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Commercial Deals

MoneyWeek on Bankrolling Global Litigation Finance 

Top-30 law firms in the western world hold $2T in pending arbitration claims, while raking in $860B in yearly fees associated with litigation. MoneyWeek takes a deep dive, profiling the best techniques for bankrolling litigation finance globally.  MoneyWeek says that the value of high stakes litigation is increasing exponentially. Different approaches to litigation investment include non-recourse, insolvency and crowdfunding so retail investors can participate.  MoneyWeek describes litigation finance as an asset class that avoids cyclical market events that impact interest rates and bond markets. However, MoneyWeek raises alarm bells that cross-border accounting of unsavory litigation finance houses will be a cause for the industry’s eventual consolidation.  MoneyWeek profiles Burford Capital’s approach to the funding market, given Burford’s top position as a global legal funder.  
Commercial

Litigation Investment Ethics for the Modern Attorney

With $11B in assets under management in the United States, litigation investors are looking to a global market of attorneys who are engaging modern financial solutions to meet client demands and needs. The ethics behind pure litigation marketplace innovation is something that LexShares says is imperative. A collated collection of whitepapers and scholarly articles concerning global litigation investment ethics are below.  Litigation Funding Ethics acts as an organized primer for the modern attorney. The guide explores large jurisdictions such as New York, Delaware and Texas.  Ten of the 12 chapters from the guide explore top ethical insights impacting United States litigation finance innovation. Click here to read LexShare’s insights on ethical matters impacting the industry. 
Announcements Deals

Litigation Finance Agreement for new representative claim against Google and DeepMind Technologies

Litigation Capital Management Limited (AIM:LIT), an alternative asset manager specializing in dispute financing solutions internationally, announces that it has entered into a litigation finance agreement for a new representative claim.

The finance agreement is to fund a new representative action in the High Court of Justice of England & Wales brought on behalf of up to 1.6 million individuals against Google and DeepMind Technologies for the unlawful use of patients’ confidential medical records.

The claim is for the misuse of private information and arises out of an arrangement formed in 2015 between Google and DeepMind and the Royal Free London NHS Foundation Trust. The tech companies obtained and used a substantial number of confidential and private medical records without patients' knowledge or consent.

This representative claim being brought by Mishcon de Reya, provides access to justice and a means of compensation which would not have been viable on an individual basis due to the cost of the litigation process. Not only does it provide a means of redress to those affected by the misuse of their private and confidential medical records but this is also a significant claim for LCM to support and fund.

Patrick Moloney, CEO of LCM, commented: "LCM has a long and deep experience in funding large scale actions, many of which would not be possible without litigation funding. As pioneers of the industry, we are well-placed to support the claim in this action."

ABOUT LCM

Litigation Capital Management (LCM) is an alternative asset manager specializing 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.

Consumer

New York’s Clergy Concerned About Consumer Litigation Funding Act 

This week, Litigation Finance Journal reported that the New York State Assembly is debating ‘Bill A.1270-A,’ which is referred to as the Consumer Litigation Funding Act. Meanwhile, New York City and State Clergy leaders have co-signed a letter of objection to the Consumer Litigation Funding Act’s thematic intent(s). However, New York’s clergy leaders signaled support for mindful regulation of litigation investment agreements.  New York’s clergy leaders' damnation of the Consumer Litigation Funding Act is further buttressed by Assemblyman Erik Dilan’s bill A.3315. Mr. Dilan’s approach is to juggle ethics and transparency to pioneer litigation funding regulatory standards.  Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding (ARC), had this to say about the proposed bill: "A1270-A is being promoted as a good piece of legislation to help protect consumers, when all it does is harm consumers. It eliminates the product from the state. It makes it cost prohibitive to operate in New York, and the proponents of the bill, the Insurance Industry, know that. They do not want consumers to have this financial lifeline so that they can get the true value of their legal claim." The clergy leaders of New York support Dilan's "fair, ethical and transparent" legislation. They refer to A1270-A (the Consumer Litigation Funding Act) as "a wolf in sheep's clothing," which, as Mr. Schuller noted, is designed to eliminate Consumer Legal Funding from the state entirely. 
Case Developments Commercial

Sberbank CZ Litigation, Insolvency and Liquidation

The Central Bank of Russia founded Sberbank in 1991. Traded on the Moscow Stock Exchange, Sberbank is Russia’s largest universal banking institution with ⅓ of all Russian assets flowing through it. Given Russia’s war in Ukraine, the Czech National Bank revoked Sberbank CZ’s license at the beginning of May. Furthermore, a Czech Municipal Court in Prague ruled in favor of the liquidation of Sberbank CZ.  The litigation investment structure designed to consolidate Sberbank CZ’s creditors comprises a trio of Europe’s notable third party funders. Natland Investment Group has a hallmark collaboration with LitFin Litigation Financier and The Association of Small and Medium-Sized Enterprises and Self-Employed Persons of the Czech Republic.  The group’s promotional materials suggest a sophisticated approach to Sberbank CZ liquidation. Europe has experienced insolvency fire sales liquidating assets at pennies on the euro. Success metrics will gauge how fast the bank’s assets can be monetized … And at what price.  According to Sberbank’s liquidators, liquid assets total 24B CZK. However, liabilities usurp that value with 79B CZK in client levies, and 61B CZK in debt liabilities.  
Commercial Special Features

