Firm Offers Class Action Claims Processing

Date: Tuesday, October 10, 2006
Author: HFN Daily Report

Schwab Enterprise has partnered with HFS Worldwide to create a class action claims processing unit to help hedge funds recover money owed to them in lawsuits.

Class action suits against scandal-ridden companies like Enron and WorldCom often end in settlements for investors who lost money on stocks during certain time frames. Many investors, however, never collect the settlements they are owed due to the expense and paperwork involved.

"They're very time-consuming, so a lot of funds haven't really been doing their jobs as much as they should," said Claude Schwab, founder of hedge fund service provider Schwab Enterprise.

Chief operations officers often do not want to deal with claims that seem insignificant by hedge fund standards, and back offices are often strained already with other tasks. Smaller funds might find it easier just to outsource claims processing to a third party.

"Each claim is like a college application it's so thick," Schwab said. "You have to have a lot of data to support everything, when the trades occur, prime brokerage statements. It's quite an application process."

Also, suits can take years to settle. Funds that are shutting down might not have the ability to file for claims once they are resolved, but they can outsource that responsibility and continue to take care of their clients even after the fund is no more.

Schwab said a few other firms have been offering these services for years, but it has only been in the last year that companies have been targeting hedge funds. Schwab Enterprise, which is better known for its job recruiting and capital introduction services, got its first class action claims processing client six months ago.

"Since we have such good access with a lot of hedge funds, we talked to some of our clients, and they said they'd love to outsource it," Schwab said.

Until recently, much of the emphasis on class action claims processing was placed on mutual funds. Last year, more than 40 mutual funds were sued by shareholders for allegedly failing to file for settlement money to which investors were entitled.