Securities class action litigation, like most other class actions, are opt-out lawsuits, which automatically include members of the class unless those members take affirmative action to exclude themselves.
However, some investors do not participate in the settlement because they view the claims process as too complicated or not worthy of their time. One empirical study by Cox and Thomas (2005) revealed that less than one-third of large institutional investors filed claims in securities class actions. Smaller investors are even less likely to get involved in the claims process.
Over the past two decades, the emergence of third-party filers in securities class action settlements has helped investors collect settlement benefits. A third-party filer, or claims filing service, is a company that seeks out class members and files claims on their behalf. They tend to participate more in securities cases, where claims processes are more complex and the potential recoveries are higher. Once the distribution occurs, third-party filers receive a percentage of their clients’ awards.
Third-party filers can act as a megaphone during class notice, gathering class members and compiling the information necessary to file successful claims. These companies can also minimize the volume of individual class members contacting a settlement administrator with questions, a potential timesaver in the administration process.
While third-party claims filing services can increase class participation and drive valid claims, they may also engage in practices that create additional challenges that attorneys should be aware of to avoid spending unnecessary time and money.
It’s important to understand and avoid the common pitfalls of securities class action filers and identify reputable third-party filers who follow proper protocols.
We have developed and refined some of the best practices when dealing with these entities.
Claims administrators are a crucial part of securities class actions, as they can keep third-party filers on task with better procedures and processes for electronic claims intake. Oversight in these large cases is critical in preventing mishandling or misprocessing claims. With higher value cases on the line, attorneys and administrators working together can proactively improve the success of their securities class action settlements, while enjoying the added filing power of a third-party partner.