 10% of cases asserting 1933 Act Claims. Similarly, over 90% of cases alleged misrepresentations in SEC filings and press releases announcing financial results, 16% alleged accounting violations, and 7% related to internal-control weaknesses.

Overall, the percentage of companies listed on a U.S. exchange and subject to any filing declined from 4% in 2024 to 3.6% in 2025. The long-run picture modestly favors defendants, with slightly more dismissals than settlements. Between 1997 and 2025, 45% of federal securities class actions were dismissed, while 46% settled. More recently, from 2015 to 2022, dismissals outpaced settlements, with 54% of cases ending in dismissal and 39% settling. The rest are either ongoing or remanded to state court.

Beyond filing trends, Cornerstone Research’s report also highlighted two procedural developments. The Sixth Circuit clarified the standard under which mixed omission and misrepresentation cases are analyzed, which gives defendants stronger grounds to defeat class certification, in In re FirstEnergy Corp. Securities Litigation. Additionally, the SEC issued a policy statement signaling greater acceptance of issuer-investor mandatory arbitration provisions. This policy may reduce one concern for issuers considering whether to include such provisions when going public.

Takeaways:

• Filing volume declined overall, and litigation exposure became increasingly concentrated in a smaller number of higher value cases.
• Growing sectors and industries, like AI and health care, face increased challenges from private plaintiffs. Despite the shifting focus in sectors, however, the underlying claims often focus on the same legal issues.
• A new circuit-level ruling provides an additional basis to overcome a presumption in mixed omission and misrepresentation cases.

Securities Fraud for Social Media Statements in Pampena v. Musk

On March 20, 2026, a jury in the Northern District of California returned a verdict against Elon Musk for securities fraud related to his acquisition of Twitter, Inc. (now X Corp.).[2] The outcome offers a rare insight into a jury’s application of Rule 10b-5 and Section 10(b) of the Securities Exchange Act to an executive’s statements on social media.

The case arose from Musk’s agreement to acquire Twitter for $44 billion in 2022, followed by a series of public statements questioning the prevalence of spam and bot accounts on the platform, putting the status of the deal in question. Plaintiff shareholders alleged that Musk’s statements were part of a strategy to depress Twitter’s stock price and renegotiate or exit the deal. 

Plaintiffs alleged three statements were materially misleading because they implied uncertainty that did not reflect Musk’s true intent or contractual obligations. The jury agreed in part. More specifically, the jury found liability for Musk’s statements that the acquisition was “temporarily on hold” and that the “deal cannot move forward” without more information from Twitter about the prevalence of bots or spam accounts. However, the jury rejected the claim based on Musk’s more general statement at a public event concerning bots on Twitter’s platform, which did not comment on the status of the deal, and which Musk framed as an opinion that summarized the statements of others.

The jury also rejected plaintiffs’ broader theory alleging a “scheme to defraud,” whereby Musk engaged in a coordinated effort to manipulate Twitter’s stock price through this series of public statements. This outcome underscores the continued difficulty of converting a series of public communications into a unified theory of securities fraud, which requires a higher showing of intent and coordination to establish a cohesive fraudulent scheme.

The case reflects a broader trend toward heightened scrutiny of executives’ use of social media as a disclosure channel. Both regulators and private plaintiffs continue to test the boundaries of when informal, real-time communications become actionable under the federal securities laws—particularly where those statements intersect with market-moving events such as mergers, financings, or major corporate disclosures.

Takeaways:

• Executives’ social media activity can carry risk under securities laws, particularly when tied to live transactions.
• Rule 10b-5 liability is granular and fact-specific. Juries may parse statements individually, rather than adopting a sweeping theory of fraud.
• Scienter for a scheme to defraud remains a high bar, even where related statements are found misleading.

Supreme Court Will Resolve Circuit Split in SEC Disgorgement Actions

The U.S. Supreme Court held oral argument in Sripetch v. Securities and Exchange Commission on April 20, 2026. The question presented is whether the SEC may obtain equitable disgorgement under 15 U.S.C. §§ 78u(d)(5) and (7) without showing that investors suffered pecuniary harm. The ruling is anticipated to resolve a split between the Ninth Circuit and Second Circuit.

In Sripetch, the defendant was accused of engaging in pump-and-dump schemes involving penny stocks and ordered to pay $2.2 million in disgorgement and interest. On appeal, the Ninth Circuit affirmed the award and held that the SEC need not prove investor losses to seek disgorgement.[3] The court reasoned that disgorgement focuses on stripping a wrongdoer’s unjust gains, and nothing in the statutory text conditions that remedy on proof of pecuniary harm.

