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Commercial

Liverpool’s Pure Business Group Folds, 200+ Jobs Lost

Pure Business Group, which specialized in civil legal claims, is now in administration along with seven connected entities. The firm employed 256 people in total, with 203 of those immediately dismissed for “redundancy.” Liverpool Business News explains that Pure Business Group was comprised of two separate law firms, various claims management operations, a litigation funding arm, and more. There were nine limited entities in all. Administrators Robert Armstrong, James Saunders, and Michael Lemmon of Kroll Advisory will be serving as joint administrators. So far, they have taken steps to secure client files and protect financial assets. The administrators are also expected to work with industry regulators to preserve the rights of claimants. Rights to handle claims and WIP files has been secured. Claimants with active cases are being approached with the next steps.
Case Developments Commercial

Key Witness in Tinder Trial Received $2 Million Before Trial

The Tinder trial is about to begin. One co-founder of the popular dating app is suing Barry Diller and his media holdings for an astronomical $2 billion—claiming that he was misled about Tinder’s true value. The New York Post details that a key witness in the case, former Tinder VP 0f finance James Kim, was paid the sum of $2 million before the trial began. He was allegedly offered a further $1 million if the court ruled against Diller and his companies. Partially redacted emails show that Kim negotiated the large payments with attorneys for Rad. There is nothing illegal about the payments to Kim. But that hasn’t stopped IAC (Diller’s media conglomerate, which also owns the Match Group family of dating apps) from implying impropriety or undue influence. Purportedly, Kim will testify that top brass at IAC pressured him to undervalue Tinder’s worth to investment bankers, as Match poised itself to add Tinder to its app roster in 2017. Plaintiff Sean Rad, along with other co-founders of Tinder, have stated that the bankers involved grossly undervalued the worth of Tinder at $3 billion. Without citing a specific figure, they claim it should have been far more. The undervaluation allegedly led IAC et al to cheat Rad and other co-founders out of billions. The funds paid to Kim were provided by an unnamed litigation funder. New York Supreme Court judge Joel Cohen stated that while payments to Kim are allowable within the law, such payments may approach the line between “legitimate” legal finance and an illegal payment of witnesses—but was clear in stating that the line was not crossed. Predictions abound that the case will settle for between $300-700 million, but we'll have to wait and see how the case pans out. 
Consumer

Erika Girardi Calls Fee Agreement ‘Unenforceable’

Erika Girardi’s legal troubles are far from over, it seems. A lawsuit filed by Tom Girardi’s former co-counsel alleges that she is responsible for fees that were misappropriated by her husband’s firm, Girardi Keese. The former Mrs. Girardi has called their claims unenforceable, as they are allegedly based on an “illegal and unethical” funding agreement. Law 360 reports that Edelson PC is attempting to lift a bankruptcy stay on their current lawsuit. Earlier this week, Erika Girardi asserted that conduct in the partnership between Edelson PC and Thomas Girardi violated ethical rules. In their representation of the families in the crash of Lion Air Flight 610, the law firm allegedly did not receive written consent from clients to split fees. This argument was used without success by Keith Griffin, a former Girardi Keese lawyer. Griffin has also been accused of misappropriation relating to funds from the Lion Air action. After denying Griffin’s motion, the judge stated that the court was open to reconsidering in a summary judgement motion. Erika Girardi is no stranger to legal trouble, as clients from both Edelson and Girardi Keese pursue funds she allegedly received from her ex-husband. Girardi Keese was forced into bankruptcy after evidence surfaced that Thomas Girardi embezzled at least $2 million from claimants in the Lion Air case. Since then, more clients, funders, vendors, and others have stepped up to claim that they too were cheated by Girardi. Recently, founder Jay Edelson stated that Girardi’s claims were untrue, and part of a scheme designed to enlist the bankruptcy trustee for Girardi Keese to fight the firm’s claims. Within a year of declaring bankruptcy, Thomas Girardi owned roughly $250 million in assets and cash. Now, the trustee is unable to find valuables, and suspects that they have been hidden or given to someone else. Meanwhile, many records cannot be found, and those that have been found are riddled with inconsistencies.
Commercial

