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Case Developments Commercial

Canadian Court Denies Insolvent Company’s Request for Litigation Trust and Financing

Litigation funding has regularly been put forward as a powerful tool in the area of insolvency by providing the necessary capital to pursue litigation. However, a recent ruling from a Canadian court has demonstrated the need for those seeking such relief in this jurisdiction to provide ample and appropriate evidence to support their requests. In a piece of analysis on Lexology, Kelly Bourassa, Keith Marlowe, and Tom Wagner of Blake, Cassels & Graydon LLP, provide commentary on the recent Goldenkey Oil Inc. (Re) decision from the Court of King’s Bench of Alberta. In this case, Goldenkey Oil was in insolvency, and sought court orders to create a litigation trust to transfer the rights of a lawsuit and to approve a financing arrangement to allow the litigation trustee to borrow up to C$3.2 million to finance the claim. However, after a defendant to the claim opposed these requests, Justice Michael J. Lema ruled that Goldenkey failed to present sufficient evidence to show that the requests for the litigation trust and financing were reasonable or appropriate under the remit of the Bankruptcy and Insolvency Act (BIA). The authors of the analysis note that this ruling demonstrates that parties cannot expect relief to be granted on the ‘bare assertion that the relief sought is reasonable, appropriate, and furthers the objectives of the BIA’, without providing the necessary evidence.
Case Developments Commercial

Binance and Coinbase vs. the SEC

On June 5, 2023, the United States Securities and Exchange Commission (SEC) sued the world's largest cryptocurrency exchange, Binance, for allegedly misleading investors and regulators while operating an unregistered exchange. One day later, the SEC sued the largest cryptocurrency exchange in the United States, Coinbase, for similar allegations. Now, litigation financiers around the globe look on as top law firms organize to defend Binance and Coinbase against the SEC.  Bloomberg Law reports that Binance and Coinbase have tapped some of the United States' top law firms to defend their future to exchange nearly $120B in cryptocurrency token assets. The SEC claims that most of these tokens sum up to unregistered securities. Binance and Coinbase deny any wrongdoing.  Agencies such as Lipton, Rosen & Katz, Milbank, Latham & Watkins, Wilmer Hale and Sullivan & Cromwell are among those said to bank upwards of $50M - $100M in legal fees for Binance's and Coinbase's defense against the SEC's recent actions. Sullivan & Cromwell is reported to have billed over $80M in fees associated with the FTX Chapter 11 bankruptcy litigation, according to court documents.    The SEC says that unregistered securities in the form of cryptocurrency violate US investor protection laws. Yet, former SEC leaders have joined Binance's defense team. Richard Grime (of Gibson Dunn & Crutcher) has been hired by Binance. Mr. Grime formerly served as assistant director of the SEC's enforcement division. William McLucas (of Wilmer Culter Pickering Hale and Dorr) formerly served as the SEC's enforcement director. Mr. McLucus has been hired by BAM Trading Services, the operator of Binance.US.  What does all of this mean for the litigation finance industry?  Experts suggest that private actions could be explored by litigation investors and their clients in the wake of the SEC's approach to cryptocurrency tokens being exchanged as unregistered securities. However, collectability remains a pertinent issue for litigation investors, as they consider whether to pursue crypto litigation funding. 
Announcements Commercial Fundraising

BURFORD CAPITAL ANNOUNCES PRIVATE OFFERING OF SENIOR NOTES

Burford Capital Limited ("Burford" or "Burford Capital"), the leading global finance and asset management firm focused on law, today announces the planned private offering of $400 million aggregate principal amount of senior notes due 2031 (the "Notes") by its indirect, wholly owned subsidiary, Burford Capital Global Finance LLC, subject to market and other conditions. The Notes will be guaranteed on a senior unsecured basis by Burford Capital as well as Burford Capital Finance LLC and Burford Capital PLC, both indirect, wholly owned subsidiaries of Burford Capital (such guarantees, together with the Notes, the "Securities"). Burford Capital intends to use the net proceeds from the offering of the Securities for general corporate purposes, including the potential repayment or retirement of existing indebtedness. The Securities have not been, and will not be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), or the laws of any other jurisdiction and may not be offered or sold within the United States or to, or for the account or benefit of, US persons absent registration or an applicable exemption from registration under the Securities Act or any applicable state securities laws. The Securities will be offered only to persons reasonably believed to be "Qualified Institutional Buyers" within the meaning of Rule 144A under the Securities Act or non-US persons outside the United States pursuant to Regulation S under the Securities Act, in each case, who are "Qualified Purchasers" as defined in Section (2)(a)(51)(A) under the US Investment Company Act of 1940, as amended.
Consumer

