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Commercial Regulatory Issues

Anti-Money Laundering Law Could be a Boon to Legal Funders

Until recently, there was a $150,000 cap on the incentive for employees to alert authorities when money laundering occurs. This monetary incentive was only for employees of regulated financial institutions, and was paid at the discretion of the feds. Market Screener explains how the law is changing, and what the impact on Litigation Finance might be. Last year’s Anti-Money Laundering Act was passed as part of the National Defense Authorization Act, and created a program that provides awards to whistleblowers who provide evidence of money laundering activities, even in violation of the Bank Secrecy Act. Thanks to the new act, those who voluntarily provide information to the Dept of Treasury, the Dept of Justice, or to their employer, will be eligible for up to 30% of monetary sanctions above $1 million. The information has to be new to law enforcement, and must result in a recovery of at least $1 million. Why the sizable payments? Workers are likely to face retaliation for whistleblowing, including loss of employment or even blacklisting. Though awards are available, they could take years to materialize—if they ever do. Even counsel for the whistleblowers is subject to risk, which is why such cases are often taken on a contingency basis. Legal funding can help whistleblowers survive financially while they seek new work or await an incentive payout. Non-recourse dispute funding can cover legal fees and other costs associated with whistleblower litigation. In some circumstances, funding can be used for living or work expenses, as whistleblowers wait for claims to be adjudicated. When vetting whistleblower cases for funding, there should be an expected award of at least ten times the requested funding amount. The federal or state case must show government involvement and a strong likelihood of success. Finally, the opposing party must have a demonstrated ability to pay any fines levied.
Announcements Consumer

Experity Ventures Acquires Anchor Fundings

Experity Ventures LLC (EV) the parent company for several technology driven specialty finance business units that are focused on the litigation finance space has acquired 100% of the equity of New York based Anchor Fundings. The financial terms of the transaction were not disclosed. Experity Ventures Founder and Chairman, Joseph Greco commented, "We are pleased to complete the acquisition of Anchor Fundings. We have watched Anchor closely and continue to be impressed with their growth, discipline and approach to the space and are excited to help them continue on their success trajectory as part of our industry-leading platform” Anchor Fundings Founder and CEO, Charlit Bonilla commented, "We are very excited to partner with the Experity Ventures team and platform to continue our growth and outstanding performance. The Experity platform enables us to offer additional services and solutions to our valued clients and partners as well as being able to leverage their innovative technology and efficient capital structure. Anchor Fundings has built a strong brand in the marketplace and we will continue to build momentum and recognition for the Anchor brand under the Experity platform”. Experity CEO, Ryan Silverman added, “Charlit and his team have built an impressive business and the pairing of Anchor inside of Experity is very complementary and strategic. We believe that Anchor is an important ingredient in our plan for continued growth, performance and leadership in the legal funding and finance space”. About Anchor Fundings Anchor Fundings is a New York City based consumer litigation finance firm founded in 2013 by Charlit Bonilla. Anchor provides immediate and value-added liquidity solutions for plaintiffs, attorneys, and healthcare providers. Anchor is differentiated by their experience in workplace accidents which allows them to participate in some of the largest most complex litigation. Since inception, Anchor has become a go-to capital source for plaintiffs, attorneys and medical providers nationwide. About Experity Ventures Experity Ventures, founded in 2019, is the parent company for Nexify Capital and Nexify Solutions, MedSolve Financial Group, ProMed Capital and Thrivest Legal Funding, LLC / dba Thrivest Link. Nexify Capital has entered into several strategic financing and operational partnerships with legal funding companies in the United States. Nexify Solutions develops and markets best in class enterprise and work flow software for the legal funding market place, which is designed to automate pre-settlement funding from intake to decision analytics, to servicing and payoff, while offering full accounting and reporting capabilities. MedSolve and ProMed capital are leading providers of medical receivable funding solutions to healthcare facilities. Thrivest is a direct to market pre-settlement legal funding company that has successfully provided thousands of non-recourse advances to individuals with pending litigation, predominately in personal injury cases. Experity has offices in Philadelphia, New York, Nevada and Florida. For more information on Experity, please visit www.experityventures.com
Consumer

