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Case Developments Commercial

UK Lawyers Anticipate Lawsuits Over Pension Fund Crisis

As LFJ reported last week, the UK financial services sector is bracing itself for a surge in litigation this year, as leading British banks look to be on the receiving end of a wave of class actions. However, this may not be the only driver of litigation activity for financial services entities in 2023, as a new study suggests that last year’s pension funds crisis could catalyze another wave of lawsuits targeting asset managers and advisers. Reporting by the Financial Times covers new research by the London Solicitors Litigation Association (LSLA), which found that UK lawyers are expecting a rise in legal activity relating to the fallout from the government’s ‘mini-budget’ and the impact on liability driven investment (LDI) strategies in September 2022. The LSLA’s president, Nicholas Heaton, suggested that it was likely that LDI-related lawsuits would begin to appear, and that whilst the volume of such claims was less certain, he highlighted that the presence of litigation funders would continue to drive the growth in class action suits. However, Anna Rogers, senior partner at Arc Pension Law, pointed out that the viability of these LDI claims and their ability to successfully receive significant compensation will not be straightforward. Rogers highlights that asset managers facing such litigation may be able to offer a credible defense by putting the burden of understanding on pension trustees, who could in turn place blame on investment consultants.
Commercial Regulatory Issues

An Argument for Greater Transparency in Third-Party Litigation Funding

Disclosure in litigation funding continues to be one of the leading topics of discussion for the industry, particularly driven by recent U.S. patent dispute cases that have led to fiercely contested disclosure orders by federal courts. Whilst funders are largely resistant towards blanket disclosure orders, especially when it comes to the details of litigation funding agreements, one member organization that seeks to deter invalid patent assertions has made the argument for greater transparency. In an op-ed for Delaware Online, Jonathan Stroud, general counsel at Unified Patents, argues that as transparency is a central tenet of the justice system, funders who are involved in financing patent infringement lawsuits should have to meet the same transparency requirements as other participants in court cases. He argues that funders either explicitly or implicitly exert control over the litigation process, therefore it is in the courts’ interest to know both their identity and the degree of influence that these financiers have over the plaintiff’s litigation. Stroud cites familiar arguments that the presence of third-party funders both influence the litigation process, and increase legal costs for all parties. He also echoes recent claims by the Chamber of Commerce and State AG’s that litigation funding by foreign state and non-state actors represents a threat to U.S. security. Stroud concludes by encouraging more courts to follow the recent examples of Judge Connolly in Delaware, and enforce disclosure requirements for funders involved both in patent disputes and other litigation proceedings.
Commercial Deals

Hedonova Reports Strong Growth in 2022, Bolstered by Litigation Finance Investments

With the litigation funding industry experiencing exceptional growth despite the uncertain economic climate and instability across the globe, the practice is not only attracting specialist funders, but also interest from broader investment firms. As an investment opportunity largely insulated from macro-economic events, funds are increasingly seeking to diversify into the asset class.  An article by Hedgeweek spotlights one such example, as Hedonova, a global hedge fund with offices in Los Angeles and Tallinn, has reported impressive financial growth last year due to its portfolio of alternative investments which include litigation finance. Hedonova saw its assets under management grow from $160 million to $400 million in 2022, whilst reporting an annual gain (post fees) of 32.8%. According to Hedonova’s website, litigation finance represents a maximum of 10% of its portfolio allocation and has experienced historical returns of 56.8%. The hedge fund has also partnered with traditional funders such as Burford Capital and LegalPay as part of these investments. In 2022 alone, Hedonova’s litigation finance investments generated a return of 58%.
Announcements Commercial Fundraising

Bryant Park Capital Secures Senior Debt Facility For DLF Management Corp.

Bryant Park Capital (“BPC”), a leading middle market investment bank with a focus in the specialty finance industry, announced today that DLF Management Corp., dba Dynamic Legal Funding, LLC (“DLF” or the “Company”), a leading provider of legal and medical funding, closed on a senior secured debt transaction with a large commercial bank. BPC served as the exclusive financial advisor to DLF in connection with this transaction. “Bryant Park Capital has been an immensely valuable partner to DLF in closing our first institutional credit facility. They helped us through every step of the process, and their expertise in the space allowed us to close an important transaction for DLF that will greatly enhance our growth and profitability. We could not have been happier to work with them,” said Brian Natanov, Founder and CEO of DLF. About Dynamic Legal Funding DLF Management Corp. is a leading provider of pre-settlement legal funding to plaintiffs with pending injury lawsuits. DLF also specializes in pre- and post-surgical funding to medical providers. Founded in 2017, DLF is based in New York, NY and provides funding to clients throughout the United States. For more information, visit www.dynamiclegalfunding.com. For more information about Bryant Park Capital, please visit www.bryantparkcapital.com.
Commercial Deals

Funders See Opportunity in Class Action Suits Targeting UK Banks

As LFJ reported earlier this week, the UK has experienced a surge in class action lawsuits over the last year, and there are no signs that this trend is slowing as we begin 2023. Whilst Big Tech companies were identified as one of the main targets in our previous article, new research suggests that the UK’s largest banks are also a top target for class actions, and litigation funders are playing a key role in driving these claims. An article from Financial Reporter highlights new research by law firm RPC, which has identified 109 class or group actions against some of the UK’s largest financial institutions. Among the industry-leading firms targeted by these claims, Barclays is facing 41 actions, whilst HSBC and NatWest are also on the receiving end of a significant volume of cases, with 31 and 28 apiece.  One of the key drivers of these claims is the aftermath of the LIBOR interest rate manipulation scandal, with 41 cases focusing on this wrongdoing and another 18 are targeted at banks alleged to be in breach of the US Anti-Terrorism Act. However, RPC’s Daniel Hemming argues that the “quantum of these cases” is high enough that it is regularly attracting the interest of litigation funders who are enthusiastically pursuing investments in these class actions. Simon Hart, another partner at RPC, states that whilst many of these claims focus on compliance violations, he expects ESG-related class actions to increasingly dominate the space in the years to come.
Commercial Regulatory Issues

Confidentiality and Litigation Funding Agreements in the U.S.

