Electronic trading desks use algorithms to get best execution for their clients. Now algos are being used to fight securities fraud and help investors recoup cash.
LiquidClaims, an Old Bridge, N.J. financial technology firm, is now helping both institutional and retail victims of securities fraud receive compensation as a result of class action lawsuits. By automating the labor intensive and time consuming process of monitoring settlements, acquiring trade information and filing claims with its LC-Quant v2.1 algorithm, more investors can recover settlement cash.
And there is a lot of cash out there. According to Michelle Carchedi, head of business development at LiquidClaims, the last five years has seen $42 billion dollars recovered for investors.
"Prop shops, hedge funds and shareholders are all entitled to recover money given the investor focus on transparency and current regulatory environment," said Carchedi. "We are making sure they [the money managers] are fulfilling their fiduciary responsibilities and maximize shareholder revenue."
The algo automates the once manual process of collating all trading data, Securities and Exchange Commission settlement data and other trade information. Once the data is sorted and pooled into classes, LiquidClaims files for the claim and begins the money recovery process. Once money is recovered, the firm distributes the money to investors less a fee for its services.
The economics make perfect sense, according to Carchedi, as money managers, pension funds and shareholders incur no out of pocket expenses for this service. LiquidClaims gets 30 percent of the total gross recovered amount for its involvement.
It all starts with a securities class action between the SEC and a company that has issued securities. After litigation takes place and/or a pre-litigation settlement takes place, money due investors is placed into an escrow account to be distributed by a plan administrator. Anyone who filed a claim is eligible for a portion of the settlement.
However, investors must file a claim to be eligible for money. Carchedi said most people don’t file a claim as it is a time-consuming process. She cited statistics that said that on average only 30 percent of people eligible for settlement money actually file. This leaves a lot of unrecovered investor money sitting in escrow accounts untouched except by the select few who file claims.
"Pension plans and mutual funds have recently been sued by investors for leaving money on the table like this," Carchedi said. She explained that recovered money usually goes back into the fund and increases its net asset value, benefiting shareholders. "Normally, it’s only grandmas who file since they have the time."
LiquidClaims’ algo works like this. First, it accesses SEC settlements and creates a database where fraud has been determined. Then the algo analyzes the database and finds trades in the underlying company stocks and groups the investors into pools. After that, it checks to see if the investor is entitled to file a claim to recover cash. If so, LiquidClaims contacts the investors and automatically files a class action claim on behalf of the investor.
"Now that transparency and compliance are so important in trading, we are endorsing this with our service and helping investors get what they deserve," said Carchedi.
Since 2008 and its initial three clients, LiquidClaims now has 70 clients it represents and has filed several thousand claims. It has collected several million dollars on their behalf and has been involved in recovering money in such high-profile cases as Enron and Tyco.
"If you don’t file, and I file, I’m going to get your share," Carchedi said. "And that could result in a lot of money left on the table."
