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Commercial

Wirecard Insolvency Class Action Grows More Complex

The aftermath of Wirecard’s insolvency has grown even more complicated since the payment company liquidated with nearly $2 billion in the red. Over 20,000 people impacted by the Wirecard collapse plan to sue the company. The plaintiffs are backed by litigation funder, Litfin. Accounting Web details that Wirecard, just prior to the declared insolvency, revealed that capital supposedly in Asia did not actually exist. Some management personnel were arrested, while Jan Marsalek, former COO, remains at large and is wanted by Interpol. Now, a special report is pointing the finger at Ernst & Young, which was tasked with evaluating the business. The report suggests, among other things, that Wirecard may have violated reporting standards with regard to its Asian business dealings. The confidential report also found evidence suggesting that EY audits between 2014-2016 were lax and missed several common indicators of fraud, and that auditors often took managers at their word on compliance issues. EY denies wrongdoing, claiming that they too were victims of fraudulent conduct by Wirecard and others. David Parker, a payment tech expert, asserts that the report shows what could be crippling failings by EY. As Arthur Andersen was taken down in the Enron scandal, so may EY be hit hard by the revelations coming out of this investigation and the subsequent collective action. It’s unclear whether the full report will be published publicly, as German lawmakers have yet to decide. The findings are no doubt an embarrassment to lawmakers, as they reveal woeful lapses in professionalism that are likely to impact public trust. At the same time, a successful collective action could go a long way toward restoring public perception that fraud will be punished and investors protected. Just another way that litigation funding protects victims and results in net gains for the communities it serves.
Announcements Commercial

Boies Schiller Flexner forming international investor group to recover losses – Greensill / Credit Suisse Supply Chain Finance Funds

Boies Schiller Flexner (UK) LLP ("BSF") is building a group of investors across Europe and Asia who invested in Credit Suisse's US$10bn Supply Chain Finance Funds ("SCFFs").  It is intended that the group will pursue Credit Suisse, including through litigation if necessary, to recover losses suffered with respect to the investments made in or with Greensill Capital. The firm takes the view that investors have credible claims against Credit Suisse for misrepresentation and mis-selling, which should be brought in a co-ordinated manner across jurisdictions. Investors should contact greensill@bsfllp.com for further details. Background Credit Suisse entities pro-actively marketed and sold investments in the SCFFs as cash-equivalent and low risk investments.  In fact, the SCFF assets were notes backed by existing and future trade receivables originated and structured by Greensill Capital. In March 2021, Greensill Capital, the main trading entity and treasury company for the Greensill group, ceased trading and went into administration. Whilst facts continue to emerge, there appear to be multiple failures which led to the collapse, including an over-exposure to certain businesses, financing of risky future (as well as current) receivables, and an inability to maintain insurance coverage. The SCFFs were closed by Credit Suisse on 1 March 2021 and the funds are being liquidated.  It is anticipated that there will be a significant shortfall in recoveries for investors into the funds. The Investor Group BSF is putting together a group of international investors to pursue a cohesive and proportionate litigation strategy to recover losses, namely the shortfall that will not be met through redemptions from the Greensill estate.  This litigation strategy is anticipated to span relevant jurisdictions across Europe and Asia, with BSF acting as global litigation counsel. Investors will be eligible to join the investor group if they held (as at 1 March 2021) or hold (at the time of participation in the group) shares or interests in shares in the SCFFs, being: (i) Credit Suisse (Lux) Supply Chain Finance Fund, (ii) Credit Suisse Nova (Lux) Supply Chain Finance High Income Fund, (iii) Credit Suisse Nova (Lux) Supply Chain Finance Investment Grade Fund, and (iv) Credit Suisse Supply Chain Finance Investment Grade. There is no jurisdictional restriction: investors across Europe and Asia are able to join the group. The Litigation Strategy A cohesive investor group acting together will be well-placed to maximise recoveries with respect to the SCFFs, and protect interim value. Whilst there is uncertainty as to recoveries via the Greensill estate and losses have not yet crystallised, the litigation strategy is designed to recover losses for which Credit Suisse is responsible – both through the sale of the securities as well as its management of the portfolio.  The litigation will focus on mis-selling claims against Credit Suisse entities involved in the structuring and sale of investments, mis-management claims regarding the SCFFs investments, and, potentially, broader conspiracy and other tortious claims. It is anticipated that litigation will be brought in England and potentially Luxembourg and/or Switzerland, making use of case management procedures to maximise the efficiency of a group of investors acting together. BSF can provide detailed advice once an investor is a member of the group (and subject to diligence of the investor's interests in the SCFFs). Risk / Secondary Trading There is significant interest in both third party funding of litigation and of secondary trading in the shares and litigation rights.  BSF is working with various parties in this regard.  Investors interested in secondary trading should take advice to ensure rights and claims are transferred.  BSF can provide further details to interested parties. The BSF team can also arrange third party funding for interested investors, creating zero economic risk in the bringing of proceedings to recover their losses. BSF BSF is an elite litigation practice with significant experience in creditors' rights, class actions and strategic litigation in restructuring and insolvency matters.  It has a track record of delivering value for its clients through strategic litigation in England and across Europe.  BSF and its lawyers have created value for investors through cohesive litigation strategies in respect of the Icelandic banks (Kaupthing, Glitnir, Landsbanki), Lehman (US and UK), bank restructurings and collapses in the UK, Ireland, Cyprus, Greece, Spain, Portugal and Austria, and multiple corporate restructurings. It is currently litigating against Credit Suisse before the English Courts, with respect to the Proindicus debt. The BSF team will be led by Natasha Harrison, Deputy Chair and Managing Partner of BSF, and Fiona Huntriss, Partner.  BSF is working with Luxembourg, Swiss and other local counsel.
Commercial

