Using Legal Tech To Identify Imprudent Investment Violations At Scale
13/05/2024
Americans diligently save throughout their working lives, earmarking portions of their earnings into 401K plans for retirement. These savings plans represent a significant portion of their financial security in later years. However, when plan sponsors fail to fulfill their responsibility of managing these funds wisely, the impact on retirees can be profound. Imprudent investments, as defined by ERISA law, can greatly diminish the value of these hard-earned savings. The result is that retirees find their retirement savings lacking the growth potential they expected, jeopardizing their ability to maintain their desired standard of living during retirement.
The consequences of imprudent investments extend far beyond individual retirees. They ripple through communities and the broader economy, affecting families, businesses, and government resources. A shortfall in retirement savings can lead to increased reliance on social welfare programs, strain on familial support networks, and decreased consumer spending. Moreover, it erodes trust in the financial system and undermines the promise of a secure retirement that Americans have diligently worked towards.
The challenge of finding imprudent investment violations at scale
Lawyers can detect imprudent investment violations by cross-referencing investment plans with funds through the Form 5500 database that lists which 401K plans are invested in which funds, and is readily accessible online. This process involves matching funds with Morningstar tickers and conducting some calculations to assess underperformance.
Sounds simple enough. However…
The task of aligning the funds documented within the 5500 database with the corresponding tickers in Morningstar involves a meticulous process of cross-referencing. In addition there are no strict regulations on how plan sponsors must fill out the Form 5500 and thus this extremely vast database contains multiple entries for funds with varying spellings and abbreviations. Therefore If a lawyer finds a fund that has underperformed it is both difficult and time consuming to identify all the other plans that are invested in said fund, (and we’re potentially talking about thousands) because there is no uniformity in the database.
Cue technology
At Darrow we have developed an algorithm that matches entries in the 5500 database to tickers in Morningstar using probability. We are constantly improving this algorithm and to date, every iteration has seen an improved result in its ability to match entries to tickers. What this means in reality is that we are able to map which 401K plans are invested in which investment funds instantly, compared to months when done manually.
We then run some calculations to identify the funds that have underperformed, as well as the likely damages, in order to determine the most impactful imprudent investment cases – in a matter of seconds.
This approach to uncovering imprudent investment violations is truly groundbreaking. Using this technology, and together with top class attorneys, we are able to hold so many more plan sponsors accountable than previously imaginable, and bring justice to hundreds of thousands of plan participants.
Want to find your next big ERISA case? Talk to one of our experts.
The plaintiff challenge
Connecting with plaintiffs for ERISA cases involves engaging with employees and ex-employees of specific companies. However even when you have managed to engage with potential victims, it is important to ensure they have the credibility and standing necessary to bolster the case. The approach to plaintiffs at Darrow, and the reason why we developed our plaintiff tool, “PlaintiffLink,” is to connect lawyers with the highest quality plaintiffs, as quickly as possible. A strong class rep is one who not only has a valid legal claim, but is also a credible representative. Without a strong and credible plaintiff the legitimacy of the entire class action may be compromised, potentially jeopardizing the success of the case.
This approach is particularly important for ERISA cases. Some sponsors give employees the option to pick the funds their 401Ks are invested in. Therefore even if a specific plan is invested in a particular underperforming fund, not every employee of the company will always be impacted by this. In fact, in Singh et al v. Deloitte LLP et al 1:21CV08458, the court dismissed the complaint, with one of the reasons being that the plaintiffs were not invested in four of the funds that were being challenged by the case. PlaintiffLink’s rigorous two-tier vetting system allows you to connect with and retain the most relevant and quality plaintiffs.
Utilizing Darrow’s AI-powered justice intelligence platform, PlaintiffLink enables you to connect with quality plaintiffs easily and quickly, to accelerate case filings with newfound efficiency.
With a unique contingency model, Darrow shares in the success of our partners, eliminating upfront fees and aligning incentives. Our tech-driven approach streamlines the process, providing a centralized portal for planning, reviewing, and engaging with potential plaintiffs, allowing you to focus on delivering justice.
Want to connect with quality plaintiffs, fast? Get Started.
Join top lawyers who are already using technology for ERISA violations
Technology has revolutionized the legal landscape, enabling attorneys to uncover and pursue imprudent investment cases on an unprecedented scale. With advanced algorithms and AI-driven tools such as those we have developed at Darrow, legal professionals can expedite the process of identifying imprudent investment cases that will have a high chance of success. Attorneys are also able to leverage this technology to connect with quality plaintiffs faster than ever before.