While crypto-related fraud reached an all-time high in 2021, with illicit addresses receiving US$14bn over the course of the year*, up 79% on the previous year, matters brought before courts remain comparatively low, in large part due to a lack of funding options for otherwise meritorious lower-value claims. Under the new collaboration, Asset Reality, Grant Thornton UK LLP, Outer Temple Chambers, Rahman Ravelli have established a triage system for the initial assessment of claims, with investigatory and corporate intelligence expertise then deployed to contextualise claims for legal assessment. Meritorious claims will be assessed and financed on a portfolio basis by Sandton Capital which has dedicated £50m for crypto-related litigation; with portfolio facilities allowing for greater flexibility to finance multiple claims that otherwise would likely not have met funders’ investment thresholds had each claim been considered on a stand-alone basis. Commenting on the collaboration, Justina Stewart, Barrister at Outer Temple Chambers, says: “This is a real opportunity to push the boundaries of the law by working symbiotically with true experts, for the benefit of those who have been defrauded by increasingly sophisticated crypto frauds. All too often, potentially meritorious crypto fraud claims don’t get off the ground because of lack of funding and joined-up thinking between real specialists. Having been involved for years in and being at the forefront of the fascinating world of crypto-related litigation, our Outer Temple counsel are thrilled to be involved in this collaboration.” Matt Meehan, Head of Sandton UK & Europe, adds: “Crypto fraud investigation, tracing, litigation and recovery is an evolving area of contentious disputes and we will allocate an initial £50m to fund crypto fraud claims. In London, we have assembled world class panels of crypto-focused investigators, solicitors, barristers and asset tracing professionals to support claimants in all aspects. The team at Sandton hopes to alleviate concerns by offering bespoke and transparent funding solutions to support one-stop crypto fraud recovery.” Carmel King, Director at Grant Thornton UK LLP, Insolvency and Asset Recovery, says: “Our team has used (and provided) litigation funding for years, and we know it can facilitate access to justice for impecunious estates and their creditors. I am delighted that this collaboration widens the range of options available to victims of fraud in the investigation, litigation and recovery of their cryptoassets.” *Chainalysis: The 2022 Crypto Crime Report (Feb 2022) •    Asset Reality is the world's first end-to-end solution for complex assets. Its platform provides services and tools to public and private sector companies investigating, managing and recovering assets. From helping crypto companies support victims of fraud, to enabling governments to manage and realise portfolios of seized assets, its mission is to improve asset recovery for victims and society. Launched via the Techstars accelerator programme, Asset Reality partners with leading digital custodians, blockchain analytic companies and asset recovery practitioners to give users access to the services they need on one easy-to-use platform. Asset Reality is a founding member of CFAAR (Crypto Fraud and Asset Recovery network.) •    Launched in 2021, Grant Thornton UK LLP’s Crypto Initiative combines the firm’s expertise across corporate intelligence, blockchain data analytics, insolvency and asset recovery, digital forensics and forensic expert testimony on matters including cryptoasset tracing and recovery, investment scams, director fraud/mismanagement, fraudulent ICOs, due diligence for regulators and other parties, ransomware/hacks, exchange due diligence and insolvency and dispute resolution. Grant Thornton UK LLP is a founding member of CFAAR. •    Outer Temple Chambers has established itself as one of the leading barristers’ chambers in cryptocurrency disputes. It has barristers at every level of seniority who have already litigated and advised on cryptocurrency disputes in England and Wales and other jurisdictions. Its barristers are also involved in advising legislators on law reform relating to cryptocurrency and smart contracts and are committed to developing the law in this exciting and challenging area. •    Rahman Ravelli has carved itself a reputation for bringing some of the most significant crypto-related fraud cases to date, a number of which have helped establish the law in this area. It is a market-leading legal firm with a track record of success in commercial litigation, financial crime and cross-border investigations. Rahman Ravelli advises individuals and corporations on national and international matters involving asset tracing and recovery, civil fraud, complex business disputes and criminal and regulatory investigations. Rahman Ravelli is a founding member of CFAAR. •    Sandton and its affiliates have executed investments totalling over £1.3bn across a diverse range of industries in Europe and North America. It is backed by leading university endowments, pension funds and financial institutions, Sandton will allocate an initial £50m to fund crypto fraud claims and is supported by a team of crypto-focused professionals assisting claimants in all aspects. Sandton is authorised and regulated by the Financial Conduct Authority (FCA) and the Securities and Exchange Commission (SEC).

