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Consumer

Donation by Legal Funders Raises Questions

The New York State Trial Lawyers Association received a donation that has people talking. US Claims, a litigation funder based in Florida, gave $100,000 in a move some speculate is meant to influence government officials seeking to increase regulation. Legal Newsline details that legal funding is often treated with suspicion, particularly by those who haven’t used it. As of now, New York regulations on funding are minimal, though there is a bill in committee that would limit the finance charges funders could impose. Some accuse the legal funding industry of high-interest rates and fees, incomplete disclosure, and even collusion with lawyers. Meanwhile, funders maintain that the fees they charge are commensurate with the risk they take when funding cases on a non-recourse basis. US Claims is being accused of attempting to sway regulators. That charge seems dubious, based on the relatively small figure (we're not talking millions here), as well as the fact that funding isn't under severe threat in New York, so it's hard to imagine why a funder would go to such extreme measures. That said, the accusation alone against US Claims shows how vigilant the anti-funding community is.
Commercial

Miner Dispute Against Tanzanian Government to be Heard at Tribunal

Next week, the International Centre for Settlement of Investment Disputes will hear an international claim filed against the government of Tanzania. The East African explains that the suit, brought by Australian company Indiana Resources Ltd, represents the interests of shareholders who invested in Ntaka Nickel Holdings LTD and Nachingwea UK Ltd. The claim could be worth close to $100 million. Litigation Capital Management is funding the case to the tune of $4.6 million. LCM is an AIM-listed company on the London Stock Exchange. Additionally, Montero Mining & Exploration, and Winshear Gold Corporation, have separately secured legal funding in order to pursue litigation against the Tanzanian government for unlawfully seizing multiple rare earth projects.
Commercial

Business Interruption Insurance Claims—One Solution

Since the SCOTUS decision in FCA v Arch Insurance et al, Manolete has been developing new ways to approach making claims for businesses in the midst of insolvency. In many instances, it’s possible to get assistance in the form of immediate cash payments that leave room for a sizable share of recovered assets, and protection from costs. Manolete is an industry leader in financing insolvency claims, and an upcoming leader in business interruption claims. Recently, Manolete joined forces with Penningtons Manches Cooper LLP to pursue viable insurance claims. Depending on specific wording, SCOTUS has made clarifications on what insurers should cover—and includes interruptions caused by “notifiable disease” that would include COVID, and when the government or other public authority prohibits the use of the business premises. Obviously, that would mean that COVID-related business closures should be covered. It also means that partial closures should be covered as well as complete ones. Those who believe they may have an insurance claim that could impact insolvency should first review their insurance contract with a broker. If there is a claim, the next step would be contacting a litigation funder like Manolete, who can advise business owners on the best course of action.
Announcements Commercial

Global litigation funder Omni Bridgeway offers funding to Folli Follie Bondholders

