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Exclusive: Startup seeks to reduce class action fraud

Apr 17, 2024
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Illustration: Eniola Odetunde/Axios

Claimscore, a startup targeting fraudulent claims in class action lawsuits, raised $3.2 million in seed funding led by ROC Venture Group, the company tells Axios exclusively.

Why it matters: Fraudsters have been aggressively targeting class action suits, with about 80% of claims in a recent, high-profile settlement over Juul vape pens estimated to be invalid or fraudulent.

How it works: Claimscore uses AI to determine the likelihood of an online claim being fake based on 65 data points. That includes whether an email address is real.

  • So far, the company says it has prevented $340 million in fraudulent payouts and reviewed over 20 million claims.

Previously, the process was largely manual, says CEO Bob Gallo. But Claimscore can run 250,000 claims an hour, he says.

  • The company earns roughly 10 cents per claim, though prices vary based on the volume of claims in each case. It markets to claims administrators and to lawyers.

The big picture: As a result of growing anti-corporation sentiment, there's more money than ever in class action lawsuits, says Duane Morris partner Gerald Maatman Jr., who works as a defense lawyer in such cases.

  • In the 25 years that the law firm has tracked the figures, class action settlement figures boomed to an all-time high of $66 billion in 2022, and remained elevated at $51.4 billion in 2023.
  • "We're in unprecedented territory," says Maatman. "The world in which we move today ... feel differently about corporations than they did pre-COVID."

At the same time, developments in AI have made it easier for fraudsters to scale up their operations and create fake identities, with plantiffs' lawyers in the Juul case blaming AI for the surge in problematic claims. And it's not just companies footing the bill.

  • The high-profile, $5.6 billion Visa and Mastercard class action settlement was also hit by fraudsters last year, with bad actors setting up a phony website to steal claimants' identities.
  • Scammers also targeted veterans who were set to receive payouts as part of 3M's $6 billion settlement over its earplugs.
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