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Commercial Deals

Macfarlanes Sees a Broad Array of Investors Engaging with Funders

In an economic climate that has continued to demonstrate instability and uncertainty for private investments, the avenue of investment in litigation funding represents a viable alternative to traditional asset classes. Litigation finance represents not only an opportunity to add increased diversity to an investor’s portfolio, but also provides an investment vehicle with the potential to reap surprisingly high returns on the initial investment. Recapping a recent roundtable by the law firm Macfarlanes, Private Debt Investor highlights the increasing growth in the litigation funding industry as representative of the sustained appetite of investors. Of interest to funders is the fact that this pool of investors includes not only established asset management firms, but also other institutional investors such as sovereign wealth funds and also retail high-net-worth investors. Macfarlanes also predicts that the industry’s growth, especially in the UK, is far from its peak. However, caution is advised, as investments in litigation are inherently risky and cannot be assessed through the usual financial and economic indicators. Macfarlanes stressed the key point that ultimately, while funders will usually only fund cases with a high probability of success, the fact that the outcome ultimately rests in the legal system carries additional risk. Additionally, whilst there are no immediate signs of a regulatory crackdown, investors should consider that legislators will be keeping a close eye on these activities and further reform is not out of the question.
Case Developments Commercial

Inventor Leverages Litigation Funding to Beat Microsoft

One of the great benefits of third-party legal funding is the ability for small companies and even individuals to fight on a level playing field against the world’s largest corporations. This dynamic was made evident in a recent case, where a US inventor was able to achieve a $10 million award for patent infringement from Microsoft, after enlisting the support of a litigation funder. Detailed in an article by Bloomberg Law, inventor Michael Kaufman has been in a decade-long struggle to receive compensation, after he alleged that Microsoft infringed his technology patent by using it in their Visual Studios Software. However, it wasn’t until he and attorney Ronald Abramson sought funding from Woodsford Litigation Funding that he was able to take Microsoft to court with previously inaccessible financial resources to fight the case. Whilst Microsoft initially claimed it had not used the patented product to a significant degree in 2019, lawyers for Abramson discovered that this was only true for the previous year, and Microsoft had in fact been substantially using the product in prior years. After an appeal in federal court, the panel opinion stated that Kaufman should have received royalties from the product usage dating back to 2011. Whilst victories in patent infringement cases for individual inventors is rare, Nicole Morris, a professor at Emory School of Law, highlighted that in situations where they can receive third-party funding, inventors are determined litigants due to their desire to see their own invention and work recognised.
Case Developments Commercial

Third-Party Funding Allows 150,000 Customers To Seek Compensation From Banks

In a landmark New Zealand case, 150,000 customers of ANZ and ASB banks will likely be represented in a class action against the two institutions, after the High Court approved the matter as an opt-out lawsuit. The claim is notable not only for its size and scope, but also because it is being funded jointly by two litigation funders: LPF Group in New Zealand and CASL from Australia. According to The New Zealand Herald, the case’s origins lie in the alleged failure of both banks to provide their customers reliable and accurate information, when they varied the terms of these customers’ home and bank loans. Whilst ANZ and ASB have already made settlement payments to customers to the tune of $29.4 million and $8.1 million, respectively, lawyers for the claimants argue that these are not nearly commensurate with the actual compensation customers should receive under current legislation. Whilst both banks have vowed to continue to defend the claims, this latest ruling has demonstrated the power of opt-out claims for large groups of customers, especially where third-party funding is available to finance the proceedings.
Commercial Regulatory Issues

Court of Appeal Raises Concerns With Incentives For Third-Party Funding

A recent case involving Cost Proceeding Orders (CPOs) being granted against train operators by the Competition Appeal Tribunal (CAT) has raised questions about the level of oversight needed for third-party funders. Whilst dismissing the appeal made by these train operators against the decision to approve the CPOs, Lord Justice Green questioned whether the incentives for litigation funders could damage the legitimate goal of wider access to justice. Reporting by LegalFutures highlights that the Lord Justice’s comments were provoked after examining the surprisingly high costs budget over the claimant, Mr Justin Gutmann. Whilst Green LJ still denied the train operators’ appeal, he highlighted that the case demonstrated that where litigation funders are involved, there is a legitimate concern that litigants will claim unreasonably high costs in order to ensure funders receive a return on their investment. The Lord Justice also suggested that there is a risk that claimants who are funded by third-parties may be encouraged to settle in a shortened timespan and for a smaller award in order to achieve returns in a timely manner. However, he also acknowledged that these funders play an important role in widening the access to justice gap, and in enabling consumers to seek compensation from institutions. Whilst this is clearly an area of concern for some within the judicial system, Green LJ pointed out that a high costs budget does not automatically result in those costs being ordered to be paid, even where the class action is successful. Therefore, while there are underlying concerns that incentives may be perverted, it still remains in the hands of the legal system and tribunals to ensure the third-party funding mechanism is not being abused.
Commercial

