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Regulatory Issues

Mainstreaming Class Action Cases and Litigation Funding

This past year has seen multiple judgments supporting the validity of class actions—once thought ‘too American’ for many jurisdictions. London courts in particular have paved the way for collective actions against big businesses. Litigation funding has proliferated, and is spurring access for justice to parties who would otherwise be left out in the cold. Law Gazette details that earlier this month, a collective action against MasterCard was certified, and will proceed to trial on behalf of 46 million people. A Brazilian court just reopened a claim against mining company BHP—which could be worth billions. British Airways also settled a data breach case that impacted more than 16,000 people. Increasingly, judges are affirming the value of class action and collective litigation. However, some old-school judges remain intransigent. This could lead to increased regulation and more uniform rulings in the future. The same applies to third-party litigation funding. Litigation funding was once dismissed as an opportunistic scheme, but is now viewed as a vital part of class action litigation. As litigation funding becomes more accepted and utilized around the world, its inherent value in increasing access to justice grows more apparent. At the same time, funding agreements have raised eyebrows when claimants must pay large portions of their award to funders. Third-party funding is non-recourse, so funders are taking a significant risk in supporting these cases. It makes sense that their rewards will be substantial. Many class action cases couldn’t move forward without funding. It’s been asserted that more sophisticated funding models could ultimately lead to larger payouts for claimants. Tets Ishikawa, managing director of Rosenblatt offshoot LionFish, explains that third-party funding is often unjustly maligned. Pricing for litigation funding isn’t much different from other financial markets. LionFish, for example, is a principle funder (rather than one who invests on behalf of others), and therefore has more leeway in the size and types of cases they fund.
Deals

A Guide for Choosing a Litigation Funder

As lawyers, courts, and plaintiffs develop an appreciation for Litigation Finance, competition becomes increasingly robust. Demand for funding is up, as are the number of new funders throwing their hats into the ring. There’s a wide array of funding entities now, and they vary in terms of preferred case size, minimum and maximum deployments, jurisdiction, commercial or industry specialties, and more. Above the Law details how claim holders can best go about choosing the right litigation funder to meet their needs. One might think that rankings would give the clearest picture of the available funder options—but does it? Cost is considered the most important factor in choosing a funder, according to respondents in this year’s annual survey of lawyers. That’s not surprising, but it’s worth noting that cost probably shouldn’t be a deciding factor—at least not without further consideration. Preferred investment size and type are both important. Most funders have a preferred investment size that is based on timing, award potential, the likelihood of settlement, and more. Knowing how your case coincides (or doesn’t) with what funders are looking for can help you approach the likeliest match. The same goes for preferred investment types. Some funders only take commercial cases, or class actions, or patent and IP cases. Finding a funder that specializes in your case type brings additional expertise and experience to your team—which has benefits that can far outweigh a monetary percentage. Capital reserves and the right to end a funding agreement are also critical considerations. A funder should be well capitalized at the outset and should remain so for the life of the case. Also, carefully consider the terms under which a funder can exit and cease funding your litigation. Is the funder committed to seeing the case through to completion? Statistics can tell you about funders, but they can’t really discern the right funder for your specific situation. That’s why all factors deserve consideration before a choice is made.
Commercial

Taurus Capital Founder Talks Litigation Funding as Alternative Investment

Litigation Finance is a growing asset class, spurred on by the financial fallout caused by COVID. Increasingly, investors are seeking uncorrelated investments. As Gary Sweidan, founder of Taurus Capital explains, litigation funding is about as uncorrelated as it gets. Moneyweb explains the attraction of this alternative investment, who it benefits, and how it all works. As explained, funding litigation as a third party doesn’t correlate to stock markets, currency rates, global politics, or more mainstream investments. Taurus Capital follows a model similar to established funders in the UK, Australia, the US, and elsewhere. A funded entity raises a fund with input from investors. That capital is then deployed toward meritorious cases that are carefully vetted. Funding is provided on a non-recourse basis, so a funder loses the entire deployment if the case is not successful. As such, mitigating risk is essential. Funders have widely varied parameters for fund size and deployment goals. Taurus Capital currently has a fund with R145 million, which is expected to be deployed over seven or eight cases. The target is a four-to-five-times return on investment. Of course, some cases may be more lucrative, but some may be total losses. But even with the fund losing a case or two, investors can still expect sizable returns according to Sweidan. The timeline for cases is varied and not entirely predictable. Sudden settlements can end cases far earlier than expected. Endless motions or appeals can drag a case out for years. In South Africa, where Taurus Capital is based, it’s not uncommon for a case to take three to five years to complete. Finding a funder who will see a case through to completion is essential for plaintiffs who don’t want to be left bereft of funding to complete their case. Taurus utilizes a legal risk committee made up of senior counsel (both active and retired), and an investment committee with commercial expertise. Both the legal and commercial aspects are vital parts of vetting potential cases for funding.
Commercial