Louisiana Governor Vetoes Third-Party Funding Disclosure Bill

The first half of 2023 has been notable for the frequent appearance in states across the US of legislation seeking to increase the regulatory oversight and scrutiny of third-party litigation funding. Whilst some bills have found success in states like Montana, just last week, one of the most ambitious bills seeking to impose disclosure requirements was vetoed in Louisiana. Reporting in Bloomberg Law provides the details on Thursday’s announcement from Louisiana Governor John Bel Edwards, that he decided to veto Senate Bill 169. The draft bill had gone further than similar legislative attempts in other states, having required those involved in third-party funding to disclose a copy of their funding agreement. In his veto letter, Governor Edwards explained his reasoning, and stated that the bill “is clearly a pretense designed to gain a litigation advantage under the guise of promoting transparency in litigation and protecting national security.” He also highlighted that these measures would create an imbalance in the judicial system, as “the bill only requires plaintiffs to unilaterally disclose their commercial legal financing arrangements.” The bill’s sponsor, State Senator Barrow Peacock expressed disappointment that the Governor had not reached out to discuss the legislation with him, and will be considering whether to attempt to override the veto. However, Gary Barnett of the International Legal Finance Association (ILFA), praised Governor Edwards’ actions and argued the veto would protect Louisiana companies “from losing a vital financing tool used to mitigate risk and maintain sufficient operating capital in their business.”
Commercial Regulatory Issues

Nivalion Receives License from Swiss Regulator

As the litigation finance market continues to grow and mature, established funders are keen to set themselves apart from newer startup funders, with recognition by official regulators playing an important role.   An article in finews.com reveals that the Swiss litigation funder Nivalion has received its license as an administrator of collective assets from the Swiss Financial Market Supervisory Authority (FINMA). This license allows Nivalion to manage these collective assets, whilst also providing risk management for investments, and being able to offer shares in litigation financing investments to both professional and institutional investors in Switzerland. Nivalion’s CEO Marcel Wegmueller stated that this was ‘an important milestone’ for the litigation finance company, as it is the first funder to receive such a license from FINMA. This new access to institutional investors in Switzerland will allow Nivalion to tap into a capital pool that other funders are not currently able to access in the country.  The article also states that Nivalion plans to obtain additional fund distribution licenses in other jurisdictions, including Germany.
Announcements Consumer

Upcoming Webinar on Litigation Funding

One of the more important issues today concerning litigation in America is funding. Whether it be high verdicts, claim value drivers, or fraudulent claims, we are all affected. Vince Gerbino founding partner of Bruno, Gerbino, Soriano and Aitken, will moderate the webinar's distinguished panel that will provide insight into this important concern from a broad range of perspectives. We will hear from Dennis Kass regarding his experiences with verdicts and claim values. From Eric Schuller with his industry perspective. From Matt Lehman concerning regulatory efforts and finally from Kenneth Klein, a law professor and author with his consumer-based research perspective. Do not miss this very informative webinar, and please join us to learn and understand better the growing world of litigation funding and see the good, the bad, and the ugly side of it all. We look forward to seeing everyone on July 20, 2023, at 2 pm EST.
Here is the link to register. It is free to attend.
Announcements Case Developments

Resolution of Investment for LCM

Litigation Capital Management Limited (AIM:LIT), an alternative asset manager specializing in dispute financing solutions internationally, announces a successful resolution on an investment forming part of LCM’s Fund I portfolio of investments.

