Also, investors like the natural exit and liquidity - the average case lasts around 28 months, giving the investment a short-term life cycle. Litigations exist in an economic vacuum, and changes in interest rates, currency values, and housing prices don’t seem to have an effect on court proceedings. Investors in litigation finance like the lack of correlation to other markets, according to Jay Greenberg, CEO of litigation finance platform, LexShares. This process must be working: recent financial filings show that the company claims an impressive 60% net ROI on its litigation finance portfolio. The UK-based firm rejects the majority of the cases it reviews. To manage its risk and identify investment opportunities that on average receive $10 million per case, Burford employs a 5 stage vetting process, including legal and economic assessments of the litigation, multiple presentations to investment committees, and evaluations of outcomes and settlement prospects. The largest fish in the litigation finance pond, Burford Capital, has raised over $500 million for these types of investments. Unlike personal injury cases, funds invested go directly to legal fees. Funders deal with the plaintiff directly or through lawyers working on contingency, and usually invest a minimum of $2 million, according to Burford Capital. On top of the litigation finance food chain are investment houses that back corporations in need of liquidity for legal expenses. Return profiles differ on a case-by-case basis and of course are affected by the size and scope of the trial, but it's not uncommon for investors in litigation financings of these sorts to see returns between 30%-40% annualized, according to Josh Schwadron, CEO of Mighty, a software firm that services litigation financiers. Successful litigations of these sorts are typically worth less that $100k, and plaintiffs are charged interest by their financiers, to be paid out of the winnings. Most of their cases are personal injury lawsuits - you may catch their commercials while watching high-quality early afternoon TV shows like Maury Povich and Jerry Springer.įunders invest between 10%-15% of the litigation’s expected future value, and plaintiffs use funds as bridge loans to pay for bills and expenses they incur during the lifetime of the trial. The small players are individuals like my buddy who pitched me - they're small business owners or individual investors who fund cases on a deal by deal basis. Third party litigation funders are divided into two groups. The industry’s growth since my meeting is impressive: the litigation financing market was estimated to be $1 billion in 2011, and since then, 4 times as many law firms have participated in litigation finance, according to a report from Burford Capital, an active investor in the space. I chose not to invest in the company for a variety of reasons, but my eyes were opened to this alternative form of investment. Through the investment, his company purchased a portion of the settlement, with terms negotiated on a case-by-case basis. He explained that his company fronted plaintiffs cash to be used for living expenses while their lawsuit progressed. A broker pitched me on investing in personal injury lawsuits. These examples of litigation financing may have been driven by social justice and not ROI, but there’s a whole field of financing that views litigations as ripe opportunities for investment.Īround 6 years ago, I was living in Los Angeles and investing in small businesses. And Thiel isn’t the only high profile investor to finance lawsuits: pop sensation Taylor Swift recently provided financial assistance to fellow performer Kesha thorough a protracted contract dispute. Litigation financing levels the legal playing fields so that David can battle Goliath. With deep pockets, Hogan was able to ride out the case, ultimately winning $140 million and forcing Gawker into bankruptcy.Īs this case showed, even presumably high net worth individuals can benefit from tapping outside sources of capital to fund their legal cases. When the plaintiff appeared close to settling, Peter Thiel, successful entrepreneur and co-founder of Paypal, emerged as a white knight, bankrolling Hogan with $10 million to pursue the litigation. Hulk Hogan needed more than 24 inch biceps to beat the deep pockets of modern media.Īs the celebrity professional wrestler’s invasion of privacy suit against gossip site Gawker progressed, Hogan’s financial limitations nearly put an end to the trial.
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