The use of litigation funding has been seen by many as a method for equalizing the balance between plaintiffs and defendants, providing the needed capital to enable parties to seek legal redress against larger and more well-financed entities. However, some legal analysts are concerned that despite its growing role in the litigation area, third-party funding is not being held to the same levels of transparency and disclosure as other parties involved in litigation. In an article on The National Law Review, Malerie Ma Roddy and Jonathan Judge of ArentFox Schiff LLP, raise the issue of litigation funders being exempt from the disclosure requirements applied to “corporate interests and insurance agreements”, which critics claim is creating an inequality in the system. The authors point out that while corporates with a financial stake in the plaintiff’s company and agreements with insurers face mandatory disclosure, courts have largely been hesitant to apply the same standards to funders. Roddy and Judge highlight the lack of commonality between states in terms of legislation outlining disclosure requirements, citing states such as Wisconsin, West Virginia and New Jersey as jurisdictions that have enacted mandatory disclosure rules for third-party funding of cases, whereas Illinois’s laws on litigation funding do not require automatic disclosure. The lack of federal legislation to unify disclosure requirements for funding agreements is pinpointed as the cause of this inconsistency.
Case Developments Commercial

France Financial Regulator Fines London’s H2O €93 Million for Fund Misrepresentations 

UK-based H2O Asset Management is under regulatory investigation by the French financial crime enforcement auditors. H2O is accused of breaching financial instrument ownership laws.  Pensions and Investments reports that Bruno Crastes (H2O Group CEO) received a €15M penalty, with Vincent Challiey (H2O Group CIO) panelized €3M. Furthermore, regulators assigned €75M in fines for H2O AM totalling €93M or $99MUSD.  French assessors claim H2O's mismanagement yielded significant investor losses. As of June 30, 2022, H2O maintained €12.3B in assets under management. In November, 2020, Natixis Investment Managers elected to cancel a 10 year agreement with H2O, liquidating 50.01% stake ownership in two tranches, immediately capitalizing 26.61%. Natixis plans a six year horizon for complete divestiture.  H2O has claimed innocence of wrongdoings, suggesting French authorities issued the group penalty in the absence of fraud or mismanagement by H2O.  Deminor announced that it is financing litigation for victims of H2O's Natixis managed asset fund. Deminor is representing 1,500 individuals on a non-recourse basis. After meeting with French authorities, H2O announced formalizing a reserve allocation to cover the maximum potential fine as a cash flow precaution. 
Commercial Fundraising

LegalPay Launches New Bond Targeted at Retail Investors

Established litigation funders play an important role in leveling the balance of power in the legal system for those plaintiffs who lack the capital to see their case through to completion. However, India’s leading litigation funder is now looking to rebalance the scales for retail investors, offering a new product to their customers that will allow them to diversify their portfolios in a manner previously only available to high-net-worth individuals. Reporting in Financial Express covers LegalPay’s latest announcement, which sees the launch of Interim Financing Bonds for its retail customers. Available for a minimum investment of Rs 10,000, equivalent to approx. $122, retail investors will be able to take advantage of bonds which are used by LegalPay to provide capital to companies who are in the Corporate Insolvency Resolution Process. LegalPay’s CEO, Kundan Shahi, said that the Interim Financing Bonds are designed to offer retail investors a new avenue of diversification beyond traditional securities, as part of a plan “towards democratizing equity markets investing”. The company also assured prospective retail investors by stating that all the bonds have had thorough risk assessment and due diligence performed.
Commercial Regulatory Issues

Irish Legislature Publishes Draft Amendments Legalizing Third-Party Funding for International Arbitration

With 2023 set to be an important year for regulatory developments in the litigation funding industry, an early sign of progress has emerged in Europe. Whilst the European Union may still be in the process of examining tighter restrictions and oversight of third-party funding, Ireland has moved another step closer to legalize certain types of legal funding. In an article on Lexology, Nicola Dunleavy and April McClements, partners at Matheson LLP, have examined the draft rules concerning third-party funding of international arbitration in the Irish legislature’s Courts and Civil Law Bill. The amendments in the bill would mean that dispute resolution proceedings are exempt from the prohibition on maintenance and champerty. This would include international commercial arbitration matters, and any court, mediation or reconciliation proceedings as a result of such arbitration. Dunleavy and McClements note that the amendments would ensure that funding agreements for these types of proceedings would also be legal, although it is expected that additional criteria for these agreements will be set out by the government. As the draft legislation is currently at the committee stage, it is not known how soon the bill could become law, but the authors suggest that this could happen by the end of Q1.