Woodsford Whitepaper on Litigation Finance and Bankruptcy in the United States  

Engaging litigation investment is a fundamental utility for firms navigating the thorny journey of bankruptcy restructuring. Woodsford has published a new whitepaper with insights into the benefits that litigation finance offers during corporate insolvency reorganization.  According to Woodsford, litigation investment offers creditors and debtors various benefits for the hope of future returns on current distressed assets. Woodsford outlines several examples of bankruptcy litigation finance scenarios as part of the whitepaper.  Furthermore, Woodsford suggests that bankruptcy funding options fit a wide range of scenarios that increase leverage for corporate investors to rise successfully from insolvencies.
Commercial Legal Innovation

$200M Bitcoin – USDT Protection Fund Announced 

With the global innovation pace of digital assets, innovative vehicles are being engaged that serve many of the same purposes of traditional litigation finance products. For example, BitGet has coordinated a "protection fund" that mimics a hybrid BTE - ATE insurance instrument to safeguard user deposits.  Cointelegraph.com reports that BitGet chose not to utilize third party insurance carriers and leverage digital asset architectures to organize the $200M fund in-house. BitGet decided to secure the fund with a combination of Bitcoin and Stablecoin assets to mitigate the risk of cross-border cryptocurrency market volatility.  Meanwhile, Cointelegraph.com also reports news of Voyager Digital’s similar fund that turned into a court-appointed scenario under bankruptcy restructuring. BitGet and Voyager both seemingly created the funds as an alternative to traditional litigation investment agreements.
Commercial Fundraising

Omni Bridgeway Establishes New Debt Facility To Meet Growing Demand

Throughout 2022, we have witnessed a growing discussion and corresponding action that suggests the global litigation funding market is set to see increased growth. In another sign of this expanding demand for financing, global funder Omni Bridgeway is making waves with an impressive $250 million debt facility that the funder says will allow it to continue servicing an increasingly large portfolio of clients, whilst reducing risk across its investments. Speaking with Lawyers Weekly, Andrew Saker, the chief executive of the firm, highlights that this refinancing is just one tool in its arsenal of capital, which includes around $3 billion ready to be strategically deployed. Mr Saker notes that there is an expanding demand for dispute financing, and Omni Bridgeway has also seen recent cases where governments are starting to take part in class action suits. This trend has given the funder plenty of confidence that the market is far from its peak, both in Australia and around the world. Australian law firm Gilbert & Tobin acted as legal counsel for Omni Bridgeway on this refinancing, with Louise McCoach describing it as not only a significant milestone for the funder, but also a landmark transaction for the market.
Commercial Deals

Litigation ABS Transactions Represent Enticing Investment Vehicle

Although the litigation funding market already represents an attractive prospect for investors looking for more reliable returns in an economic downturn, the secondary investment market for litigation asset-backed securities is also attracting more attention. Whilst these types of deals are still relatively low in volume compared to other ABS investments available, they remain a viable option. Research by Bloomberg highlights that the Kroll Bond Rating agency has assigned ratings for these types of deals to the tune of $1.2 billion in the last two years alone. However, senior director for ABS at the agency, Joanne DeSimone, says that while there is the potential for growth, investors should not expect to see a drastic rise in the number of litigation ABS deals in the coming years. According to DeSimone, most transactions are usually conducted by the same issuers each year. Whether or not the cadence of this subset of ABS deals experiences rapid growth, investment firms do not see any slowdown in the related volume of litigation financing opportunities. The head of US securitized products at Janus Henderson, John Kerschner, predicts that the current economic climate will likely fuel increased litigation, and where that activity rises, so will the number of funding agreements in play.
Consumer

Cash4Cases Funder Sentenced for Defrauding Investors 

Former New York attorney, Jaeson Birnbaum, was sentenced last week to three years in prison for defrauding over $3 million from investors through his funding company Cash4Cases. Reporting on the sentencing, Claims Journal outlined how in several instances, Mr Birnbaum deceived investors by putting forward lawsuits that were not even funded by his company. U.S. Attorney Damian Williams explained that in order to execute this fraud, Birnbaum falsified company records to hide the truth from prospective investors. Both of Mr Birnbaum’s fraudulent litigation ventures, Cash4Cases and Liberty Bridge, made Chapter 7 bankruptcy filings in 2020. This led the defrauded plaintiffs to sue the ex-lawyer for over $61 million in damages, less than $20 million of which has been recovered to date.