Staffing Shortfalls? Portfolio Legal Funding May Be an Option

As legal firms try to keep up with a spike in new litigation, a worker shortage is making an already tough task even more challenging. Many firms initiated a hiring freeze during the pandemic, and are now scrambling to cover staffing shortfalls. As competitive wages for lawyers climb, salaries for first year associates can be as much as $200,00 annually at Big Law firms. Market Screener suggests that litigation funding for legal portfolios can help law firms cover worker shortages. Financing a portfolio of fees from current cases leads to an influx of cash that can be used to bring in new staff. Because third-party funding is provided on a non-recourse basis, it doesn’t have to be paid back unless or until the funded cases are successful. Portfolio financing refers to legal funding for a bundle of meritorious cases that can include those with a contingency fee arrangement in place, or hybrid cases with bespoke pay structures. Firms that normally utilize bank loans or traditional lines of credit may find that the non-recourse nature of litigation funding is more cost-effective in the end. The lack of interest payments or a need to put up collateral can be a boon to firm partners. The more experienced the funder, the more likely it is that they’ll have valuable contributions to make about the cases they fund. Decision making is always left to the client, but funders may provide strategic assessments based on years of experience in courtrooms. Ideally, funders should have former trial lawyers and other legal professionals on staff as well as finance specialists.  This is yet another way that litigation funding can help support the needs of both law firms and clients.
Commercial Regulatory Issues

CEO of Baker Street Funding Talks Litigation Finance Regulation

Litigation Finance has become a powerhouse investment in the last decades, with billions in assets under management. The reasons for this are varied—including financial instability caused by the pandemic, a thirst for uncorrelated assets, and a burst of interest in ESG investing. TechBullion spoke with Baker Street Funding CEO Daniel Digiaimo, who explains the benefits of third-party legal funding for legal clients, lawyers, corporates, and investors. In a climate where pursuing a legal case is prohibitively expensive, legal funding allows those with meritorious cases to see their day in court. Digiaimo explains that financing helps clients in more ways than simply funding legal expenses. Experienced funders can advise on case strategy (though decision-making remains the purview of clients), recommend experts, and ensure that claimants won’t be tempted by lowball settlement offers as their legal budgets soar out of control. The most commonly stated reasons to invest in litigation funding, according to Digiaimo, are the uncorrelated nature of the asset and the potential for very high returns. However, the timing of payouts can be unpredictable since complex cases can take years to reach completion.
Announcements Consumer

KBRA Assigns Preliminary Ratings to Oasis 2021-2

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to two classes of notes issued by Oasis 2021-2 LLC (“Oasis 2021-2”), a litigation finance ABS transaction. Oasis 2021-2 represents the fourth ABS collateralized by litigation finance receivables to be sponsored by Oasis Intermediate Holdco, LLC (“Oasis”) and the second to include Oasis’ MedPort-branded (“MedPort”) medical lien receivables. Oasis, through its operating subsidiaries, has a long history as an originator, underwriter and servicer of litigation finance receivables. The company is a wholly-owned subsidiary of Oasis Parent, L.P. which is majority owned by Parthenon Investors IV, L.P. The MedPort receivables are originated by various originators with operating histories dating back to 2003. Oasis acquired the various MedPort originators on January 5, 2021. Oasis 2021-2 issues two classes of notes. The previous three transactions had only one class of notes. The notes benefit from credit enhancement in the form of overcollateralization and a cash reserve account. The portfolio securing the notes has an aggregate discounted receivable balance (“ADPB”) of approximately $110.3 million as of the statistical cutoff date. The ADPB is the aggregate discounted collections associated with the Oasis 2021-2 portfolio’s litigation funding receivables, litigation loan receivables (“Litigation Receivables”), medical funding receivables and medical loan receivables (“Medical Receivables”). As of the statistical cutoff date, Litigation Receivables, Medport Medical Receivables and Key Health Medical Receivables comprise approximately 53%, 39% and 8% of the aggregate funded amount and have average advance to expected case settlement values of 8.5%, 29.1% and 30.2%, respectively. The transaction also features a $36 million pre-funding account that may be used to purchase additional Receivables during the three-months after closing. Click here to view the report. To access ratings and relevant documents, click here. Disclosures Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above. A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here. Information on the meaning of each rating category can be located here. Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com. About KBRA Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
Announcements Case Developments

Litigation Capital Management: Successful award in LCIA international arbitration

Litigation Capital Management Limited (AIM:LIT), an alternative asset manager specialising in dispute financing solutions internationally, announces the delivery of an award in favour of the funded party in an international arbitration, under the LCIA (London Court of International Arbitration) rules.  The arbitration, seated in London and brought under the rules of the LCIA was for the determination of a construction dispute relating to a development in the Middle East.

This investment forms part of LCM's Direct Investment Portfolio and was 100% funded from balance sheet.

As a result of this award LCM has received approximately £9.8m (AUD$18.4m) in revenue, which includes the return of LCM’s investment of £2.8m (AUD$5.1m). This investment generated ROIC on the investment of 255%, with an IRR of 195%. The life of this investment was 26 months.