To current and past holders of the CHF 150 million 3.25% 2017-2021 bonds Issued by FF Group Finance Luxembourg II SA Guaranteed by Folli Follie ISIN CH0385518052. This offer for litigation funding does not purport to be complete and is qualified in its entirety by reference to the terms of a Claims Purchase Agreement, a Claims Assignment Agreement and a Litigation Funding Agreement. This letter summarises the principal terms on which Omni Bridgeway is prepared to offer a litigation funding arrangement to holders of the CHF 150 million 3.25% 2017 2021 (ISIN CH0385518052) bonds issued by FF Group Finance Luxembourg II SA and guaranteed by Folli Follie Commercial Manufacturing and Technical S.A. (ISIN CH0385518052) (the "Bondholder(s)" and the "Folli Follie Bonds”, respectively). Alcimos Limited ("Alcimos") shall be cooperating with Omni Bridgeway in its efforts to assemble a group of claimants in relation to the proposed litigation funding arrangement. Omni Bridgeway is an established, global litigation funder which already has a litigation funding arrangement in place with a group of Bondholders holding Folli Follie Bonds with a face value in excess of CHF 23 million for the purposes of bringing an action before the Swiss courts against UBS AG (the "Defendant") on the basis of their role as bookrunners for the offering of the Folli Follie Bonds. Quinn Emanuel Urquhart & Sullivan (Schweiz) GmbH (QE) has been engaged by the group to litigate the claims based on prospectus liability. Omni Bridgeway and Alcimos are inviting current and past Bondholders who are not subscribed to the existing group action, to sign-up to the subsequent group action on or before 15 May 2021. In order for Bondholders to be eligible to participate in the group action, subject to this offer, they must have purchased the Folli Follie Bonds prior to 2 May 2018. Omni Bridgeway is committed to bearing the costs associated with the litigation of the claims, on a non-recourse basis on the terms of a Litigation Funding Agreement and will not be entitled to any payment (nor to reimbursement of its funded costs) unless the litigation strategy results in a recovery. No payments to Omni Bridgeway can ever be more than the ultimate recovery. Furthermore, Omni Bridgeway will be responsible for (court) fees and/or costs the Defendant may incur in the litigation process should the case be lost and the claimants be ordered to pay adverse costs. Interested current or past Bondholders will assign their claims to CH0385518052 - Bonds Claims Enforcement GmbH, an entity which has been set-up to facilitate the efficient management of the litigation process. As such, after subscribing to the group action, it is expected that no active involvement in the litigation will be required from the Bondholders.
Commercial

The Future of Litigation Funding: Episode 5, Part 2

Episode 5, part 2 of the Turnaround Time podcast features the rest of the panel discussion on what we can expect to see in Litigation Funding trends (our coverage of episode 1 can be found here). David Prager of Duff and Phelps moderates a panel including Tatiana Markel of BakerHostetler, Kenneth Epstein of Omni Bridgeway, and Howard Brownstein of The Brownstein Corporation. Topics include transparency and disclosure in bankruptcy cases that utilize litigation funding. Below are some key takeaways from the discussion:   DP: Howard, can you talk us through a real world example of litigation funding in a bankruptcy context? And how that led to the dynamics we see today? HB: In the Fastship case, we used bankruptcy as a tool to enable litigation. Fastship was a company that had patents advertising they could build a huge cargo vessel that would cross the Atlantic in three days. So they raised money to promote the company. The ships themselves would cost about a billion dollars for a small fleet. The money they raised got used up before they could raise financing to build ships. They came to our firm and said ‘what do we do, we’re running out of money,’ and didn’t see any hope of revenue. We did an orderly wind down of the company, to avoid personal liability for the directors. Then they discovered someone had built three ships, and they were sure they infringed on the patents. But there was no money to pursue a case. I found a law firm that liked the case. They would take it on a contingency basis, they wouldn’t put up money for experts and such—back in 2012 before litigation funding. We ended up getting a DIP loan from the party funding the litigation (debtor-in-possession financing to keep a business in bankruptcy operating)...we were out of bankruptcy in a few months. It was a totally novel use of Chapter 11. As the liquidating trustee, I filed suit in federal court, because these were Navy ships. When you sue the government, they don’t settle. The case took forever. Fast forward to 2017. We won the case. The government appealed and we won there. We’ve been paid the judgement, but are still negotiating fees for costs. Not only had there been misuse of patents, but also an alleged misappropriation of trade secrets. DP: Is there a nexus between litigation funding and bankruptcy? Why haven’t we seen much pure litigation funding in bankruptcy cases? KE: There are a number of reasons why we haven’t seen that en masse yet. The ideal situation for litigation funding on the front end of the case is one in which claims against third parties are outside relative the other assets in the case. There will be increased use of litigation funding either on the front end or the back end when the trust gets set up. It’s a matter of finding the right case, and people haven’t been very aware of (litigation funding) and how it’s used. That’s part of what I do—educating the public on what funding can do, and to consider it when there’s a financial need. DP: It seems unprecedented to take a contingency bankruptcy case. Is that an opening for litigation funding? TM: That’s not really the type of work that we do. We do use litigation funding at the debtor level. That’s something I do in the international asset recovery field. The targets of our asset recovery are often offshore, and are shell companies, and you have to dig through various levels of beneficial ownership before you get to the right people. What we do in that context is, when that issue comes up, we use involuntary bankruptcy, as we, the debtor, could be the largest creditor of one of these offshores—we’d put it into involuntary bankruptcy. That means court supervision and appointment of a liquidator, which has to be funded to prosecute the claims. DP: Everyone in the industry seems to have their own proprietary structure, how do you think about that in the ‘in court’ part of bankruptcy, where disclosure is required? How will that impact pricing and competition? HB: There’s a transparency and disclosure that’s undeniable. If funders want to play in this space, they’re going to have to get comfortable with that dynamic. We’re happy to disclose material to firms, though that will get some scrutiny from shareholders. KE: There’s a necessary transparency that comes with all of this—and I don’t think that’s a bad thing. Many funders will embrace that, but it has to be commensurate to the risk. If a loan has recourse, you really can’t charge non-recourse rates. I’m not suggesting that’s going on—but judges are reacting to risk. Pricing needs to reflect the risk.
Commercial

