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Commercial Regulatory Issues

Key Points from the Global Class Actions Symposium

ICLG's Global Class action Symposium discussed the dynamic and evolving issues surrounding class actions and litigation funding. One takeaway is clear: attitudes about class actions and their funding are evolving with the industries themselves. Growing pains and a constant stream of regulatory changes point to new opportunities for claimants seeking compensation, and the lawyers and funders who serve them. ICLG.com details the increased popularity of a belief in class actions as a means to improve access to justice. Class actions can be a boon to average people who have been harmed by a government, utility, or big business they could never hope to take on alone. Experts from Harbour Litigation Funding and Berger Montague agree that while government regulation may serve to keep businesses honest—there are no provisions that address the losses experienced by those who have been wronged. In the end, governments will simply not be as motivated to seek recompense for claimants, even in large numbers. As laws change and precedents are set, businesses increasingly take steps to identify and address potential class actions before they become realities. The recent ruling in Lloyd v Google illustrates that even mundane choices like the precise subsection of law being referenced can make or break a case involving millions of claimants. Another theme discussed was the uneven maturity of class actions from one jurisdiction to the next. Australia has long enjoyed an amply regulated regime for class actions, while other parts of the world still struggle to set up a legal framework governing class action cases. Jurisdictional issues can complicate class actions, especially regarding securities, damages, and the overlapping legal constraints of cross-border litigation. Finally, ESG class actions are a growing focus. These actions focus on environmental, social, and governmental issues that can cover everything from corporate malfeasance to climate change.
Commercial Deals

US PE Investors to Buy UK Law Firm in the Coming Year

It’s predicted that several sizable UK law firms will find themselves in the hands of private equity investors in 2022. These investors will likely focus on large firms that are utilizing damages-based agreements (DBAs). Legal Futures explains that some firms, such as Rosenblatt, are expecting returns of 4-5 times the amount invested in various DBA cases. Regulations governing DBA cases led to many firms deciding not to utilize the practice. Steve Din, founder of Doorway Capital, details that legal professionals are increasingly investigating DBAs as an exciting new way to fund litigation. Din claims that investors aren’t interested in any specific firm or case. Rather, investors want to invest in large law firms. According to Andrew Leaitherland, former CEO of DWF and founder of Arch.law, US private equity funds will flock to UK-based firms, and create value the same way others have done with portfolio investments. One benefit of private equity investment is that investors can look at many different models and apply only the ones that already work. ScaleUp, a UK private equity firm, took a 35% stake in Keystone Law—and has successfully achieved a return on investment of 11x. There’s every reason to believe the financial sector will increase its investments in funding entities and legal firms going forward.
Announcements Commercial People Moves

Woodsford announces further international expansion, with a number of key strategic hires

Woodsford, the global litigation finance and ESG business, has announced further expansion with the appointment of Hon. Michael Barker QC to its Investment Advisory Panel and Deborah Mazer, Hugh Tait, Diane Chisomu and Oscar Moore to its global executive team.

Michael Barker was a Judge of the Supreme Court of Western Australia from 2002 – 2009 and the President of the State Administrative Tribunal of Western Australia from its foundation in 2005 until 2009. From 2009 – 2019, he was a Judge of the Federal Court of Australia.

Deborah Mazer is a U.S. lawyer and former litigator with a broad range of trial and appellate experience.  Her expertise includes complex commercial, bankruptcy, mass tort, securities, tax controversy, and IP litigation. Before joining Woodsford as an Investment Officer, Deborah worked at Davis Polk & Wardwell in New York. She is a graduate of Yale Law School.

Hugh Tait is an Australian qualified lawyer who has worked on a diverse range of complex, large-scale disputes, including class/collective actions in both Australia and England. Before joining Woodsford as an Investment Officer, Hugh was employed at Hausfeld in London, and before coming to England, was employed at one of Australia’s leading law firms, HWL Ebsworth.

Diane Chisomu and Oscar Moore have both joined Woodsford’s London team as Junior Investment Associates.

“From our foundation as a third party funder that helps level the playing field in David v Goliath litigation, Woodsford has grown into a successful ESG business, holding major corporates to account when wrongdoing occurs.  Whether it is helping consumers achieve collective redress, ensuring that inventors are properly compensated when Big Tech infringes intellectual property rights, or helping shareholders in escalated engagement with listed companies, our team is committed to access to justice. These exceptional appointments will help support continued growth in our key international markets.” said Steven Friel, Woodsford’s CEO.

Michael Barker commented, “I’m excited to have joined a flourishing business that has ambitious future plans, particularly in Australia, my home turf. I hope my expertise will facilitate further growth both here and beyond.”

About Woodsford  

Founded in 2010 and with a presence in London, New York, Philadelphia, Minneapolis, Toronto, Singapore, Brisbane and Tel Aviv, Woodsford’s team blends extensive business experience with world-class legal expertise.