This sets the Ninth Circuit at odds with the Second Circuit’s decision in SEC v. Govil, which held that disgorgement requires a showing of pecuniary harm to investors.[4] There, the Second Circuit emphasized that disgorgement must operate for the benefit of victims and therefore requires evidence of actual financial loss to identifiable investors. Now, in Sripetch, the SEC supported certiorari to resolve the split and argues that the Ninth Circuit’s approach is correct. The disagreement reflects a deeper divide over whether disgorgement is primarily aimed at undoing a defendant’s unjust enrichment or compensating victims.

Takeaways:

• If the Supreme Court adopts the Ninth Circuit’s approach, the SEC may expand its use of disgorgement theories without needing to identify harmed investors.
• If the Supreme Court adopts the Second Circuit’s approach, the SEC may rely more heavily on alternative remedies in civil enforcement actions.
• Regardless of the outcome, SEC enforcement actions will remain highly fact-dependent, with statutory interpretation continuing to play a central role.

SEC Issues Digital-Asset Guidance

The SEC issued formal interpretive guidance regarding the application of federal securities laws to certain crypto assets and related transactions, effective March 23, 2026.[5] As explained by SEC Chairman Paul Atkins, “most crypto assets are not themselves securities” under this guidance. The SEC provided categorical asset classifications with different treatment for digital commodities, digital collectibles, digital tools, covered payment stablecoins, and digital securities.

The five-part taxonomy breaks down as follows:

• Digital commodities are crypto assets associated with a functional crypto system, which have a value that comes from the programmatic operation of that system and supply-and-demand dynamics, rather than expected profits from others’ managerial efforts. Digital commodities include BTC and ETH. Under the new SEC guidance, digital commodities are not securities.
• Digital collectibles are crypto assets collected or used for artwork, music, videos, trading cards, in-game items, memes, characters, current events, or trends, like NFTs. Under the new SEC guidance, digital collectibles are not securities.
• Digital tools are crypto assets with a practical function, such as a membership, ticket, credential, title instrument, or identity badge. Under the new SEC guidance, digital tools are not securities.
• Stablecoins may or may not qualify as securities, depending on the facts and circumstances. The GENIUS Act specifically identifies certain payment stablecoins as non-securities.
• Digital securities are tokenized versions of traditional financial instruments that fall within the federal securities laws. They remain securities.

Despite its break from prior guidance, the SEC’s new guidance still applies the Howey test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946). A token that is not itself a security can still be sold as part of a securities transaction if the promoter markets it together with promises to build, manage, or complete a network in ways that cause purchasers to expect profits from the promoter’s essential managerial efforts. Under the SEC’s interpretation, however, that connection can end once those promised efforts are either completed or clearly abandoned so that purchasers no longer reasonably expect profits from them. The SEC also clarified that any registration or anti-fraud liability tied to the original offering remains.

Takeaways:

• Because the new guidance is Commission-level interpretive guidance that supersedes the withdrawn 2019 framework, it should be treated by crypto issuers, trading platforms, funds, and other market participants as the SEC’s current baseline for classifying common crypto assets and transactions.
• The new guidance draws a clearer line between crypto assets that are not themselves securities and tokenized securities, while preserving the SEC’s view that even a non-security token can be sold as part of an investment contract depending on how it is marketed and what managerial promises accompany the sale.

SEC Updates its Enforcement Manual

The SEC announced significant revisions to its Enforcement Manual on February 24, 2026—the first major update since 2017.[6] Going forward, the manual will be reviewed annually.

The revisions are intended to provide clarity to individuals who are subject to an investigation and standardize the existing Wells process, whereby an individual is informed that the SEC is considering an enforcement action and invites a response. The revised manual states that Wells recipients will ordinarily have four weeks to respond; SEC staff should identify salient, probative evidence that may be unknown to the recipient; post-Wells meetings should be held within four weeks of the submission; and those meetings should include senior division leadership. The enforcement manual also provides guidance on best practices for Wells submissions. Settlement offers must still be submitted separately from Wells responses.

The updated manual also restores the Commission’s prior practice of simultaneously considering settlement offers and related waiver requests. This change allows parties to see the SEC’s decision on whether it will grant a waiver before agreeing to a settlement, which increases predictability and certainty in resolving claims. The waivers relate to automatic disqualifications, such as losing well-known seasoned issuer (WKSI) status and “bad actor” disqualification under Rule 506.