LegalPay, India, and the Promise of Litigation Finance in Emerging Markets

LegalPay is a Litigation Finance startup founded in India, an emerging market for third-party legal funding. Until recently, investing in legal cases was reserved for high-end investors. The advent of LegalPay allows retail investors—those of average means–to take advantage of the potentially large uncorrelated returns that have attracted savvy investors for years. According to founder Kundan Shahi, LegalPay is the only formal player that offers third-party litigation funding for late-stage cases in India. One can’t help but wonder how this will influence the development of global Litigation Finance? Does LegalPay’s success foretell the rise of litigation funding in emerging markets?  How Does LegalPay Work? According to founder Kundan Shahi, LegalPay is a tech-focused, data-driven litigation funder which leverages a 15-point checklist proprietary algorithm in its underwriting process. The use of AI in diligencing cases is nothing new, however, LegalPay differentiates itself by enabling retail investors to commit modest amounts of capital as a means of participating in this uncorrelated asset class. Interest rates are competitive and offer high returns—plus investor and creditor interests are secured by the IBC. There are other such “crowdfunding for Litigation Finance” platforms on the market, though LegalPay seems to be performing a balancing act between being a tech platform for the masses, and a large-scale commercial funder that invests in mega cap cases (at least, as far as the Indian legal market is concerned). In 2021, for example, LegalPay offered interim financing to Yashomati Hospitals, a private medical entity in insolvency. This is in addition to more than a dozen short-term secured loans to hospitals undergoing insolvency. The funds go toward operating costs and payroll to keep the hospital running from six months up to a year. Ravindra Beleyur explains that the term sheet was finalized in fewer than two weeks from initial contact. LegalPay’s platform has worked out well for insolvent firms, and perhaps even better for the company’s spate of retail investors. A case involving Brain Logistics demonstrates the difference that backing from LegalPay can make. A bevy of delays and appeals by delinquent debtor Hero MotoCorp necessitated increased funding for Brain Logistics to continue fighting. This was provided by LegalPay, and allowed Brain Logistics to proceed with its claim against Hero MotoCorp. While the case has yet not resolved, it demonstrates how legal funding can expedite proceedings and allow for a more timely application of justice. In addition to its funding platform, LegalPay aims to create specialized products in insolvency and interim business financing, as well as carve out a piece of the legal funding market in India for itself. For insolvent companies, LegalPay offers short-term lending products that are asset-backed and secured.  Why is This Especially Important in India? Though the Indian legal system has been refined in recent years, it is still lacking when compared to that of developed nations. The Supreme Court of India is the de facto head of its unified legal system. Its purpose is to interpret laws and defend the constitution, resolve disputes, and affirm basic rights for citizens. Today, certain drawbacks of the Indian legal system make justice more difficult to achieve in a timely way. For example: As far back as 2016, the Chief Justice of India’s Supreme Court implored the Prime Minister to appoint more judges. Government inaction over judicial delays has caused significant hardships in all case types. Bloomberg Businessweek has affirmed that if India’s judges closed 100 cases every hour, 24-hours a day, it would take more than 30 years to clear the current backlog of pending cases. Ironically, there are pending cases from 30 years ago that are still unresolved. Given the dearth of judges and astronomical wait times, many companies–and even wronged individuals or businesses–are reticent to sue in India’s courts. New cases must work their way up from lower courts, which means they often take years to reach completion. Given all of this, it’s clear that in India today, finding innovative solutions to the old adage “justice delayed is justice denied,” is more important than ever. Who is Partnering with LegalPay? The well-documented challenges in India’s legal market may dis-incentivize investors from getting involved in TPLF in India. At the same time, LegalPay is amassing impressive partnerships that will enable it to make offers to companies undergoing insolvency. LegalPay’s Series A funding, a special purpose vehicle, found itself oversubscribed in a short amount of time—demonstrating consumer confidence in the concept and in its implementation. This first SPV was intended to diversify capital with a portfolio of 8-12 cases, and allowed retail investors to commit as little as Rs 25,000 in a single case. A second SPV will emphasize commercial disputes. These SPVs help investors diversify by investing in a basket of commercial cases that typically generate a pre-tax IRR of over 20 per cent. Incidentally, the entire investment process is digital and seamless, including signing investor documents, KYC, tracking of the basket of claims, and portfolio monitoring and analytics. Among those partnering with LegalPay is Jumbo Finance, which provides secured interim financing. Managing director Smriti Ranka explained that there are many benefits to investing in distressed debt assets. US hedge fund Hedonova is another LegalPay partner that, according to Shahi, will enhance LegalPay’s plan to aggressively grow its Indian market. Naples Global is also onboard with LegalPay, launching a $5MM fund that’s expected to protect the interests of founders in the event of disputes among the board. With disputes between founders and investors on the rise, this development may be crucial in attracting new investors and adding a sense of security to the opportunities LegalPay provides. The current $20 billion legal expense market in India has enabled seed funding led by 9Unicorns and Accelerator VC, along with LetsVenture, and angel investor Ambarish Gupta. Much of these funds will be deployed toward late-stage litigation—currently plentiful given that delays are rampant due to COVID. Also among LegalPay’s list of partners are Amity Technology Incubator and Venture Catalysts. What’s the Next Step? How will innovators like LegalPay alter the Litigation Finance landscape?  The complexities of global litigation funding make predictions like this difficult. As noted earlier, the Indian legal market is full of challenges, as are all emerging markets (heck, even most mature legal markets can be labyrinthine at times). But those challenges keep competitors out of the fray, which means funders willing to take the plunge typically have their pick of the litter in terms of cases. Lack of competition can present itself as a blue ocean of opportunity, as early entrants into the US and UK litigation funding markets can attest. And India certainly has a lot of untapped potential. The prospect of getting in on the ground floor of a maturing legal market that is home to over 1 billion people may be too enticing for some funders to pass up.  While LegalPay’s emergence may encourage more partnerships between larger funders and retail investor platforms, it’s unlikely we will see funders dive head-first into emerging markets like India any time soon (for example, opening an office in Bangalore). That type of commitment will take time, as there are less risky jurisdictions out there where the TAM has yet to be saturated (like Japan, South Korea and Israel–where Woodsford maintains an office and Validity Finance recently opened shop).  Yet established funders in Australia, the US and UK would do well to keep an eye on Shahi’s startup, given how its numerous strategic partnerships and technological capabilities enable both large-scale case investment, and promising returns for retail investors. Any company leveraging AI to effectively source and/or diligence cases deserves a second look, and one doing that in an emerging market like India deserves extra consideration. 
Commercial Deals

