Get High Returns by Bolstering Your Portfolio with Litigation Financing
- Author: Chris Remington
- Posted: 2024-05-14
Get High Returns by Bolstering Your Portfolio with Litigation Financing
You may have heard of the salacious lawsuit between Hulk Hogan, otherwise known as Terry Bollea, against Gawker for the invasion of privacy. Terry did not have sufficient capital to finance the lawsuit by himself. He had to employ the assistance of Peter Thiel, who is the founder of PayPal. Thiel funded Bollea's case, and he won.
During an economic downturn, attorneys need access to private funding. As an investor, you can take advantage of a pending lawsuit with litigation financing. Plaintiffs will get the cash required to fund their cases, and you will obtain a portion of the settlement.
The profits from a successfully litigated claim can be more than the returns from a straight investment in the stock market - which is typically 8% to 10%.
The market is prime from growth. Cases are increasing as attorneys take on more class-action lawsuits from the coronavirus economic fallout.
Firms That Accept Investments
There are over 40 firms that privately fund civil lawsuits. Plaintiffs with their attorneys and investors can contact the major firms either for liquidity or for investment opportunities. Investors can choose which cases they would like to finance.
Just keep in mind, approximately 70% of selected cases have a positive outcome. If the litigant loses the case, you will not receive any compensation. And your entire investment would be lost.
These companies have a combined capital of $9.5 billion. For 2018-2019, the capital infusion companies spent $2.3 billion in financing litigation lawsuits.
- Statera Capital
- Therium
- Validity
- Burford Capital
- Omni Bridgeway
- GLS Capital
- LexShares
- Parabellum Capital
- LongFord Capital
- Pravati Capital
Champerty
You may think that is it unusual to make a profit off a third-party lawsuit. This practice, known as champerty, was common during the middle ages when feudal lords would finance their peasants' lawsuits against rival feudal lords, whom they intensely disliked. Unfortunately, the fragile court system was not being used to obtain equitable justice. Eventually, this practice was outlawed until 1993.
Expensive class action lawsuits were becoming quite normal in the Commonwealth. Therefore, a need arose to finance these lawsuits. Australia became the first country to allow third-party funding for civil litigation lawsuits. The practice then spread to the United Kingdom and the United States.
Investors can look at a legal case as an asset or as collateral, especially if the attorneys win the case. Plaintiffs consider funders for their cases as necessary - without which they would not win their case.
Currently, the industry is not regulated. This could change in the future. One concern is that the extra liquidity available for a lawsuit could lead to the courts being overwhelmed with frivolous cases. Each financial firm only picks cases that have the most optimal chance to have a favorable settlement.
Another concern is that investors could dictate the outcome of a case. They could advise law firms and their attorneys when to go to trial or settle a case. However, this usually is not the case. Attorneys retain autonomy over their cases.
Benefits of Investing
As an investor, you may want to know what you can receive for your initial and ongoing investment. Investing in litigation lawsuits is a long-term investment. Each case goes through its normal life cycle. Plaintiffs need access to funds for:
- Expert witnesses
- Interrogations
- Depositions
- Attorney fees
- Litigation expenses
Once you make an initial investment, it could take up to 27 months to realize the profits from a successfully settled case. However, take heart, the benefits from a successfully litigated lawsuit could net you up to 52% of the proceeds.
Legal cases are not subject to macroeconomic activity and fluctuating market conditions like the mass bankruptcies the nation is experiencing from the pandemic. Besides, enjoy the safety of being in the company of like-minded investors who have prominent assets in litigation finance, like the Harvard sovereign wealth and endowment fund.
Liquidity
Each fund will have its private investment component. Some funds require investors to have a net worth of $1 million or have an annual income of $250,000. Other funds require an initial investment between $5,000 and $10,000. Yearly management fees can vary up to 2.5% while some firms require carried interest of up to 30% of the profits.
When considering litigation financing, make sure it is done as a portion of your entire investment portfolio. Because of the high risks, experts recommend that you keep this investment strategy at a maximum of 10%.
