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How Wall Street Invests in Litigation Finance for Profit

Funding lawsuits has always been a tricky thing. When the client cannot afford to litigate, the number of cases that can proceed is constrained. This might even be the case when the size of the potential payout is substantial because going through litigation in the U.S. is expensive, as it can include various proceedings, a verdict, an appeal to a higher court, and so on.

The legal process can take years, making it difficult to afford for lawyers that don’t have deep enough pockets to risk everything on the outcome when the client cannot cover their legal bills.

However, Wall Street has been busy working on solutions to this in the form of litigation finance. In this article, we cover what this newer financing option is and what sort of cases are being funded as a result of it.

Litigation Finance 101

The idea of third-party funding for legal cases isn’t new. However, restrictive laws in the U.S and also across the pond in the UK prevented its use. However, changes in the law in some places have made it possible now for third-parties to fund litigation to enable lawyers to pursue cases that would be cost-prohibitive for themselves and their clients.

This first came to the attention of the wider public through the case of actor and wrestler Hulk Hogan, who pursued a legal case against Hawker, an online publication. With the assistance of Peter Thiel, who previously co-founded payment processor giant, PayPal, funding for the case against Gawker was provided in exchange for a cut of any successful settlement.

Litigation finance can provide around 10-20% of any settlement to the third-party financer, making it lucrative when financing winning cases. Hedge funds have moved into this space as an interesting way to boost their returns through investments non-correlated to the equity or bond markets.

GPB Capital Securities Claims

One area where litigation is being strongly pursued using third-party litigation finance is with GPB capital securities arbitration claims.

GBP capital holdings were marketed as great investment opportunities where they would buy up auto dealerships and produce exciting returns. The private placements, which are illiquid investments, have in many cases failed to perform anywhere close to expected, disappointing investors who had believed the hype and marketing associated with them.

As a result, litigation has been proceeding on a number of cases where substantial sums were lost by investors. Many of these legal cases are expensive but are being funded through litigation finance, making them possible to litigate.

Is This Funding Good for People or Only Wall Street?

It’s actually both.

Whilst it does cut into the possible proceeds of a settlement or successful court case, many of these cases would not have been prosecuted otherwise.

With access to third-party funds, it enables lawyers and their clients to pursue valid cases without being overly concerned about how to pay for the cost of litigation. This persuades the other party to take them more seriously because they will be aware that they can afford to litigate the matter if a reasonable settlement is not reached first.

The advent of litigation finance is an exciting and growing field. With its ability to fund cases where they otherwise wouldn’t be affordable to represent, this is a win-win.

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