This content is from: Portfolio

Investors Should File Claims Before Class-action Bonanza

Tens of billions of dollars are expected be paid out as settlements in class-action suits following from the financial crisis. Hedge funds and pension funds will lose out if they don’t file claims.

DURING HIS THREE YEARS at a $4 billion U.S. hedge fund firm, an attorney kept leaving money on the table. He recalls receiving — and often ignoring — many forms inviting him to file claims related to settled class-action lawsuits against public companies. “Most hedge funds don’t file them on their own,” the attorney says of these documents. “It is almost like a full-time job.” When the lawyer looked into selling the claims, bidders lowballed him. But then he got a call from Old Bridge, New Jersey–based Liquid Claims, which offered to file on his behalf. He agreed, figuring he had nothing to lose: Firms like Liquid Claims charge no up-front fee but take about 30 percent of any successful claim. Checks for between $200,000 and $800,000 started arriving in the mail. Pension funds, hedge funds and other investors lose big money by failing to file such claims. In the past five years, U.S. courts have distributed $42 billion in payouts from securities fraud lawsuits, Liquid Claims points out. And thanks to the near-collapse of the financial industry in 2007 and 2008, awards could total tens of billions of dollars over the next half decade. “We’re on the verge of a new wave of very large settlements,” says Brad Heffler, president of Conshohocken, Pennsylvania-­based Claims Compensation Bureau and an industry pioneer. Roughly 200 settlements are active at any given time, notes Mark Donaldson, founder and managing director of Battea-­Class Action Services, which counts some 250 hedge funds among its 300-plus customers. Since Donaldson launched his San Francisco-based shop in 2001, the average check has been about $4,500, though payment can range from $10 to $100,000. Because they didn’t file, more than 60 percent of eligible claimants effectively gave other people the money due to them over the past five years, according to Liquid Claims. “Whether they manage $100 million or $100 billion, many firms are not doing the due diligence in terms of seeking information to keep up with their eligibility,” says founder and managing partner Luis Davila. “[They’re] leaving money on the table due to the lack of controls and processes necessary to ensure optimal class-action eligibility notification and filing procedures.” To determine if a client is eligible for settlements, claims administrators use software and staff to match the firm’s trading history against different class-action periods. The court-appointed company that oversees payment for each settlement must sift through tens or hundreds of thousands of claim forms to confirm eligibility, so distributions last 12 to 36 months. Payouts for multibillion-dollar awards can take longer. However, there’s no hard deadline for claims. “Most courts accept late-filed claims up to the time they finish their work,” says Michael Rosenbaum, managing director of Jericho, New York-based Berdon Claims Administration, which fulfills class-action and bankruptcy claims. It’s even possible to make a claim after the first distribution given that some checks don’t get cashed. “The courts want to see the claimants receive their money,” says Claims Compensation Bureau’s Heffler. His firm and its rivals are gearing up for the next big wave of payouts. Heffler, whose client base manages more than $500 billion, notes that there have already been about $9 billion worth of settlements related to lawsuits over mortgage-backed securities. These include the $8.5 billion payment agreed to by Bank of America Corp. for dud mortgage bonds issued by Countrywide Financial Corp., which BofA acquired in 2008, at the height of the financial crisis.

The claims business is also going international as Canada, Australia and other countries begin allowing such cases to move through their legal systems. “If you are a big fish in a little pond and other people don’t file, you can wind up with a lot of money in one shot,” says Battea’s Donaldson.  •  •

Related Content