Patrick Moloney, Chief Executive Officer of LCM, commented: "This successful Award is the realisation of one of the first investments which LCM entered into following the opening of its London office in 2018 and demonstrates the successful application of its underwriting process to an expanding range of investments both in terms of geography and claim type.  This award is an excellent result for both LCM and our funded party." 

Litigation Capital Management (LCM) is an alternate asset manager specialising 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.

Announcements Commercial Legal Innovation

Kerberos Capital Management Announces World’s First ESG-Linked Debt Product for Litigation Finance Markets

Kerberos Capital Management announced today the introduction of a groundbreaking new direct lending product to law firms with a margin ratchet linked to ESG targets – the first debt product of its kind in Litigation Finance markets. The program is intended both to recognize and reward firms that have already established a commitment to advancing ESG factors in their work, and to incentivize qualifying firms to continue those efforts into the future.
To qualify for the program, firms must (A) demonstrate a material and ongoing commitment to providing pro bono legal services, (B) generate a threshold amount of revenue related to ESG-advancing case types, and (C) establish that they do not prosecute cases or otherwise conduct business in ways that run counter to ESG principles (a negative screener test). Key Performance Indicators related to each of these three primary qualifying factors will be assessed at the loan’s inception and monitored throughout the duration of the loan period, with downward margin adjustments ranging from 50 to 100 basis points.
“At some level, most plaintiff-side litigation can be thought of as advancing social interests, as it is through this work that individual rights are vindicated and accountability is imposed. In the same vein, litigation financing in general has ESG attributes, because the capital provides increased access to justice. But we wanted to go further,” said Joe Siprut, CEO & CIO of Kerberos. “Certain categories of cases warrant special acknowledgment for advancing ESG interests to a unique extent, and Kerberos’ new ESG product is intended to incentivize the prosecution of those cases. Building these incentives into our debt products will drive better ESG practices and outcomes.”
About Kerberos
Kerberos Capital Management is a boutique alternative asset manager. We seek to provide our clients excess return at every point along the risk-reward spectrum with an emphasis on yield, opportunistic, and hybrid strategies. Kerberos’ flagship strategy is providing innovative capital solutions to law firms. The depth of our private credit and direct lending platform has enabled us to generate differentiated absolute and risk-adjusted returns in litigation finance markets, regardless of the business cycle or economic environment. Kerberos’ investment team is comprised of senior members from both the legal and private credit industries, including former principals of the world’s leading law firms and multi-billion dollar private credit funds. In 2020, the independent, London-based Private Debt Investor magazine named Kerberos Capital Management one of its Top 3 Global Newcomers in the private debt fund category. Kerberos manages both separate accounts and pooled vehicles for institutional and high net worth investors worldwide.
Commercial

The Increasing Complexity of Litigation Funding

As new jurisdictions discover the benefits of third-party legal funding, access to justice is increasing around the globe. As predicted, Litigation Finance is gaining acceptance among Big Law firms, corporates, and the public at large.

Bloomberg Law details that the 2021 Litigation Finance Survey shows that the industry has weathered the pandemic—and may even have been strengthened by it. At least 56% of litigation funders said that business increased during COVID. Even more—59%--claim they have even more business now than before the pandemic.

While litigation funding has been around since the last economic downturn, it has only begun gaining real traction in the last few years. More than two-thirds of funders who have researched or used third-party funding are more likely to approach funders now than they were even five years ago. Almost a quarter (23%) are more likely to seek out funding than they were last year.

In early 2021, Willkie Farr & Gallagher was the first major law firm to announce a partnership with a prominent funder—Longford Capital. These kinds of deals are likely to ripple through the industry, as many more large-scale agreements are forged.

As the industry grows, so does the roster of active participants. In addition to more traditional funding entities, multi-strategy investors find themselves entering the funding space with increasing frequency. Even insurers are getting in on the action—offering judgment preservation insurance.

As the industry grows, so do calls for increased regulation. We’ve seen corporates and governments on the receiving end of class action cases speak out against funding, calling it opportunistic or bad for the economy, as insurance rates rise and nuclear payouts occur. Disclosure continues to be a divisive issue as well. As funders look to invest in law firms, potential conflicts draw attention from lawmakers, yet courts and bar associations have thus far been leaning toward loosening regulations.

Only time will tell how these various issues will shake out. For now, funders, lawyers and investors in the space must navigate these various complexities with an understanding that things may change drastically from one moment to the next.