Woodsford is a founder member of both the International Legal Finance Association (ILFA) and the Association of Litigation Funders of England & Wales (ALF). Woodsford’s Chief Operating Officer, Jonathan Barnes, sits on the board of both organisations.

Woodsford is continuing to grow, and we welcome approaches from experienced litigation lawyers and other professionals who are interested in joining our team.

Interviews, photos and biographies available on request.

Case Developments Commercial

Lloyd v. Google – What Have We Learned?

A Supreme Court decision was handed down in the Lloyd v Google appeal. And Google has a lot to be celebrating. In short, the question at hand was whether damages could be sought in a collective action over “loss of control over data,” without specifically listing the monetary or punitive damages of each individual claimant. Requiring individual loss statements from every claimant in a case impacting millions seems untenable. What happened here? Omni Bridgeway explains that the issue being decided is less about the individual damages and more about the type of claim filed. In the case, Lloyd, believing Goggle had secretly tracked millions of users’ internet activity. This was allegedly done without consent and for commercial purposes. Lloyd asserted a breach of section 13 of the Data Protection Act—which required evidence of damages. Lloyd argued that it was acceptable to ask for the same damages for all claimants without showing the particular losses of individual claimants. The Court of Appeal called this a “lowest common denominator” approach, saying some claimants would not recoup their full damages if such a pragmatic approach was taken. Lord Leggatt made several clear points in his decision, all suggesting that the representative claim was not the best way to pursue damages. First is the opt-out nature of the representative route when the group litigation order is better equipped for opt-in claims. Next, because the claims were of low value individually, it wouldn’t work to seek a declaration before moving forward to the quantum stage. Finally, it’s just not realistic to expect courts, attorneys, or funders to pursue loss declarations from millions of potential claimants. Obviously, it makes more sense to deal with a single representative. What we see here is clear evidence of the need to demonstrate damages in a misuse of data case.
Commercial Deals

Hedge Funds Continue to Be Major Investors in Legal Funding

We already know that litigation funding is growing by leaps and bounds. This industry is a little over a decade old, and by 2019, had become a global industry worth nearly $40 billion. As the reach of funding grows, more businesses are learning the ways in which legal funding can monetize existing litigation assets while sharing risk. Bloomberg Law explains that the non-recourse nature of litigation funding leads to funders exercising exceptional due diligence when vetting cases for potential funding agreements. Even with some firms turning away 90% of funding applicants, industry growth has not slowed. One Australian funder, Omni Bridgeway, estimates that the addressable market for legal funding is $100 billion globally. The potential for large awards is one of the main factors attracting hedge funds to Litigation Finance as an alternative investment. Profits for funders can take months or even years to realize. But when everything goes according to plan, the results are significant. Burford Capital funded the divorce case of the Ahkmedovs, a Russian oil family. Ultimately, Burford made a return of $103 million after a settlement.   Hedge funds aren’t the only ones investing in legal funding. College endowments and sovereign wealth funds are getting in on the action. Litigation funding investment is also attractive for ESG investors, since the main byproduct of funding is increased access to justice—particularly for those who can least afford it. Additionally, the uncorrelated nature of funding means it’s protected from the fluctuations of the market. This makes it an excellent way to diversify an investment portfolio—which has been more important than ever in the wake of COVID. All that said, Litigation Finance is fraught with risk and unpredictable timelines. Understanding those risks before investing is essential.
Commercial Regulatory Issues

Do Undisclosed Funding Agreements Imperil the Justice System?

All eyes are on Bank of America Corp v Fund Liquidation Holdings LLC, because of the issues the case is bringing before SCOTUS. In this instance, an upcoming decision has led the US Chamber of Commerce to lament the oft-repeated (but unproven) assertion that the American justice system simply cannot withstand undisclosed funding agreements. Reuters details that in an amicus brief, SCOTUS was advised that the 2nd Circuit Court of Appeals was inviting untoward conduct by litigation funders when it approved Fund Liquidation Holdings to become a plaintiff in a rate-manipulation class action in a case against international banks. But did they? The hedge funds who filed the case have since dissolved, giving their litigation rights to Fund Liquidation Holdings. This was not spelled out in the initial class action filing. Later, it was learned that Fund Liquidation Holdings was the real plaintiff, and had been controlling litigation from the outset. The judge ruled that Fund Liquidation Holdings did not have standing to sue, thus nullifying the class action. A subsequent appeal found that the initial filing need not end the class action, because Fund Liquidation Holding did have a constitutional claim when the case was filed and revealed themselves in time to assert that claim. The appeals court determined that there was no reason to spend on filing a new complaint due to what it deemed a ‘technical error’ in the filing. The banks have petitioned for SCOTUS review, referencing a 2002 decision in Zurich Insurance Co vs Logitrans Inc. In it, a case was nullified due to a mistakenly filed subrogation suit. The 6th Circuit Court found that they could not swap in the insurer as a plaintiff. The 2nd Circuit court denied that this approach would not result in unscrupulous conduct by funders. The Chamber of Commerce does not agree.
Commercial Deals