Are There Caveats to the Widespread Embrace of Litigation Funding?

Third-party litigation funding has grown significantly in recent years. This relatively new industry got its start during the last financial crisis, and has expanded and adapted to meet the needs of lawyers, plaintiffs, and businesses during COVID. The practice has its share of detractors, but overall it’s viewed by courts as a net gain for the community, as it increases access to justice for those who could not otherwise afford it. International Business Times recently dissected what they see as the most significant concerns about Litigation Finance as an industry. In the UK, champerty restrictions were abolished in the 1960s, provided that funders are restricted from having control or influence over the cases they fund. Transparency is a major facet of instilling confidence in legal funding, along with assurances that the practice won’t result in court dockets clogged with frivolous cases. Of course, no funder wants to bankroll a case without merit. While it may be true that funders might take on a risky case with a potentially high ROI, those funders risk losing their entire investment if the case is not won. Litigation funders currently follow a code of conduct formed from the output of various working groups. This was encouraged by Lord Justice Jackson in 2013, during his endorsement of third-party litigation funding. Joining a professional funding association like ALF or ILFA requires signing a Code of Conduct. However, following the code is not legally mandated, and there are no legal penalties for deviation from it. Self-regulation of the industry may soon give way to increased legislation, as has already happened in Australia, for example. As litigation funding is clearly here to stay, the hope is that the industry itself will continue to cooperate with legislators to formulate a legal structure through which funding can thrive and plaintiffs in need can reap the benefits.
Announcements Commercial

Augusta Ventures completes new £250m fundraising as investors back strong market surge in legal and corporate sectors

Augusta Ventures, a specialist asset manager focussed on the litigation and dispute funding sector, has closed its third pool of funding with £250m of new commitments (including Augusta Ventures co-investment), bringing the firm’s AuM to £585m and enabling the firm to fund an unprecedented pipeline of opportunities in high value litigation and dispute scenarios. The fundraising, which was oversubscribed, was supported by Beach Point Capital Management, the anchor investor in the previous Augusta Ventures funding, and two new investors, Magnetar Capital, who will act as anchor in this funding, and Northleaf Capital Partners. Louis Young, Chief Executive Officer of Augusta Ventures, said: “We are delighted to announce this new £250m capital raising as Augusta seeks to expand its capital resources to meet the increased demand for legal related finance across all sectors and geographies. We have never seen so many strong opportunities.    It is particularly satisfying to see both the continued support of existing investors as well as the addition of two new institutions who have deep experience in the sector. This validates the quality of our investment platform and the amount of the new commitments reflects the depth of the investment pipeline.”  Hitesh Patel, Non Executive Chairman of Augusta Ventures, said:  “Augusta’s largest capital raising initiative signals its intention to rapidly expand its portfolio of investors and funding cases. Augusta has deep expertise in the litigation funding market, and this new funding will enable us to provide Claimants and law firms with even greater access to funding that de-risks litigation for Claimants and facilitates access to justice”. I am excited about working with a talented team at Augusta and its investors and the future prospects of expanding the company’s operations and assets under management.”   
Commercial

Auckland Cladding Case: Defective Product or Incompetent Builders?