Burford Capital Limited: Takeaways from the 2020 Annual Report

Burford Capital, the largest litigation finance firm in the world, released its 2020 annual report recently. Incorporated in 2009, Burford trades on the London Stock Exchange's AIM, as well as the NYSE. It counts 60 full-time lawyers among its 133 full-time staff. Burford boasts a total portfolio of $4.5 billion, including balance sheet assets, strategic capital, and private funds. Seeking Alpha shares cautiously optimistic insights on Burford’s numbers. Burford currently has $2.7 billion in private funds under management. This includes funds currently invested, and is split into the Strategic Value Fund ($500 million), Burford Opportunity Fund ($300 million), and Burford Alternative Income Fund ($300 million). Most of the current investments Burford makes are in Litigation Finance in European markets. Exceptions include an evergreen investment in American markets and some post-settlement asset deployment. Moving forward, it’s believed that COVID-related litigation will lead to increased funding activity in the months and years ahead. Burford’s addressable market is too large and varied to pin down. Globally, $860 billion is spent on legal fees—nearly half of that in the United States alone. By cost, Burford has achieved positive outcomes in 84% of its funding deployments. Eight Burford-funded cases which were realized last year produced ROICs of 199% or more. This suggests that Burford relies on big-ticket cases as well as profitable settlements as a core part of its earnings strategy. To date, Burford has deployed $831 million and recovered more than $1.5 billion. This, combined with a conservative debt structure, leave Burford well-positioned for further investments in the coming year. Some even speculate that the Muddy Waters attack has strengthened Burford’s reputation in the community, and its commitment to transparency. With Burford co-founders Chris Bogart and Jonathan Molot recently purchasing millions in shares, it's obvious the company execs believe Burford's success will continue, and that will eventually translate into share price appreciation. 
Announcements Consumer

Tribeca Capital Group Provides Litigation Loans To Qui Tam Whistleblower Claimants

