With Third-Party Class Action Recovery, You Get What You Pay For

When choosing providers to submit investment-related class action claims, institutions are often ‘penny wise and pound foolish.’ They frequently focus on how providers present their submission services but overlook their processes for handling rejections. If claims don’t survive the deficiency process when administrators audit and verify submissions, they don’t get paid. In the end, that’s the point of the exercise.

Low-cost providers lack the economic margins necessary to effectively respond to claim rejections. They can’t expend the additional technology and staffing resources needed to fully respond. For larger funds, inadequately challenged rejections can mean the loss of hundreds of thousands of dollars each year, far more than the typical savings from choosing the least expensive providers.

For example, FRT recently challenged the rejection of claims by more than a dozen clients excluded from a securities class action settlement because they were allegedly affiliated with an excluded entity. Our legal team prepared a brief in letter form and supporting client letter for inclusion in the plaintiffs’ motion for final distribution, arguing that these claims were valid and should be allowed.

The clients settled their dispute and the amount received will cover the costs of years of service with FRT. If FRT had not contested the rejections, the clients would not have received anything.

So, after asking prospective vendors how they prepare claims, investors should also ask how they plan to defend them. As this example shows, recovery from one successful deficiency challenge – with a vendor able to effectively contest rejections – can more than make up for any savings with providers who cannot.

The Deficiency Process

Following claim submission, administrators examine the validity of claims. For all matters, they use technology to flag anomalies: missing data fields, trading prices out of market price ranges, trades outside of class periods, etc. Beyond that, the scope of the deficiency review depends on the type of matter.

For securities class action settlements, administrators exercise additional scrutiny on a small percentage of claims, usually those with the largest Recognized Loss (RL) and greatest potential payouts. During such audits, claimants frequently must provide additional documentation and information to substantiate their claims.

For Canadian securities class action settlements and SEC Fair Funds, the requirements are even more rigorous, with claimants having to provide full supporting documentation for all claims, not just the higher-value ones.

Related: 5 Ways the Shareholder Class Action Market Evolved in 2025

Increased Challenges with Deficiencies

During the past few years, claim scrutiny and deficiency challenges have increased for several reasons.

The overall number of filed claims has increased, and fraudulent ones are on the rise. As a legal commentator noted: “[o]ne claims administrator recently reported that it received 80 million fraudulent claims in 2023, an increase of 19,000% since 2021.” [1]

Higher volumes of claims not only stretch administrator resources, but also necessitate more anti-fraud measures and increased vetting. At the same time, administrators are under pressure from courts and counsel to limit their budgets while reducing administration times. This squeezes their margins – the administrators must do more for less. As a result, we’re seeing:

• more claim rejections;
• rejections received later in the process as administrators become stretched and take longer to send them;
• shorter and stricter deadlines to provide supplemental information and correct defects;
• vaguer rejection codes;
• and fewer explanations of issues and what’s needed to correct them.

In short, administration processes have become more biased towards claim rejections, requiring claimants to push back harder to ensure payment. Many class action providers do not have the resources, processes, or ability to successfully respond to rejections to ensure claim survival. The more claims that are rejected without challenge from claimants, the faster the settlement can be administered. This may explain why the average time for settlement administration has fallen from 12 to around 7 months (a 42% reduction) in recent years – despite higher claim filing rates.

How FRT Is Responding

FRT has approached these challenges in two ways. First, with technology to ensure administrators receive the records they need to support claims. Greater use of APIs has lessened the burden of providing large volumes of supporting documentation. However, that’s only part of the solution. Once gathered, custodial records must match submitted data. This is often challenging because custodians record and maintain information in different ways and use various naming conventions for data fields, such as transaction types.

In response to rejections, administrators also insist that claimants provide information in ways that are easy for them to validate. They push back on voluminous data and formats that do not allow for simple review. FRT has built proprietary technology enabling us to:

• quickly focus on specific trade details in large custodial PDFs;
• trace the lineage of transfers between client accounts (even when they come from multiple accounts);
• unpack trade details that custodians have aggregated;
• and to solve many other issues resulting from the vagaries of custodian recordkeeping.

While technology can resolve many claim rejections, it can’t solve them all. FRT also has an in-house legal team comparable in resources and experience to a small law firm that, among other things, supports our claims team during the deficiency process. The team is led by a lawyer who prosecuted and settled securities class actions for institutional investors for more than a decade.

When appropriate, our legal team pushes back on administrators and class counsel when we have disagreements concerning eligibility, loss calculations, alternative substantiation records, and other types of rejections not related to the extraction and matching of claim details to custodial records.

Competitors charging commodity prices for their services cannot contest rejections at this level. Their margins are not sufficient to support the manual and time-consuming efforts necessary to cure rejections, or to support investment in technologies to automate the process.  They do not have the equivalent internal legal resources or relationships needed to push back on claim rejections effetively, or the ability to prepare legal arguments for presentation to courts in conjunction with motions for final distribution to pressure for claim inclusion.

Key Takeaway

When selecting a claim submission service, investors should press class action providers not only on the comprehensiveness of their claim submission processes, but also on their ability and resources to ensure claims survive the deficiency process. Low-cost firms may accept significant claim attrition rather than challenge many deficiencies, lessening your total recoveries. Successfully opposing the rejection of just one large claim could more than offset any savings from going with the cheapest provider.

Investors shouldn’t risk their recovery program by being penny wise and pound foolish.

For more examples of how FRT has used technology and internal legal resources to increase client recoveries, please don’t hesitate to contact our team.

[1] See Rising Fraudulent Claims Submitted to Class Action Settlement Funds Heighten Settlement Risk, Jones Day (June 21, 2024), Rising Fraudulent Claims Submitted to Class Action Settlement Funds Heighten Settlement Risk – Lexology.