SIFMA Corporate Actions – Class Actions Panel: Navigating the Evolving Landscape of SEC Fair Funds
At a recent SIFMA Corporate Actions conference, I shared insights on the growing complexities surrounding SEC Fair Fund distributions. While Fair Funds remain a vital source of recovery for investors, sometimes rivaling the largest securities settlements (e.g., the $200M Barclay’s Fair Fund with a November 29 submission deadline), the process of claiming this money has become more challenging.
Historically, SEC-approved distribution plans have included three core requirements:
- no purchased claims,
- full documentation, and
- full remittance to account holders without third-party deductions.
These standards, while rigorous, were predictable. However, the agency has recently been introducing additional requirements – not formally specified in the Plans and added during ongoing administrations – leading to inconsistencies and strains on client operations teams.
Increased standards have raised rejection rates for claims. In the Mylan Fair Fund, 95% of submitted claims were denied. This has discouraged investors from filing, particularly smaller ones, the group the SEC has historically been most interested in protecting.
The SEC’s goals are clear: to ensure transparency, prevent fraud, and maintain accountability for what it considers government funds. This has led to increased documentation demands and a push for direct engagement between administrators and account holders. For example, new rules will require individual authorization for claims and direct payments, often via check, to ensure traceability and substantiate receipt.
While grounded in sound governance, these measures have created operational hurdles. At FRT, we are finding ways to adapt, relieve burdens for our clients whenever possible. From leveraging APIs that streamline documentation to negotiating processes for advance notification of distributions, when accepted, these creative approaches help bridge the gap between regulatory goals and investor needs.
Collaboration is key. Engaging with the SEC and administrators can lead to practical workarounds that preserve the compensatory purpose of Fair Funds while respecting the agency’s oversight responsibilities.