GLS Capital to Launch Patent Licensing Subsidiary: Celerity IP

Legal funder GLS Capital has announced plans to finance a licensing and enforcement campaign for patents owned by Asustek Computer Inc. The patents are related to cellular networks—specifically 3G, 4G, and 5G tech. Bloomberg Law details that the patents in question are owned by Asus and Innovative Sonic Ltd, which was developed in 2006 as a trust company to hold patent assets. While the exact terms are undisclosed, GLS Capital has a financial stake in the patent enforcement campaign and will receive a portion of the award if successful. GLS Capital is run by three former employees of funding giant Burford Capital. Patent disputes are particularly attractive to funders because of the potential for very high awards—sometimes 2-3 times their initial investment. At the same time, the non-recourse nature of litigation funding means that funders take on significant risk. This arrangement demonstrates the maturation of legal funding as an industry, and illustrates a growing acceptance in the global market.
Commercial

Manolete Points to COVID as Cause of Dismal Profits

Typically, a business focused on the insolvency sector can expect to be busy. During COVID, insolvencies were predicted to skyrocket. But as governments stepped in to alleviate financial peril for businesses, those counting on insolvency to keep their own businesses afloat were left wanting. Law Gazette details that according to Manolete Partners, firm revenues were down over the last six-month period. Unadjusted operating profits were down by 52%, to GBP 3.2 million. Total revenues represented a 15% increase over the previous six-month period—but are 46% lower than the same period last year. It is perhaps ironic that during a pandemic in which so many businesses shut down, a litigation funder focused on insolvencies experienced such a marked drop off in revenue.
Commercial Deals

Insights on the Transportation Sector

The transportation sector is notoriously litigious, complex, and vital to the global marketplace. The complexities of contracts, regulation, and the constant evolution of the industry can result in expensive disputes carrying high levels of risk. What’s more—these disputes are likely to be cross-border. Burford Capital shares key takeaways from its 2021 Legal Asset Report, which includes a snapshot of the industry as it stands now. First and foremost, the report shows that only 40% of CFOs have robust affirmative recovery programs. That’s a shame, since affirmative recovery can increase profits without a monetary outlay with third-party legal finance. Portfolio funding creates an influx of cash on assets that were sitting dormant—with the potential of more to come later when/if awards are realized. Like many companies, transportation-focused entities would likely benefit from increased collaboration between their legal departments and CFOs. Determining whether litigation assets should be pursued is something to be considered on both a legal and financial level. Currently, fewer than half of transport CFOs have substantial influence in their company’s legal department. This may be why so many litigation assets in the transportation field go unrealized. When calculating risk in litigation, it’s crucial to include duration risk. The more complex a dispute is, the longer it can take to resolve. Legal finance can address this risk by allowing third parties to take on duration risk while the company receives an influx of cash on a predictable schedule. The non-recourse nature of funding means the company pays nothing unless a case is successful.
Commercial Special Features

Key Takeaways from LFJ’s Special Digital Event: Innovations in Litigation Funding

