November 15, 2018 Articles

A Guide to Settlement Plans of Allocation in Securities Class Actions

How to efficiently and effectively review a plan of allocation

By Stevie Thurin

A plan of allocation is a stated methodology by which a class action recovery is allocated among eligible claimants; literally, it is a plan for allocating the settlement fund. Typically, in a class action settlement, and especially in a securities class action settlement, a class member does not automatically receive a specific portion of the settlement fund, even though the class member does automatically release claims (unless he, she, or it opts out of the class). Although giving a release is automatic in order to give the defendants the global peace for which they bargain, to be potentially eligible to receive a portion of the settlement, the class member must timely submit a valid claim with supporting documentation to the claims administrator. The claims administrator then reviews the claim for verification; determines whether deficiencies in the claim exist; and if the claim is valid, calculates the value of the claim under the plan of allocation. The value of the claim for purposes of the plan of allocation is not necessarily the amount the claimant will receive; rather, it is the value of the class member’s claim relative to other class members’ claims used for pro rating the net settlement fund.

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