Third Point LLC on Shell PLC Restructuring 

Litigation Finance Journal recently reported on Shell PLC’s board of directors who are accused of allegedly manipulating ESG frameworks at the expense of shareholder interest. New York-based Third Point LLC recently announced a significant investment into Shell, underscoring intentions to profit from a corporate restructuring of the multinational energy conglomerate. Third Point says Shell’s relocation to the United Kingdom provides significant leverage for ROI, given the board of directors’ alleged ESG misgivings.    Third Point’s Q1-22 shareholder letter outlines the firm’s pragmatic approach to increasing its investment in Shell, despite the board’s ESG track record. Third Point suggests that conversations with Shell’s board echo shareholder dismay from poor ESG planning. However, Third Point plans to help guide Shell’s shareholders to a bright future under various restructuring scenarios.  Third Point suggests that European energy efficiencies are a valuable long-term investment in a wartime scenario. Third Point’s Q1-22 letter discusses lessons learned by Shell, and how ESG’s future will include copper and nickel stewardship to drive the future of EV innovation.
Consumer

New York Senate Bill A.1270A’s Consumer Litigation Funding Act 

Back in 2017, New York State Assembly members introduced a bill that would mandate certain consumer protections concerning the arrangement and engagement of litigation funding agreements. Each legislative session since has seen a new version of the Consumer Litigation Funding Act debated by New York legislators. On May 3, 2022, a new draft of the Act was amended and recommitted to the Consumer Affairs and Protection committee for debate.  According to New York State Assembly Bill A1270A’s summary, the Act would promote consumer litigation finance protections by regulating contractual mandates as part of New York State law. For example, the proposed Act would stipulate that claimants hold rights to ‘prepay’ the funded amount before their case is settled, without penalty.  The Consumer Litigation Funding Act would be a game changer for the New York State legal scene. Special interest groups are sure to be lobbying both sides of the Act’s debate.  Litigation Finance Journal will continue reporting on the Act’s progress through the New York State legislature.
Commercial Deals

Lexshares’ Q1-22 Litigation Finance Industry Outlook 

Lexshares has published the firm’s outlook for the first quarter of 2022. Notably, Lexshares suggests that the litigation finance industry is thriving. Furthermore, the funder says it disagrees with marketplace competitors who suggest a decline in average litigation investment deal size.  According to Lexshares’ insights, courtroom delays are hindering profits of the largest litigation funders in the United States. Yet Lexshares sees an increase in patent and trademark case funding on the horizon, as potential awards associated with IP violations are on the rise.  Meanwhile, Q1-22 was eventful for Lexshares, as the firm raised $103M for its Marketplace II Fund. Lexshares notes that courtroom delays are a ‘double-edged sword’ in terms of how funders organize their fund’s deal flow.  Click here to read more about Lexshares’ Q1-22 insights.