Takeaways:

• The revised Wells procedures confirm that early advocacy can materially shape the SEC process, underscoring the importance of engaging counsel early in the process.
• The restored practice of simultaneous review of settlement offers and waiver requests will increase certainty in resolving enforcement actions by enabling parties to assess the SEC’s position on waivers before agreeing to any settlement offer.

Delaware Supreme Court Upholds Core S.B. 21 Amendments

The Delaware Supreme Court recently upheld challenged portions of S.B. 21, which made several key changes to Delaware General Corporation Law, in response to companies considering reincorporation in other states. On February 27, 2026, the court’s opinion in Rutledge v. Clearway Energy Group LLC rejected arguments that the amendments impermissibly constrained the Court of Chancery’s equitable authority and unlawfully applied to pre-enactment conduct.[7]

S.B. 21 included several important changes to Delaware law. Enacted in March 2025, the legislation was a response to the so-called “DExit” movement, with a flurry of reincorporation announcements and rising concerns that more companies would reincorporate in other states unless Delaware restored greater predictability in its corporate law rules.[8] Among other changes, the legislation amended Section 144 to provide safe harbor for conflicted transactions involving directors, officers, and controlling stockholders that are approved through various methods, such as an independent committee or stockholder approval, depending on the type of transaction.  S.B. 21 also added a statutory definition of “controlling stockholder,” which requires owning a majority of voting power, having the contractual right to elect a majority of the board, or holding at least one-third voting power combined with managerial authority. The legislation also restricted the scope of stockholders’ requests for “books and records” under DGCL § 220.

In Rutledge, a stockholder of Clearway Energy, Inc. brought a derivative action to challenge a controller transaction, including two constitutional questions about the safe harbors in S.B. 21. The plaintiff argued that the legislation improperly restricted the Court of Chancery’s authority to award equitable relief, even when the safe harbor was satisfied, and should not apply retroactively to pre-enactment transactions. The Delaware Supreme Court rejected both challenges. This ruling substantially reduces the constitutional uncertainty around the amendments and shifts focus in future cases to whether the statute’s conditions are met.

Takeaways:

• The Rutledge decision gives boards, controllers, and transaction planners greater confidence in relying on the amended statute’s safe harbor provisions.
• This result is consistent with Delaware’s broader effort to respond to “DExit” pressures for reincorporation by providing greater certainty.
• Section 220’s amendments are not addressed by this opinion.

[1] Cornerstone Research, “Securities Class Action Filings 2025 Year in Review,” available at https://www.cornerstone.com/insights/reports/securities-class-action-filings-2025-year-in-review/.

[2] Pampena v. Musk, 22-cv-05937 (N.D. Cal.), ECF No. 538 (Mar. 20, 2026).

[3] SEC v. Sripetch, 154 F.4th 980 (9th Cir. 2025).

[4] SEC v. Govil, 86 F.4th 89 (2d Cir. 2023).

[5] Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412; Securities Exchange Act Release No. 34-105020 (Mar. 17, 2026), 91 Fed. Reg. 13714 (Mar. 23, 2026); U.S. Sec. & Exch. Comm’n, Fact Sheet: Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets (Mar. 17, 2026); Commodity Futures Trading Commission, CFTC Joins SEC to Clarify the Application of Federal Securities Laws to Crypto Assets (Mar. 17, 2026).

[6] SEC’s Division of Enforcement Announces Updates to Enforcement Manual, Press Release No. 2026-20 (Feb. 24, 2026); U.S. Sec. & Exch. Comm’n, Enforcement Manual §§ 2.3, 2.5.2.1, 4.3, 6.2.9, 6.3 (updated Feb. 24, 2026); Paul S. Atkins, Statement on Simultaneous Commission Consideration of Settlement Offers and Related Waiver Requests (Sept. 26, 2025).

[7] Rutledge v. Clearway Energy Group LLC, No. 248, 2025, slip op. at 5, 13–16 (Del. Feb. 27, 2026).

[8] Bipartisan Legislation Filed to Promote Clarity and Balance in Delaware’s Corporate Laws, Del. Senate Democrats (Feb. 17, 2025), https://senatedems.delaware.gov/2025/02/17/bipartisan-legislation-filed-to-promote-clarity-and-balance-in-delawares-corporate-laws/; Delaware Division of Corporations, 2024 Annual Report.