More Americans than ever are living paycheck to paycheck. With inflation rising and a recession right around the corner—financial pressures on the average family are increasing. And lawsuits aren’t going anywhere, which is why Consumer Legal Funding is a vital and necessary option for average families seeking justice in a legal setting. Yet regulation threatens the availability and effectiveness of Consumer Legal Funding—with the potential to curtail justice for those of modest financial means. What Exactly is Consumer Legal Funding? Consumer Legal Funding is one of two common types of third-party legal funding. While Commercial Litigation Finance focuses on big-ticket commercial claims like insolvencies, IP, antitrust cases, etc.—Consumer Legal Funding exists to advance smaller cases impacting average individuals. Consumer Legal Funding cases may include personal injury, medical malpractice, contesting invoices, and other torts (cases where plaintiffs are trying to right a wrong done to them—often by a larger entity). Like Commercial Legal Funding, Consumer Legal Funding is offered on a non-recourse basis. This means:

• Collateral is not required to secure funding
• Money deployed is not paid back unless the case is successful
• Funders are taking on most or all of the financial risk

Once deployed, funds from Consumer Legal Funding, also called Pre-Settlement Advances, can be used to cover non-legal expenses like rent or mortgage payments, medical bills, or groceries. This is of particular value to individuals who have been injured and are unable to work. At its core, third-party litigation funding is focused on increasing access to justice. In order to accomplish this goal, funders must make a profit for their investors. With that in mind, the higher potential for large awards makes Commercial Legal Funding more attractive to funders. This leaves Consumer Legal Funding struggling for mainstream acceptance and a wider client base. How likely is it that Consumer Legal Funding will grow and flourish due to financial stressors like COVID, an impending recession, and rampant inflation? The answer may depend on what happens regarding proposed increases in regulation across many jurisdictions. Do Americans Really Need Consumer Legal Funding? When we look at the statistics, it’s clear that there’s a need for third-party funding entities that focus on individuals and families. Some measures show economic recovery post-COVID. Unemployment numbers are falling, while the GDP is rising. At the same time, inflation has reached a staggering 8.5%, leaving nearly a third of adults in the US using credit cards and even loans to make ends meet between paychecks. In several states, more than half of adults have difficulty meeting monthly expenses due to loss of income. These include:

• New York
• Florida
• Mississippi (with a staggering 70+%)
• Nevada
• Arkansas
• Oklahoma
• New Mexico
• Louisiana
• Alabama
• New Jersey
• Hawaii
• West Virginia
• California
• Texas
• South Carolina

Families are increasingly facing food insecurity and falling behind on rent or mortgage payments—which in turn can lead to homelessness. Additionally, about 2/3 of Americans do not have enough money set aside to cover an unexpected expense of $500. A necessary car repair, emergency room visit, or home appliance failure can set a family or individual back months. These circumstances can take a toll on health as well—with more than 80% of those with financial stress experiencing clinical anxiety. Over half of those dealing with chronic financial worry suffer from depression. When an emergency arises through no fault of a plaintiff, seeking legal recourse may be the only way to avoid destitution. The statistics on personal injuries in the US are sobering to say the least.

• 31 million Americans are injured and require medical treatment annually.
• Of those, 2 million require a hospital stay.
• Truck accidents alone account for 5,000 deaths and 60,000 injuries annually.
• Medical malpractice is involved in nearly 100,000 deaths a year.

But as legal costs rise and the timing of court cases remains unpredictable—not everyone has access to the legal remedies they seek. That’s why Consumer Legal Funding is so important. It’s also why the industry shouldn’t be watered down by unnecessary regulations. Who is Pushing for Increased Regulation of Consumer Legal Funding? As one might expect, the insurance industry has been the most vocal about regulating Consumer and Commercial types of Litigation Finance. There’s a particular focus on Consumer Legal Finance—perhaps in part because a wronged or injured individual may appear more sympathetic to juries or judges. In practice, Consumer Legal Funding leads to more meritorious cases being filed, with more and larger awards that insurers must then pay. While insurers can then offset these payouts by charging higher premiums, this can still impact the insurer’s bottom line as policyholders balk at rate increases. What States are Already Passing Increased CLF Regulations? Interestingly, the states listed above as those where citizens are financially struggling the most have significant overlap with those states that have already passed regulations controlling Consumer Legal Funding. These include:

