Scammers are inundating US class action settlements with fraudulent claims, posing a significant threat to the integrity of the legal process, according to a report by Reuters.
Artsana, a manufacturer of child car booster seats, recently experienced this phenomenon firsthand. The company settled claims of misleading customers regarding the use of its Chicco-brand seats, offering $50 to affected customers. However, despite knowing that around 875,000 seats were sold, Artsana received over 3.3 million claims, prompting the company to petition the court to halt the settlement due to the influx of fraudulent claims.
According to a report by Digital Disbursements, over 80 million claims submitted in 2023 showed “significant” signs of fraud, marking a staggering increase of more than 19,000% since 2021. This surge in fraudulent activity threatens to drain funds from settlements and undermine the entire class action system.
Chris Chorba, a partner at Gibson, Dunn & Crutcher, described the situation as an “existential threat” to the legal process. Fraudulent claims not only diminish the pool of funds available for legitimate claimants but also inflate the costs of settling cases.
Estimating the exact amount of money lost to fraud is challenging, as successful fraudsters often evade detection. However, Steve Weisbrot, president and CEO of claims administrator Angeion Group, believes that millions of dollars have been siphoned from settlements in recent years.
Scammers are employing increasingly sophisticated methods to submit fraudulent claims, often using stolen identities and addresses to collect payouts. This trend poses a dilemma for claims administrators, who must balance the need to combat fraud with ensuring that legitimate claimants receive their due compensation.
Despite efforts to crack down on fraudulent activity, plaintiffs’ attorneys warn that overly stringent measures could inadvertently hinder legitimate claims. Eli Wade-Scott, head of the class action practice at Edelson, emphasized the importance of maintaining high claims rates while effectively addressing fraudulent activity.
In response to this growing challenge, stakeholders in the legal system are advocating for greater vigilance and cooperation to safeguard the integrity of class action settlements and protect the interests of legitimate claimants.
