Roughly 14% of US IPOs are later hit with securities litigation, a Stanford Law analysis shows — a risk that, together with rising insurance premiums and uncertain court outcomes, is prompting some firms to delay or abandon plans to go public.

Litigation numbers on the rise

A Stanford Law School analysis, summarised by Kevin LaCroix and discussed on The Coyle Group site, found roughly 14% of initial public offerings between 2010 and 2019 were subject to securities litigation.

The study showed an increase from a roughly 10–16% range earlier in the decade to about 18% in 2017, and projected the figure rose to about 21% for IPOs in 2019 once the full statute‑of‑limitations window had run. Plaintiffs typically have up to three years to bring claims tied to an IPO, which explains the lag between an offering and filings.

When the study limited its sample to troubled listings — those whose share price fell 20% or more within three years — the incidence of litigation rose markedly after 2013. In short, sharp post‑listing declines attract attention and often lead to litigation.

The research links higher rates of post‑IPO suits to increased demands from insurers, underwriters and counsel — all of which affect whether a company proceeds with a public listing.

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How courts reshape incentives

An academic paper published online in 2025 examined how federal judge ideology relates to IPO underpricing and found a clear pattern: offerings adjudicated in districts with more liberal judges tended to show larger first‑day returns.

Specifically, the study reported that the sample’s lowest decile of “liberal court” judges saw an average first‑day return of about 11.75%, while the highest decile saw roughly 27.23%. Non‑parametric and regression tests in the paper confirmed a positive link between judge ideology and IPO underpricing.

That relationship can influence firms and advisers when planning a float: expected forum, likely judicial outlook and choice of exchange can affect pricing, legal exposure and the economics of going public.

Recent courtroom precedent: the Tuya case

On 7 March 2025, Davis Polk announced it had won dismissal of a securities class action against Tuya, Inc. in the Southern District of New York. Tuya, which listed in March 2021, faced a putative class action alleging its IPO registration statement failed to disclose that some third‑party customers ran a scheme to generate fake Amazon reviews.

Judge John P. Cronan granted judgment on the pleadings after earlier denying a motion to dismiss and permitting discovery. The court concluded the complaint did not show the registration statement had implied the issuer vouched for customers’ conduct, nor that Tuya had the means to police every third party without diverting huge resources.

Edmund Polubinski, partner at Davis Polk, led the defence team that secured a full dismissal. The ruling clarifies when omissions in IPO registration statements are actionable and distinguishes issuer statements from independent third‑party misconduct.

This matters because insurers, underwriters and counsel can change the economics of a float: higher premiums and the prospect of post‑IPO suits affect pricing, choice of exchange and whether companies proceed to list. Judge‑by‑judge differences in rulings — and the underpricing patterns linked in the study to more liberal districts — mean firms and advisers now explicitly factor likely forum and judicial outlook into IPO planning.

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With plaintiffs typically having up to three years to bring claims, companies that listed in recent years can still face suits — and the Tuya dismissal on 7 March 2025, by Judge John P. Cronan, provides a defence precedent that counsel will likely invoke in future motions.

This article was created with AI assistance.