Successful Award in Arbitration Investment

LCM’s investment and funding related to a dispute in London Court of International Arbitration proceedings. LCM provided funding and support to the claimant in those proceedings, which recently received an award in its favor. The subject matter, findings and funding terms remain subject to confidentiality.

Initially, the investment was expected to complete within a short time frame from the commencement of funding, however, the matter was delayed due to a number of external factors. This protraction enhanced the returns to LCM and Fund I investors, details of which are highlighted in the table below:

*AUD$mInvestment performanceLCM performance metricsFund I performance metrics
Invested capital9.22.36.9
Investment return36.79.227.5
Success fee21.75.416.3
Total revenue67.616.950.7
ROIC on investment635%635%635%
Performance fee*-15.1(15.1)
Gross profit58.429.728.7
ROIC after performance fees635%1291%416%

*The investment returns are subject to change based on the prevailing FX rate and timing of distribution

Patrick Moloney, CEO of LCM, commented: “The Resolution of this investment demonstrates two important features of LCM’s business and its investment strategy.  First, it validates the skillset of our investment managers in undertaking a rigorous due diligence exercise and accurately predicting the final outcome of a large and complex commercial dispute resolved through arbitration.  Secondly, it is an example of an investment which we had originally expected to resolve in a prior financial period.  The return metrics generated by this investment clearly demonstrate how returns are enhanced notwithstanding a delayed resolution.  Not only were we extremely happy with the outstanding investment returns, but also LCM’s funded party was grateful for the financial support beyond the originally contemplated investment period.”

Enquiries

Litigation Capital Managementc/o Tavistock PR
Patrick Moloney, Chief Executive Officer
  
Canaccord (Nomad and Joint Broker) Tel: 020 7523 8000
Bobbie Hilliam
  
Investec Bank plc (Joint Broker)Tel: 020 7597 5970
David Anderson 
  
Tavistock PRTel: 020 7920 3150
Tim Pearsonlcm@tavistock.co.uk
Katie Hopkins 

About LCM

Litigation Capital Management (LCM) is an alternative asset manager specialising in disputes financing solutions internationally, which operates two business models. The first is direct investments made from LCM's permanent balance sheet capital and the second is third party fund management. Under those two business models, LCM currently pursues three investment strategies: Single-case funding, Portfolio funding and Acquisitions of claims. LCM generates its revenue from both its direct investments and also performance fees through asset management.

LCM has an unparalleled track record driven by disciplined project selection and robust risk management. Currently headquartered in Sydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker LIT.