What Statistics Tell Us About COVID Business Interruption Insurance

It’s no surprise that COVID has resulted in an influx of insurance-related litigation. Specifically—the question of whether individual commercial insurance policies cover business interruption caused by the pandemic. Burford Capital suggests that analyzing the current numbers can give us a sense of momentum—but the totality of how COVID will impact past and future insurance coverage cannot be predicted with the information available. While new cases are being filed daily, nearly 2,000 COVID-centric insurance cases are either pending or resolved. About 85% of concluded cases have favored insurers. Insurers are moving cases from state to federal courts when possible—despite the fact that insurance policy interpretation is governed by contract law—a state issue. Federal courts thus far have been more likely to favor insurers. As the virus continues to cause damages totaling trillions, business interruption claims will no doubt be a significant part of the legal landscape for years to come. 
Announcements Fundraising

BCCE Announces $12 Million Funding Round

Bank Cartel Claims Europe (BCCE), a joint-venture of law firm Grantley Sinclair LLP and litigation finance firm Commercial Damages Claims Limited today announced a $12M funding round for its dedicated litigation finance fund, the Bank Cartel Claims Fund (BCCF), providing institutional and individual investors the ability to access a portfolio of litigation-related assets through a single fund allocation. BCCE has identified three recently decided EU antitrust cases that it believes are highly suitable for follow-on antitrust litigation: the European Government Bonds Case, the Sovereign, Supra-Sovereign & Agency Bonds Case, and the Foreign Exchange Case. In each of these cases, investment banks participated in a cartel through a group of traders. Cartel behaviour between competitors is the most serious form of anti-competitive behaviour and carries the highest level of penalties. Fines totaling €1.47 billion ($1.73 billion) were imposed on the investment banks by the European Commission. “Companies are liable for violations of antitrust law and victims are entitled to full compensation for the actual losses and lost profits that they have suffered,” BCCE Director Kees Arnaud said. “In these three cases, for example, the pension and hedge funds that lost millions of dollars because of these illegal cartels can effectively claim their damages through actions before a national court. A national court cannot overrule the European Commission on the issue of liability, so in most cases, the only remaining question to be decided is the amount of the damages. This makes antitrust litigation very attractive for investors.” “Investments in litigation financing generally offer high yields,” said Frank Mulder, COO of litigation finance firm Commercial Damages Claims Limited. “The key to higher returns is selecting lawsuit investments with key characteristics that mark them as effective investments. And thanks to a variety of modern innovations in finance and the law, investors can access litigation markets in ways that were not possible even a decade ago.” BCCE plans to use the capital to hire leading barristers, solicitors, and economic experts to pursue these claims against the banks. Damages are expected to exceed $1 billion. Find out more at https://bankclaimsfunding.com About Grantley Sinclair Grantley Sinclair is a leading law firm with more than 25 dedicated lawyers and public affairs experts. Clients big and small, from some of the world’s largest multinationals to small tech start-ups, trust Grantley Sinclair to solve their most challenging and business-critical problems. We provide insight at the point where law, business, and government meet, giving clients a voice and achieving successful outcomes. For more information, please visit: https://grantleysinclair.com About CDC CDC is a premier litigation finance firm that helps corporations exercise their right to full compensation for harms caused by e.g., breach of contract, business torts, or illegal cartels. CDC can arrange for the coverage of all the ongoing risks and expenses of litigation, including any adverse cost risk. It aims to deliver an arrangement that works for the client; therefore it operates in both the insurance and funding markets. For more information, please visit https://commercialdamagesclaims.com
Regulatory Issues

