Going public represents a transformative milestone for any company – a validation of growth and often the realization of years of hard work. Yet this exciting transition also marks the beginning of heightened legal exposure. As briefly discussed in a previous article on IPO readiness, IPO-related litigation remains a persistent threat, ranging from failed offerings and accounting irregularities to allegations of unmet expectations. Here’s what companies preparing for an IPO need to know about their legal exposure risks.

Where litigation risk begins: the road show

Long before the opening bell rings, companies embark on the IPO road show, which includes a carefully orchestrated series of investor presentations designed to generate enthusiasm and secure commitments. These presentations are high-stakes events. The level of interest generated during road shows often determines the IPO’s ultimate success, making the quality and accuracy of these pitches critical.

Road show presentations are comprehensive by design, covering company history, executive experience, mission and strategic vision, historical financial performance, future growth projections and the intended use of IPO proceeds. Investors rely heavily on these representations when making investment decisions. When statements made during road shows are later alleged to be misleading or an IPO underperforms expectations, litigation frequently follows.

Understanding the two primary statutory frameworks

IPO-related securities litigation typically arises under two distinct statutory provisions, each with different requirements and implications for defendants.

Section 11 of the Securities Act of 1933

Section 11 provides a powerful cause of action for material misstatements or omissions in registration statements and prospectuses (i.e., the primary disclosure documents that detail the purpose of the offering, business strategy, risk factors and executive compensation).

What distinguishes Section 11 claims is their strict liability nature. Plaintiffs need not prove intent to deceive; they must only demonstrate that disclosures were materially false or misleading. This significantly lowers the plaintiffs’ burden and makes early dismissal more difficult.

Section 11 claims can be asserted against the issuing company, its directors and officers and the IPO underwriters, creating broad exposure across multiple parties. Damages are typically measured as the difference between the IPO price and the stock price at the time of suit. While these claims might seem likely to arise immediately post-IPO, the 3-year statute of limitations means cases often surface well after the offering, sometimes catching defendants off guard.

Section 10(b) of the Securities Exchange Act of 1934

Section 10(b), by contrast, governs actively traded securities after the IPO and requires plaintiffs to prove scienter (i.e., defendants acted with intent to deceive, manipulate or defraud). Plaintiffs must also establish reliance on the alleged misstatements and demonstrate resulting economic harm.

Section 10(b) claims typically arise following corrective disclosures that trigger stock price declines. As companies move further from their IPO date, securities litigation becomes more likely to proceed under Section 10(b) rather than Section 11. Unlike Section 11, these claims can only be brought against those who actually made the challenged statements – typically the company and certain executives – insulating underwriters from exposure. While damages calculations in Section 10(b) cases are heavily disputed, courts generally calculate the difference between the actual purchase price and the price the stock would have traded at absent the alleged misrepresentations.

The 2025 IPO litigation landscape

Federal courts saw 207 securities class-action filings in 2025. Twelve of those cases, or approximately 6% of total filings, involved IPO companies. Interestingly, these cases didn’t exclusively target 2025 offerings: Five cases involved 2025 IPOs, six targeted 2024 IPOs and one case arose from a 2023 offering.1 This reinforces a critical point – IPO litigation exposure extends well beyond the offering itself, often materializing years later as financial performance diverges from initial projections or as business strategies evolve.

We examine two securities class actions filed in 2025 against companies following their IPOs.

Nayak v. Klarna Group plc, Case No. 1:25-cv-07033 (E.D.N.Y)

IPO Date: September 11, 2025

IPO Price: $40 per share (34+ million shares)

This litigation stems from allegations by shareholders that the registration statement and IPO documents materially understated the credit risk inherent in Klarna’s “buy now pay later” lending portfolio. The plaintiffs specifically allege that Klarna overstated the quality of its credit modeling and scoring, failed to disclose aggressive lending to financially vulnerable consumers for high-risk, small-ticket items (i.e., fast food deliveries), and downplayed the likelihood of materially higher loan loss provisions.

Only two months after the IPO, a corrective disclosure was made on November 18, 2025, advising of a 102% year-over-year increase in provisions for credit losses. As a result, Klarna’s stock price dropped to $31.63, approximately 20% below the IPO price of $40 per share.

This case is in its early stages and remains pending.

Buathongsri v. Zenas BioPharma, Inc., Case No. 25-cv-10988 (D. Mass)

IPO Date: September 13, 2024

IPO Price: $17 per share (13.2 million shares)

This litigation arises out of alleged material overstatements of the company’s cash runway in its registration statement. Specifically, the plaintiffs claim that the registration statement provided that existing cash plus IPO proceeds would fund operations for at least 24 months. However, on November 12, 2024 – again, two months after the IPO – the company disclosed it could only fund operations for 12 months. As a result, the stock dropped to $8.72, approximately 48.7% below the IPO price of $17 per share.