Legal Funder Under Fire for Cash Advances in NFL Concussion Case

Craig Mitnick, a New Jersey lawyer who represented hundreds of NFL players in a concussion settlement, has asked a federal judge to vacate the award to a litigation funder. Balanced Bridge Funding (formerly Thrivest) provided advances to former players while they waited for settlement monies. Mitnick has been ordered by an arbitrator to repay more than $2 million in loans. Legal Newsline details that in his filing, Mitnick claims that Balanced Bridge, along with lawyers at Fox Rothschild, committed ethics violations. However, much of this stance has already been rejected by arbitrators. The Consumer Financial Protection Bureau has long had a bee in its bonnet about Litigation Finance. Recently, the CFPB was instrumental in multiple funding agreements being ruled invalid due to prohibited assignment of benefits. This was reversed in 2019, but other issues came to light. Specifically, that lawyers were encouraging clients to obtain advances on settlements from firms in which they hold financial interests. Mitnick encouraged former NFL players to sue the league over its alleged failure to inform players about the risks of brain injuries. After a consolidation of the lawsuits and a dispute with another firm that entered a fee-sharing arrangement with Mitnick, Fox Rothchild and Mitnick ended their relationship—leaving tens of thousands of dollars unpaid. Despite making $1.9 million in repayments, the amount owed is still over $2 million. Ultimately, Mitnick was ordered to pay Balanced Bridge $2.3 million in back interest, as well as a further $150,000 in fees and expenses. Mitnick’s firm asserted that the contracts couldn’t be enforced, as they were non-recourse in nature. But the agreements stipulated that if the firm defaulted, the creditor may pursue the debtor’s assets to recoup the outlay. These events have been touted as evidence that litigation funders are greedy. In fact, what this case may illustrate, is the importance of standardized contracts and clarity of expectations.
Commercial Legal Innovation

Blockchain Tech Meets Litigation Finance

The concept of blockchain investing is still a mystery to many consumers. To many it sounds complicated, risky, and predicated on guesswork. Blockchain-style investment in third-party legal funding is a new concept, and one that brings with it questions about transparency and disclosure. Law 360 explains how one hemp company, Apothio LLC, launched an ‘initial litigation offering’ to be used in its upcoming federal court battle. The company is suing a California county after the county allegedly destroyed acres of hemp plants—saying that the THC content was above the legal limit. This ILO is listed on the Republic platform, using blockchain technology and standard crowdfunding rules. Litigation tokens are purchased by investors, representing a percentage of interest in any award stemming from the case. Ava Labs' blockchain arm, Avalanche, is hosting the tokens. Litigation Finance is a rapidly growing industry that has demonstrated an unmatched capacity for innovation and adaptation to the needs of those using it. The crowdfunding aspect of the funding means that a new class of small investors can now access the impressive payouts that litigation funding can provide. These investors are generally less savvy and more risk averse. As such, the complexities of third-party legal funding may be untenable for inexperienced investors, but increasing access to this investment type can be a boon to those who take the time to learn the industry. Apothio LLC’s case is currently facing a motion to dismiss. If that motion is successful and the case ends, investors will be refunded 80% of their original investment. What happens when a defendant seeks disclosure regarding who is funding the case? Plenty of questions abound as to whether small blockchain investors could be seen as having influence over funded cases. Issues could also arise after the one-year period ends, in which purchased tokens become tradable. Depending on valuation, tokens could reveal information on a case.
Commercial

How Litigation Finance Can Address the Gender Pay Gap

Most industries report that women are still making less money than men, despite similar job performance. In American law firms, multiple studies affirm that male lawyers make more money than their female counterparts. A partner compensation survey from last year shows that male partners earned 44% more than female partners. Can third-party legal finance help address this? Validity Finance explains that while this 44% number seems discouraging, it’s actually a step up from 2018—when the pay gap was a maddening 53%. The data shows that the pay gap is emphatically not the outcome of women working fewer hours than their male counterparts, nor does it suggest that women are producing inferior work. Studies actually show that women work more efficiently than men, and that they tend to report higher annual billable hours than men. There are many factors that contribute to this, such as mothers choosing a non-equity partnership track, women being less likely to negotiate pay increases, and a dearth of women in leadership roles in their law firms. But many feel that the biggest hurdle to pay equity is origination credit. A study by the National Association of Women Lawyers showed that nearly half of the top 200 law firms do not have a woman in their top ten earners. According to another study, female partners reported only 67% of the origination credits of men. Third-party litigation funding can enable lawyers to offer an array of bespoke alternative fee arrangements. Sharing risk with clients and funders allows firms to take on more cases with less financial risk. It’s been suggested that women are penalized more severely when they take risks that don’t pan out. Litigation funding offers security for women to take those risks, without leaving their firms in a lurch. In short, legal funding is a proactive solution whose time has come.
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.