Kosovo Welcomes Third-Party Legal Funding

In recent years, Kosovo has taken a number of steps to promote foreign investments. Among these is the ratification of bilateral investment treaties with Switzerland, Luxembourg, Austria, and Belgium, among others. In 2014, a Law on Foreign Investment was adopted, which outlines the use of arbitration for investor-related disputes. Michelman & Robinson LLP, along with Bench Walk Advisors, explains that while Kosovo has not adopted the full measures of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, its Laws on Arbitration accomplishes many of the same things. As the financial climate improves, Kosovo is taking steps to attract more foreign investors, including third-party funding. Specific criteria are utilized when evaluating risks associated with cases:
  • Merits. Obviously, cases must be meritorious in order to qualify for funding.
  • Legal Team: Funders rely on the plaintiff’s legal team to win a satisfactory result for the client. Legal teams with a strong history of success and expertise in the area of dispute are essential.
  • Dispute Forum: Funders will specialize in specific forums for disputes. Some may want to avoid jurisdictions known to be unreliable, notoriously slow, or otherwise lacking in procedural stability or predictability.
  • Budget v Damages: Generally funders will have a minimum and maximum budget limitation. This means either a limit on how much funding they will deploy on a single case, or a minimum potential recoupment before considering a case for funding.
  • Enforcement and Defendants Financial State: Winning an award doesn’t help investors if the award cannot be collected. Most funders will examine the defendant’s ability to pay, as well as consider other potential enforcement issues such as hidden assets, or cross-jurisdictional issues.
Kosovo has taken some excellent first steps toward encouraging outside investment—with litigation funding strengthening investor confidence.
Announcements Fundraising

Liti Capital Token wLITI Lists on HitBTC, Bringing Litigation Financing to the Masses

Liti Capital, the Swiss-based litigation financing company that has made private equity investing accessible to everyone through blockchain technology, has listed its wLITI token for the first time on a centralized exchange (CEX) - HitBTC. wLITI’s first CEX listing follows its recent listings on decentralized exchanges (DEXes) Uniswap and 1Inch Exchange. Having launched earlier this year, Liti Capital is already making waves in traditional investing by bringing litigation financing — an investment practice traditionally monopolized by hedge fund heavyweights and elite investors — to the masses. “We are very excited to list on HitBTC,” said Liti Capital CEO Jonas Rey. “This represents a major milestone toward our goal of leveling the playing field for litigation finance. Legal claims are an extremely appealing asset class because they can be so lucrative, and we provide a means for anyone to get in on this exciting investment opportunity.” Founded in 2013, HitBTC is one of the oldest and largest spot-trading cryptocurrency exchanges in the world. It is well-known for its state-of-the-art matching engine, high security measures and low trading fees. With a trading robot-friendly API and 24-hour customer service, HitBTC is a popular exchange with over 800 trading pairs and more than 400 spot instruments. Putting traditional investing on the blockchain Litigation financing is the practice of bringing in investors to cover the cost of a lawsuit or arbitration in exchange for a portion of the profit. Litigation financing specialists, such as Liti Capital, purchase litigation assets for cases they deem to have a high chance of winning. While litigation financing often requires an initial investment of USD 500 K to USD 1 million from an investor, Liti Capital makes it accessible for anyone with as little as USD 50. They do this by tokenizing shares in LitiCapital, and paying out dividends to LITI equity token holders when a case in Liti Capital’s portfolio is won. wLITI, or “Wrapped LITI” — the token listed on HitBTC today — is Liti Capital’s ERC-20 liquidity token. It doesn’t provide access to dividends like LITI does, but wLITI can be exchanged for LITI tokens at a 5000 to 1 ratio. However, both tokens give holders the power to vote on how Liti Capital assets are used to finance crypto fraud cases that affect Liti Capital community members, an initiative that the company is dedicated to allocating between five and ten percent of their yearly investment budget for. Boasting a billion-dollar case portfolio Liti Capital has already secured a healthy case portfolio, with their largest case potentially worth more than USD 1 billion when it finally settles. Cases like these, which tend to be commercial rather than consumer or personal lawsuits, usually target large-scale corporate disputes valued at more than USD 10 million. While they could take years before a settlement is reached, successful litigation funders can expect to pocket between three and five times their initial investments, according to estimates by litigation finance expert Steven Friel (Bloomsbury, The Law and Business of Litigation Finance, 2020). To attain this goal, Liti Capital onboarded seasoned industry leader David Kay as CIO and Executive Chairman. Boasting more than a decade of experience as Funding Partner and Portfolio Manager of a billion-dollar private equity fund in the litigation financing space, Kay successfully enforced what was at the time the largest international arbitration award in history, bringing in over USD 1 billion in cash and securities. “Litigation assets generally don’t correlate with the state of the economy, allowing litigation financing to thrive even in a bear market,” Kay explained. “A relative newcomer to the modern investment ecosystem, litigation financing is expected to double in market value within the next six years. Our investment team at Liti Capital is actively seeking out the top opportunities in litigation assets, and aims to add at least five more multi-million dollar cases to our portfolio by this time next year.” Listing details Trading Date: August 17, 2021 3:00 pm UTC Deposit Opening: August 16, 2021 3:00 pm UTC Trading Pairs: wLITI / BTC wLITI / USDT About Liti Capital Switzerland-based Liti Capital is a Swiss Limited Liability Co. specializing in litigation finance and fintech. Liti Capital buys litigation assets to fund lawsuits and provide a complete strategic solution along with connections with top law firms to help clients win their cases. Tokenized shares of the company lower the barrier of entry for retail investors and give token holders a vote in the company’s decision-making process. Dividends are distributed to LITI token holders upon the success of the plaintiff. Co-Founder Jonas Rey heads one of the most successful intelligence agencies in Switzerland, Athena Intelligence. His two co-founders, Andy Christen and Jaime Delgado bring operational, innovation and technical skills together to round out the leadership team. David Kay, CIO, ran a billion-dollar NYC private equity litigation finance firm before joining Liti Capital.
Case Developments

