Mayhall Fondren Blaize

Business litigation financing is a growing investment industry

A surprisingly vibrant industry in Louisiana and nationwide involves the activity of investing in commercial litigation lawsuits. Although it has been generally considered unethical for outside investors to have an ongoing financial stake in the profits and losses of law firms, that principle has given way to an exception that allows for the outside funding of highly costly business litigation suits. Because the suits are expected to obtain substantial monetary recoveries, it arguably makes sense to allow for outside interests to invest through companies that specialize in such transactions.

That is especially true because the phenomenal cost of experts, studies, tests, data analyses, reporting, investigative fees and the like in complex cases make it difficult for law firms and clients to foot the total bill for funding the suit. The funding resources often come from hedge funds, private investors, credit funds and other financial investment entities. Whereas in the past these efforts focused on one case at a time, it is now possible to invest in a portfolio of cases chosen by the investment firm.

The trend is for online marketing through lawsuit investment platforms. One company, LexShares, an online platform that previously centered on funding one case at a time, announced that it will now offer investing in a portfolio of business litigation cases. The company selects potential lawsuits to fund by applying a proprietary software called Diamond Mine. The program searches federal and state filings to find suitable cases for funding opportunities.

One important factor is the track record of the plaintiff and its law firm. LexShares has reportedly guided $16 million into 40 different cases, with an average investment of about $400,000 per case, but with the new platform it intends to set a maximum limit per case of $25 million. The acceptance of a case would necessarily depend on an agreement between the investor and the plaintiff, along with the plaintiff's attorney. The types of cases may involve breach of contract, breach of fiduciary duty, antitrust and false claims act cases, but other business litigation matters are also considered. Such companies invest in cases nationwide, including in Louisiana.

Source: bna.com, "Litigation Finance Start-Up Expands Offerings", Max Siegelbaum, Sept. 7, 2017

No Comments

Leave a comment
Comment Information