www.lcmfinance.com

Commercial Special Features

Key Takeaways from LFJ’s Digital Event on Litigation Funding and Legal Insurance

Wednesday, June 14th, LFJ hosted a panel of Legal Insurance experts who discussed pertinent issues regarding the intersection of litigation funding and legal insurance. The expert panel included: Stephen Kyriacou, Jr. (SK), Managing Director and Senior Lawyer, Aon, Boris Ziser (BZ), Partner, Schulte Roth & Zabel LLP, Rocco Pirozzolo (RP), Managing Director and Underwriting Director,  Harbour Underwriting, and Ross Weiner (RW), Legal Director, Certum Group. The panel was moderated by Rebecca Berrebi (RB), Founder and CEO of Avenue 33, LLC. Below are some key takeaways from the digital event: RB: How has the ATE insurance market evolved over time? And what should we expect going forward? RP: When after-the-event began, it was a product of England and Wales. It is now a product used around the world. But, its origins stem from a change in the law in England and Wales, where the purpose of the legislation was to save public money on certain types of cases.  So, its origins go back to April 2000. It was originally being used for personal injury and clinical negligence cases. It then started to stem out into insolvency disputes and commercial disputes. In the early years, its limits were quite modest. RB: Let's talk about what other types of insurance have evolved and what other types of solutions we can offer litigation finance clients, including law firms, litigants and funders. SK: Aon's litigation risk group offers a number of different solutions that are of interest to litigation funders, their funded counter-parties that are actually litigating these cases, and the lawyers that are litigating funded cases as well. At the top of the call we talked about judgment preservation insurance, which I'll refer to as JPI. Essentially, JPI is taking a judgment that has already been won, either an arbitration award, a trial verdict, maybe a summary judgment award, and insuring the risk that it gets reversed on appeal or the damages get reduced on appeal, or that there is a remand for a new trial. RW: We are seeing a lot in the duration risk space. I think one of the areas it is becoming more prevalent, is mass torts. Often the biggest question is how long will the risk take to play out? How long until individuals will get paid? And so the law firms who take on those cases for a very long duration, they've got lenders that they are responding to, and they've got certain rates they are trying to reach. Insurance with a duration trigger can be very attractive in that space as well. For the lawyers here, one of the things that we have seen a fair amount of, and have been working on recently, is contingent fee, or what we call  'work in progress' or WIP insurance for lawyers. That has to do with law firms who take cases on contingency where there is a fair amount of risk involved that could be zeroed out if the case is meritorious. RB: How are law firms using these policies? And in what types of cases and portfolios and awards are you seeing these types of policies add value to the user?  BZ: We are seeing insurance for a lot of our transactions that include single event cases. It includes mass tort cases. It includes IP antitrust cases, breach of contract, trade secret theft, and others. I think we are seeing a hit on a big cross section of case types. In terms of how it is used, it actually is a very good interplay in how law firms use it. At the end of the day, having insurance on your transaction accomplishes a number of things. Number one, it covers downside risk, therefore potentially lowering the cost of funding or monetization that you might be looking at. But the other thing it does, particularly for the user of the insurance and the holder…is that it opens the universe to other lenders or investors. It not only provides protection on the downside of the investment (i.e. insurance), but it also enables you to create an instrument that benefits from a wrap from a single carrier.  RB: Let's talk about shifting risk. What steps can insurance providers take to ensure that law firms and funders are not merely shifting risk when looking to insure a claim?  RP: It's a great question. As an underwriter, adverse selection in cases is always the most critical concern for me, as I am going through it trying to discern the motive, and is it simply getting bad risk off the books and replacing it with insurance to guarantee an outcome, or is there something more going on here?  BZ: Fundamentally and obviously by definition you get a policy that covers some risk, so in that sense, you know undeniably it's risk shifting…I focus on what it's actually doing, which to me is really enabling law firms' clients, funders to finance this asset class more effectively…I look at it as financing, not necessarily just as a pure risk shifting exercise. Then, you might think about perhaps alignment of interest in some sense between funders and lawyers. RB: What are the markers of a case or portfolio that insurers look for when determining whether or not to provide insurance?  SK: We already talked about motivation and how crucially important that is. And, how we really need to kind of suss out whether there is any sort of adverse selection going on, which is usually pretty easy for our team at Aon. With respect to other considerations, on a single case judgment preservation insurance, for example, we are really looking at three things: One, likelihood of being affirmed. Two, likelihood of damage award reduction, and then if so, where damages may be reduced to. And then third, what is likely to happen in the case, both with respect to liability and with respect to damages, if the case gets remanded by the Appellate Court for a new trial. You can view the entire panel discussion here.
Commercial Deals

6th Annual LF Dealmakers Forum Announces Agenda

LF Dealmakers has announced the agenda for its 6th Annual LF Dealmakers Forum, which promises to cover all the latest developments and trends affecting the litigation finance industry. The event, which will return to NYC on September 26-28, will include topics such as ‘Rise of an Asset Class: Demystifying a Growing Secondaries Market’, ‘Opportunities at the Intersection of Funding, Mass Torts & ABS’, and ‘The Great Debate: Trust & Transparency in Litigation Finance’. Bringing together 275+ senior executives from across the litigation finance market, the LF Dealmakers Forum will include interactive sessions, a pre-event workshop on mass torts and funding, as well as a multitude of one-to-one meetings and networking events. Last year’s speaker roster included C-suite executives and thought leaders from the top funders, law firms and insurers at the heart of the US litigation funding industry. As the capacity is limited and following a sold-out 2022 event, Dealmakers encourages prospective attendees to register soon and is offering a $200 discount to those who register their place before July 18.  The sponsors of the 2023 LF Dealmakers Forum include Aon, CAC Speciality, Fabricant LLP, Longford Capital, and X Social Media.