Western Alliance Bank has co-developed technology that helps thwart fraud in class action lawsuits.
The project, which the bank calls Triangle of Fraud Protection, began during a crisis that threatened the ability of victims in class action lawsuits from receiving just compensation.
Between 2021 and 2023, class action and mass tort settlements witnessed an alarming surge in fraudulent claims, escalating by 190-fold over that period. The volume of fraudulent claims skyrocketed from approximately 400,000 in 2021 to more than 80 million by 2023, according to Western Alliance.
Fraud schemes are often the product of collaboration among fraudsters with different areas of expertise, money mules who can help hide cash flows and other fraud ecosystem actors. The response by the financial system often requires an equally collaborative approach.
Indeed, in the suddenly escalating fight against settlement fraud, no single stakeholder — the courts, legal counsels, court-appointed settlement administrators nor payment companies — was well positioned to address the problem on its own.
Individual tools, while effective against specific fraud vectors, were easily circumvented by adversaries who constantly evolved their methods.
This systemic weakness highlighted the urgent need for a unified, adaptive solution that could combine diverse strengths and perspectives across the ecosystem, setting the stage for the Triangle of Fraud Protection to act as that comprehensive defense mechanism.
A collaborative approach
In early 2024, recognizing the futility of isolated efforts, two companies created the Triangle of Fraud Protection, a name that references its three-faceted collaborative defense strategy between Digital Disbursements, ClaimScore and settlement administrators.
Western Alliance subsidiary Digital Disbursements was one of the companies. It provides a digital payments platform specifically designed for the class action legal industry. Its technology enables efficient and secure digital disbursements, offering payees options from direct bank account deposits to digital wallet payments.
The other company was ClaimScore, which offers AI-based claim validation software. ClaimScore, as its name suggests, provides a scoring system and real-time reporting capabilities to settlement administrators.
As the third side of the triangle, settlement administrators that use Triangle often already have a variety of their own fraud detection and prevention tools that provide insights that help identify fraudulent claims.
Combining these tools provides real-time screening capabilities coupled with dashboards accessible to all stakeholders, including the judge, plaintiff attorneys and defense attorneys, to ensure transparency and enable immediate action against suspicious claims.
The latest lawsuit stemming from Synapse's bankruptcy accuses the banks of risk management failures.
The results
In its first integrated case, launched in June 2024, the collaboration between Digital Disbursements and ClaimScore identified and prevented more than 100 million fraudulent claims. Had these claims been approved, bad actors would have received more than $6 million in fraudulent payouts, and claimants would have received an average of 6 cents. This single case alone yielded a return on investment exceeding 5,900% — in other words, a more than 59 times multiple on the investment of implementing the Triangle.
The annual impact is even more compelling. Overall in 2024, the Triangle of Fraud Protection collectively identified and prevented more than 800 million fraudulent claims, averting well over $100 million in potential fraudulent payouts, according to Digital Disbursements and ClaimScore.
This translates to an overall return of over 99,900% — in other words, a 999 multiplier — for 2024 alone, calculated by dividing the over $100 million saved by the less than $100,000 in investment.
Last year, Western Alliance also observed the first decline in fraud attempts against settlements since the bank began tracking in 2022, according to the third annual Digital Payments in Class Actions and Mass Torts report from Digital Disbursements.
Specifically, the number of claims in 2024 with significant indications of fraud decreased by more than 40%, from 81 million to 48 million. The decline suggests fraudsters have been stifled by the Triangle and are making fewer attempts to defraud the legal settlement system.
Who's responsible?
The deep domain expertise of the co-founders, Jeff Richardson of Digital Disbursements and Donald Beshada of ClaimScore, who collectively have over 50 years of experience litigating class actions and mass torts as lawyers, was instrumental in making this integration cost-effective and highly targeted, according to their project partners.
Richardson's and Beshada's collective understanding of the legal process, claimant behavior and fraud vectors allowed them to design a solution that addresses the industry's specific pain points, leading to higher returns on investment and faster adoption.
As founder and co-CEO of Digital Disbursements, Richardson developed the strategic vision and go-to-market strategy for the Triangle. He ensured that the integration maximized the unique strengths of both companies.
While building the Triangle of Fraud, Richardson maintained a "claimant-first" philosophy, he said, balancing robust fraud detection with the imperative not to block legitimate claimants. His mantra, which is a standard across the class action settlement industry, is that it is better to allow 10 bad actors to submit a claim than to deny one legitimate class member.
As senior managing director of Western Alliance Bank's Juris Banking Group, Francesca Castagnola spearheaded Western Alliance's 2022 acquisition of Digital Disbursements, recognizing its potential to address industry challenges.
On behalf of ClaimScore, Donald Beshada led the commercial alignment between the two companies, structuring the partnership to meet all legal, financial and operational requirements. He ensured that ClaimScore's outputs — including scores and determination recommendations — seamlessly integrated into Digital Disbursements' workflows.
Bryan Heller, also with ClaimScore, directed the technical integration between the company and Digital Disbursements, working closely with both teams to ensure seamless data exchange and system compatibility. He also led the release of quarterly upgrades to ClaimScore's fraud engine, integrating more data and enhancing its AI to continuously improve both speed and accuracy.
