Fraudulent Claims in Class Action Settlements: Contending With the Increasing Danger of Manipulation

Description

The problems caused by fraudulent claims in class actions are legion. And expensive. Courts are increasingly questioning the true claims rate when settling parties seek final approval touting what could well be a grossly inflated successful claims program. A high claims rate might cause the judge to reject a settlement if the settlement fund is insufficient to pay the claims. The court might even suspect the defendant of not dealing in good faith. On the other hand, fraudulent claims can drive up a claims-made settlement costs that exceed reserves. And, class actions that pay only lawyers fees and fraudsters delegitimizes the class action device.

Feeder websites, digital advertising, social media, and the internet have all contributed to an exponential rise in fraudulent claims in class action settlements. Fraudulent claims have increased in sync with electronic notice and an uptick in no proof required claims procedures. The most current scourge is internet bots that file thousands and thousands of claims, taking the gamble that some will pay. In some recent cases, close to 50 percent of all claims were fraudulent. Will AI exacerbate or alleviate the problem?

Counsel must learn how to protect their clients from fraudulent claims, especially fraudulent schemes using bots. And class action attorneys on both sides of the bar should have multiple ways of mitigating these risks at every stage of the case. Courts will be ever wary of notice and claims procedures. No single solution will work. Roadblocks are needed at junction and defendants will want to consider available risk transfer strategies.

Listen as this authoritative panel discusses how to address the unprecedented problem of fraudulent class action claims.