• Tennessee
• Arkansas
• Nevada
• West Virginia

We see that in many cases, states with residents hit hardest by financial woes are also those imposing restrictions on the use of CLF. West Virginia and Arkansas, for example, have 18% and 17% rate caps, respectively. West Virginia ranks 6^th nationally in terms of states with the highest poverty rate, just behind Arkansas at number 5. As this dichotomy obviously harms average Americans, we have to wonder—who exactly are such regulations designed to help? When posed with a question like this, we like to “follow the money.” Who is lobbying for such onerous regulations? The most prominent and powerful organization behind the push for CLF regulation is the U.S. Chamber of Commerce. The Chamber has been issuing a full court press against the Consumer Legal Funding industry (and to a somewhat lesser extent, the Commercial Litigation Finance industry) for years now, at both the state and federal level. And the reason the U.S. Chamber is so adamantly opposed to litigation funding? Two words: Big Insurance. Insurance companies are some of the lead backers of the Chamber of Commerce, and Big Insurance pays a hefty price when individuals have the means to bring cases to completion, and see larger payouts as a result. Insurance companies are incentivized to encourage swift endings to legal claims, where plaintiffs accept lowball offers in return for dropping their case. That is much less likely to happen if the plaintiff has access to Consumer Legal Funding. Remember, this funding is non-recourse, and can be spent on anything the plaintiff desires—rent, food, gas money, Christmas presents, etc. Less impecunious plaintiffs are less likely to settle for lowball offers, and that puts Big Insurance in a great big bind. With some wins under its belt in the aforementioned states, the Chamber is likely to continue its push for industry regulation for the foreseeable future. This has prompted the industry to come to the table on what it deems ‘common sense regulation.’ The Alliance for Responsible Consumer Legal Funding (ARC) – one of two industry trade groups – supports regulations that make CLF safer and easier for consumers to understand. Rather than focusing on fee caps or disclosure minutia, ARC is focused on industry best practices and on clearly spelling out the rights and obligations of those who use Consumer Legal Funding. This includes:

• Disallowing referral fees, commission, or other adjacent payments such as experts or industry professionals giving testimony.
• Prohibiting funders advertising in ways determined to be misleading or outright false.
• Outlining Right of Recission provisions.
• Ensuring that all fees and costs be reflected in written contracts, including recovery ownership of clients and funders.
• Precluding third-party funders from decision making with regard to settlements or case strategy.
• Requiring that funds be used for household needs rather than legal spending.
• Including funders among those covered by attorney-client confidentiality.
• Disallowing lawyers from seeking or having a financial interest in funding provided to clients by third-parties.
• Necessitating attorneys be informed of funding contracts, and for lawyers to affirm that they were informed.

Several states have adopted ARC-approved legislation that increases protections for those who use Consumer Legal Funding.

• Ohio
• Nebraska
• Main
• Vermont
• Oklahoma

These common-sense provisions are designed to improve transparency and enable clients to make informed decisions about whether or not to accept third-party funding as their case progresses. As Eric Schuller, President of ARC, noted: “Having a clear statute in place lets everyone know what they can and cannot do, and thereby removes any ambiguities that are associated with the product and industry.” Schuller also added, “To our knowledge, in the states that have passed reasonable regulations on the industry, there has not been a single complaint or issue since the statute has been in place.” Looking Ahead An academic study of CLF funder LawCash delivered some vital findings. First, the study found that the funder declined to fund roughly half the cases it was approached with. Defaults on awards or settlements cost the funder about 12% of its due revenue. Even profitable cases fell short of expectations—stemming from both client defaults and alternate arrangements made with clients. The study did not confirm or disprove an overall societal benefit to third-party legal funding. It did demonstrate that increased transparency and simplifying funding contracts carry benefits to consumers, as does regulation requiring lawyers to be more proactive in protecting clients. Ultimately, Consumer Legal Funding is a necessary, even essential part of leveling the playing field of our legal system. Regulation is increasingly becoming a tool leveraged by insurers to limit the amount of recourse available to those who have been injured, cheated, or otherwise wronged by larger entities. Let’s hope that more moderate minds prevail, and that CLF continues to ramp up consumer protections, while advancing access to justice.