This case also remains pending.

Both cases share a striking commonality: Corrective disclosures occurred just two months post-IPO. In Buathongsri, the IPO was in September 2024, and the corrective quarterly report was filed in November 2024. In Nayak, Klarna completed its IPO in September 2025 and reported its first earnings in November 2025. A growing number of companies face securities litigation based on disclosures made in their first or second quarterly reports after going public.

The timing data tells a more complex story. In 2025, the average lag between an IPO and a federal Section 11 or state Securities Act of 1933 claim was approximately 308 days — a modest increase from 304 days in 2024.2 But that average masks significant variation. Some 2025 claims were filed shortly after the IPO; others pushed right up against the 3-year statute of limitations for Section 11 claims, arriving years into public trading and barely clearing the deadline.

Looking ahead: increased activity on the horizon

As the IPO market regains momentum, litigation filings will likely climb in 2026 and beyond. The plaintiffs’ bar tracks IPO activity closely, viewing newly public companies as attractive targets — and more IPOs mean a larger plaintiff pool.

One emerging risk deserves particular attention: artificial intelligence (AI). AI companies face distinctly elevated securities litigation exposure, with AI-related filings reaching 16 in 2025. As more AI-focused companies go public, “AI-washing” allegations are poised to increase. These claims typically allege that companies materially overstated their AI capabilities, market readiness or competitive advantages — inflating investor expectations in the process.

At least one such claim has already landed in 2026. In Masaitis v. CoreWeave, Inc. (Case No. 26-cv-00355, W.D. Tex.), plaintiffs allege violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. CoreWeave, an AI cloud computing company providing graphics processing unite (GPU) infrastructure for high-performance computing data centers, went public March 28, 2025 — selling 37.5 million shares at $40, raising $1.5 billion. The stock soared to an all-time high of $183.58 on June 20, 2025, a 348% jump from its IPO price.

The complaint alleges defendants made materially false or misleading statements by concealing three critical facts:

  • CoreWeave overstated its ability to meet customer demand for AI infrastructure services
  • CoreWeave understated the risks of relying on a single third-party data center supplier to fulfill orders and meet revenue guidance provided to investors
  • Those risks were reasonably likely to materially harm revenue

The alleged stock decline tied to these misstatements totaled $36.11 per share — a 34% drop that erased roughly $14 billion in market capitalization. The case remains pending.

Masaitis v. CoreWeave captures two converging trends: AI-washing allegations against companies that oversell their capabilities and post-IPO volatility where early euphoria of the stock quadrupling before collapsing gives way to operational reality.

Strategic implications

For companies contemplating an IPO, the litigation risk landscape requires proactive preparation. Key strategies for directors and officers to consider include, but are not limited to, the following:

  • Directors and officers (D&O) insurance. Robust D&O insurance with adequate capacity and appropriate retention levels are essential. Side A difference-in-conditions coverage provides critical protection for individual directors and officers when corporate indemnification is unavailable.
  • Disclosure discipline. Every statement in registration documents, road show presentations and post-IPO communications should be rigorously vetted for accuracy and completeness. Particular scrutiny should be applied to forward-looking statements, especially those involving emerging technologies or novel business models where performance history is limited.
  • Conservative disclosure considerations. The strict liability nature of Section 11 means that even well-intentioned companies can face significant exposure for statements that, in hindsight, prove overly optimistic or incomplete.

In this environment, disciplined and conservative disclosure practices and comprehensive insurance protection are not merely prudent; they are central components of any successful public offering strategy. As IPO activity picks up in 2026, companies need to enter the public markets with realistic expectations about securities litigation risk and insurance protection to match.

Ready to tighten up your IPO risk mitigation strategy? Contact a HUB ProEx Specialist today. View more articles in HUB’s ProEx Advocate Articles & Insights Directory.

NOTICE OF DISCLAIMER
Neither HUB International Limited nor any of its affiliated companies is a law firm, and therefore, they cannot provide legal advice. The information herein is provided for general information only and is not intended to constitute legal as to an organization’s or individual’s specific circumstances. It is based on HUB International’s understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect, and HUB International does not have an obligation to update this information. You should consult an attorney or other legal professional regarding the application of the general information provided here to your organization’s specific situation and particular needs.

1The D&O Diary, “Federal Court Securities Suit Filings Declined Slightly in 2025,” January 4, 2026.
2Cornerstone Research, “Overall Size of Securities Class Action Filings Reached New Heights in 2025,” January 28, 2026.