German Asset Manager Sues Over Wirecard Bankruptcy

A lawsuit brought by Union Investment, Germany’s third-largest asset manager, is not welcome news for banks and bondholders. Wirecard is accused of making more than 70 statements, including corporate press releases, that are being described as fraudulent. FR24 News reports that Nadine Hermann of Quinn Emanuel stated that because Union Investment made decisions based on misleading statements, its claims should positioned alongside those of more senior creditors, such as banks and bondholders. This lawsuit has the potential to set precedent for other shareholders impacted by the Wirecard bankruptcy. The case is being funded by Burford Capital, a leading third-party litigation funder. So far, more than 14 billion Euros in claims have been filed against Wirecard with Michael Jaffe, the administrator. Jaffe has amassed about 600 million Euros from the sales of Wirecard assets. Should this lawsuit be successful, Union Investment would receive a share of the accumulated capital currently earmarked for Wirecard’s creditors, as would Burford. The banks and bondholders have filed multiple legal opinions rejecting Union’s claims.
Regulatory Issues

Omni Bridgeway CEO Andrew Saker Responds to Proposed Statutory Price Cap

It cannot be denied that third-party litigation funding is a boon to justice. In many instances, it’s the only way that impecunious plaintiffs can have their day in court. At the same time, legal funding is a business that depends on ROI for investors. That’s why funders have a lot to say about a proposed new regulation in Australia, legislating a standard minimum return to class members in funded class actions. Some have suggested this guaranteed percentage be as high as 70%. Is that reasonable? Omni Bridgeway CEO Andrew Saker penned his opinion on the matter, based on years of experience in the industry. Saker begins by pointing out that the 70% figure doesn’t appear to be based on any available data. It’s an arbitrary figure arrived at without input from funding groups like ILFA, nor does it factor in the significant risk undertaken by funders who deploy funding on a non-recourse basis. Since the Hilmer Review in the 1990s, it’s been established in Australia that the government should only intervene in those markets where there has been a market failure. That’s simply not true of the funding industry. While dire warnings of frivolous class actions haven’t abated, this explosion of opportunistic cases never materialized. Saker is clear in stating that funding is already subject to checks and balances, self-regulation by industry leaders, and increased court input on settlement approval and even funding agreements. The proposed allocation of 70% of awards or settlements to class members would negatively affect over 90% of cases, according to an analysis by PwC. In some instances, the remaining award funds wouldn’t be enough to cover legal expenses, or would reduce funder commission so drastically that it loses value as an investment. Leading funders like LCM, Woodsford, and Burford Capital all agree that an arbitrary price cap will hurt funders, lawyers, and potential claimants who may find themselves with no financial help when they need it most.