The High Court case surrounding James Hardie and its “cladding systems” appears to hinge on whether the products themselves were defective, or if the installers simply erred in their duties.  Radio New Zealand discusses the $250 million case with Victoria Young, a business reporter who has covered the story. In short, the case is expected to last about four months and involve over 1,000 plaintiffs and a multibillion-dollar multinational company. Third-party litigation funding secured from a British funder has enabled the case to move forward. While the case itself may come down to a question of incompetence versus a faulty product, the implications for the legal world lie elsewhere. Some have suggested that litigation funders who bankroll class actions like this are emboldening other plaintiffs to file similar actions. When misled shareholders or other allegedly wronged parties feel they have nothing to lose, signing on with a litigation funder on a non-recourse basis is a sensible option.  This may be worrisome for unscrupulous business owners. But a public perception that chicanery will be met with a well-funded class action may keep a lot of businesses honest.
Commercial

A New Alternative Asset Class: Patents

Patent monetization is a rapidly growing alternative asset class. Fund managers, private equity firms, and hedge funds are all looking toward patents and patent portfolios as key non-correlated investments. The largest patent-focused fund currently active in the industry belongs to Fortress—with $900 million under management and a further $400 million in IP Fund 2. Middle Market Growth explains that firms are raising big capital for litigation funding—with plans to deploy much of it toward various patent cases. Litigation Funders commonly invest in IP enforcement programs or by entering portfolio funding agreements with law firms specializing in IP and patents. Parabellum Capital, for example, raised $450 million for litigation funding just last year. Some of that is already earmarked for patent litigation. Why are financial sponsors reticent to invest in IP litigation? The complexity of cases, low appetite for risk, duration, and the involvement of multiple parties may all be reasons for investor caution. At the same time, working with experienced litigation funders and IP advisers can mitigate many of those risks. IP advisors are an invaluable resource for financial sponsors looking toward patent-related investments. Their ability to source or identify beneficial opportunities, or to set up a framework for monetization, is essential. Depending on investment criteria, an IP advisor can create deals that ensure preferred dividends on investments. In the tech world, patents are as vital as they are neglected as a source of income. However, when financial sponsors and IP advisors work together, these patents can become a source of predictable income. One strategy may be to identify patent assets that aren’t essential to the business, yet can be sold to generate funds that can then be reinvested in the company. Another is leveraging patent portfolios to maximize returns. Ultimately, patent monetization offers flexibility and the potential for impressive returns.
Commercial

Bondholders Seek Crowdfunding for LCF Appeal

Is crowdfunding a good way to finance a case against the FSCS? That’s what LCF bondholders are asking themselves as they look for ways to fund an appeal. Four LCF bondholders are representing the rest of the investors in the class. After the High Court ruled against them, they received permission to take their case to the Court of Appeal. P2P Finance News details that the bondholders may not have the financial means to move forward with the appeal. While attorneys for the bondholders are working pro-bono, lawyers for the FSCS aren’t. FSCS has refused to extend an existing costs agreement to appeals, nor have they provided cost information. A target for the potential crowdfunding drive has not yet been set, according to bondholders. Still, an informal Facebook poll suggests that roughly half of the impacted investors support crowdfunding the appeal. Third-party funding seems like the ideal solution here. Yet the case did not secure funding—owing largely to the logistics of determining the damages for thousands of individual bondholders. A successful appeal could be worth GBP 25 million to LCF investors, and a further GBP 70 million to taxpayers. The judge called on FSCS to reconsider, as not allowing the appeal to move forward for financial reasons would not be in the interests of justice.
Commercial

Evaluating Duration in Commercial Litigation

For investors, duration is both extremely important and commonly underestimated. Assessing how long it may take for a case to go from filing to conclusion to payout is essential when considering funding any litigation. It can take two or more years for a case to reach completion—and even then, there is no guarantee of a speedy payout. Burford Capital explains that 16 months is considered a short period of time for arbitration to run its course. Commercial matters can take two years to reach trial in the United States, while a US District Court case might take more than 35 months to go through the appeals process. Firms and businesses must ask if it’s worthwhile to tie up capital for so long—or if it’s better to monetize such cases instead. Third-party legal finance offers two solutions CFOs should consider. The first is covering fees and expenses. When companies pay these, capital is tied up—maybe for years. Allowing funders to cover fees and expenses enables companies to spend less while achieving the same legal result. The company only repays this if the case is successful. Such is the benefit of non-recourse funding. Funders can advance a portion of a meritorious claim to companies—affording them working capital on the time frame that works best. Litigation funding can be used in these ways to lend flexibility and security to a company’s balance sheet by turning invisible assets into working capital.
Commercial

An Impassioned Defense of Litigation Finance

After a recent article lambasting the industry, Tets Ishikawa of LionFish Litigation Finance penned an impassioned response. Financial Times ran Ishikawa’s defense of litigation funding as a means to allow everyone to seek justice when they’re wronged. Funding helps vulnerable people at times in their life when they need it most. The hard truth is that seeking justice is expensive, and many people cannot afford it. Litigation funding exists to help those people, and increase confidence in the justice system. Ultimately, only those looking to use their money to avoid consequences have reason to fear the growth of the litigation funding industry.