Tribeca Capital Group, LLC, one of the nation's leading litigation loan companies, has announced a drive to help support the financial needs of whistleblowers who bring actions to expose fraudulent corporate activities and other wrongdoing. Tribeca Capital Group offers help in the form of commercial litigation loans to claimants with whistleblower actions. Tribeca is one of the few litigation loan companies in the United States to offer advances to plaintiffs in what are called qui tam cases, a special type of commercial whistleblower litigation brought under the False Claims Act against a company that has defrauded or otherwise wrongfully made a claim against the federal government. Many states have also enacted their own false claims statutes. In general, qui tam and other whistleblower actions are designed to protect the integrity of government revenue and procurement systems by allowing an individual with specific knowledge of wrongdoing to bring a suit on behalf of the government and claim a reward, usually a percentage of what the government recovers. A case filed under the False Claims Act can result in a whistleblower reward of 15 to 25 percent. Candice Payrovi, Chief Operating Officer of Tribeca Capital Group, LLC described the impetus for some common qui tam cases. "The highest percentage of cases brought by qui tam claimants involve health care and health care-adjacent services, particularly overbilling by unscrupulous Medicare and Medicaid providers. Coronavirus suits are also gaining steam. Companies that procure and supply the government with goods are frequent targets of whistleblower suits, as are defense contractors. Consider the infamous $640 toilet seat and $435 hammer." Payrovi explained why her company is eager to work with whistleblower claimants. "Qui tam and suits under the False Claims Act" are particularly challenging because they are by definition high dollar matters, and much is at stake. The people who bring these cases are protected by law against retaliation in employment, but many are wrongfully forced out of what are often lucrative jobs, and it could be some time before their matters are resolved." Because qui tam and False Claims actions do not follow the traditional litigation model, many brave souls who bring these cases do not realize that they could qualify for a litigation loan from Tribeca. Rewards in a qui tam matter can be substantial, but resolution of complex cases can take months or even years. A litigation loan from Tribeca can help whistleblowers survive the financial stress that often accompanies these cases. Donadio also emphasized that whistleblowers are protected by a guarantee that eliminates their personal liability for repayment if for some reason the case results in no reward. If you have filed a whistleblower action and would like to explore whether you qualify for a litigation loan on your award, contact Candice Payrovi, Tribeca Capital Group at (866) 388-2288.
Commercial

Securities Litigation—Trends and Strategies

Challenging economic times for a business can shed light on prior corporate misconduct. In 2020, there were multiple examples of corporate fraud exposed. As litigation related to insolvencies and fraud grows, institutional investors should be seeking out new strategies to ensure maximum possible recoveries. Burford Capital explains that the Wirecard litigation, which took place in Germany, is an excellent example of how experienced funders can improve case outcomes. Burford worked closely with law firm Quinn Emanuel. Together, the team built the largest shareholder group action against the financial tech firm, and will continue to maximize recovery for their clients. The Economist suggests that as much as a decade’s worth of fraud will soon be exposed.  Securities litigation is about to happen on a scale we haven’t seen since the 2008 financial unrest. This is sure to include jurisdictions that are new to large-scale securities activity. This means institutional investors may find themselves seeking guidance from experienced industry partners that offer insight, as well as funding. The impact of COVID may be changing over time. It remains uncertain when a new normalcy will emerge, and what it will look like when it does. With that in mind, developing a strategic litigation plan should be at the forefront of every GC’s mind over the coming year and beyond. What should that plan entail? Burford Capital recommends portfolio financing to preserve assets and mitigate risk. A portfolio funding arrangement allows fund managers to pursue multiple claims by streamlining processes and lowering costs overall. Monetizing claims is another way legal funding can be employed to free up working capital that may be needed for day-to-day operations. A sizable part of weathering financial uncertainty is to plan and adapt for the future.
Commercial

Case Study: Liquidation Using Portfolio Funding

How is portfolio funding valuable during liquidation? One case study may help explain. LCM details that the case in question involves the liquidation of a trading entity that was part of a group of construction and development businesses. The complexities of the liquidation combined with accusations of misconduct led to the liquidator spending a disproportionate amount of time assisting with the ASIC investigation, and being largely unfunded. By entering a portfolio funding arrangement with a legal funder, non-recourse funds are provided. The claims themselves are cross-collateralized, lowering the funder’s risk. This type of funding supports the pursuit of all meritorious claims—not just the most lucrative few. Ultimately, portfolio funding can increase the size of recoveries in a liquidation case while ensuring that funding is priced fairly and all claims are followed to completion.