On Wednesday, November 10th, Litigation Finance Journal hosted a special digital conference titled Innovations in Litigation Funding. The event featured a panel discussion on disruptive technologies within Litigation Finance, including blockchain, AI and crowdfunding platforms. Panelists included Curtis Smolar (CS), General Counsel of Legalist, David Kay (DK), Executive Chairman and Chief Investment Officer of Liti Capital, Cormac Leech (CL), CEO of AxiaFunder, and Noah Axler (NA) Co-founder and CEO of LawCoin. The panel was moderated by Stephen Embry (SE), founder of Legal Tech blog TechLaw Crossroads.  Below are some key takeaways from the panel discussion: SE: All of you seem to have an interest in taking litigation funding out of the back rooms and making it more mainstream so that anyone can invest. I want to ask each of you to briefly explain your specific approaches in trying to accomplish this goal. CS: Basically, what Legalist does, is we use artificial intelligence and machine learning to reduce the potential for adverse selection and hazards that may exist in the Litigation Finance field. By reaching out to those who have valuable claims, we’re able to select the cases we want, versus simply having cases presented to us and sold to us. This has been extremely valuable to us, as we get to really pick the best cases based on criteria that we are selecting. DK: I think we’re getting pretty close to it already being in the mainstream. I think adoption has grown a lot over the last ten years. In terms of moving it forward, our view on it at Liti Capital is that we are trying to democratize the availability of Litigation Finance both from the people who finance it and the people who have access to it. CL: What I really see AxiaFunder doing is connecting investors with a new asset class, and at the same time, providing claimants with a new source of flexible funding. AxiaFunder in a nutshell is a funding platform that connects investors with carefully vetted litigation investment opportunities on a case by case basis. The capital is put to work immediately, and then when the case (hopefully) resolves positively, we return the capital with a return. So there’s little or no cash drag. We see it as an obvious win-win. NA: What we’re seeking to do is open Litigation Finance, like some of the other folks on the panel, beyond the institutional space into individual accredited investors and also to retail investors. The additional value add we have, is that we fractionalize the investments as digital assets, or what are sometimes called tokens, using the Ethereum blockchain. We think ultimately that by doing that, we can bring liquidity to the Litigation Finance space and beyond Litigation Finance as well. We’re not the only ones securing this in the private security space. SE: One of the questions we often see with cryptocurrency, whether it’s right or wrong, is that it’s used to hide who is paying what to whom. How does that concept square with the growing concern of many investors (and to some extent, the judiciary) about transparency in terms of funding agreements and the identity of funders? DK: I think the key here is consistency, which is to say ‘who is the funder?’ and I think that’s an important distinction that gets a short shrift from a lot of these discussions. To put it another way, if Liti Capital is the funder, then it’s obviously very important to know who Liti Capital is, and who are any majority or control holders within Liti Capital. And we, like other companies on the blockchain, are still required to do KYC and other rules with our investors to ensure that we’re compliant with domestic and international law. So I think that piece is much ado about nothing. But what I will add, is that I do think litigation funders should be held to the same standard as companies, and whether or not an arbitrator has an investment in our company is important to know, or a decision maker has an investment in our company is important to know. And disclosures in the same way that’s required in US Federal Court makes perfect sense. This is not a new issue. I think where we fall prey to the people that are against litigation funding...we’re falling prey to this argument that somehow everything and everyone must be known—or it’s evil. Access to justice is not evil. Being able to compete with people with large amounts of capital is not evil. NA: I second a lot of the things David said. At LawCoin, we’re selling securities. We’re very upfront about that. That’s a hot button issue in crypto, whether or not a particular token is a security. We have a separate white list that exists off of the blockchain, which might in some cryptocurrency circles lead to criticism that we’re not a decentralized operation in the way that a lot of cryptocurrency evangelists argue that cryptocurrency is most suited for. We embrace the obligations that go with issuing securities, so as a result...there’s no issue with respect to our platform with having anonymous investors that haven’t gone through a KYCAML process. SE: Given the volatility of cryptocurrencies that we’ve all seen...how do you mitigate against a severe price drop or price increase, and what do you tell investors in that regard? DK: How does Blackstone or Apollo mitigate against market crashes or change in the underlying value of their equity? Volatility and movement in price just exist—in terms of value of the corporation. In terms of funding the cases, we’re not funding cases in Bitcoin or Ethereum. We’re not a cryptocurrency, we’re a company that’s listed on the blockchain. Our token trades on the blockchain, but our token represents the underlying equity of the company. The money that we raise, 90% of it is dollars, some small percent is in Ethereum, but...our expenses are paid in dollars, we raise money in dollars, our revenue comes in dollars. There is some currency risk in anything we would keep in Ethereum, but we manage it. ... You really just have to be aware and manage the fact that you’re operating in two currencies. SE: Given the way litigation sometimes drags on, especially in the US, given the unexpected twists and turns—what happens when you have to go back to your investor pool and say, ‘we need some more money?’ How do you manage that and how are the terms structured? CL: There are two aspects to it. First of all, before we actually issue a claim, there’s no adverse cost risk for the claimants or our investors. But once you issue the claim, you potentially have adverse costs risk for the claimants. If the claimants can’t pay, our investors could potentially be liable for the adverse costs risk, which we’re obviously not comfortable with. Before we will fund a case where the claim is going to be issued, we basically get a cost budget through trial, and make sure we have enough money to see the case through to the end of trial. Having said that, the cost-budget is always an estimate. So sometimes you need to come back and get more capital from investors. Litigation Finance Journal produces numerous digital events throughout the year. Please subscribe to our free weekly newsletter to stay informed about future events. 
Commercial Deals

Talking IP at the 2021 LitFin Dealmakers Forum

This year’s LF Dealmakers Forum was a hybrid conference, combining in-person guests and speakers with virtual ones. It was a balancing act between providing a normal and engaging experience, presenting high-quality content, and keeping pandemic safety rules firmly in mind. Above the Law details that the forum was a smashing success, and suggests that there were three main takeaways about IP and its relationship to Litigation Finance. First, funders are in control of enormous cash reserves. Many are actively seeking cases or portfolios to invest in. Patent and IP disputes continue to be lucrative and popular areas for funder investment. Often, businesses or researchers don’t follow up on complicated IP litigation due to the time, expense, and uncertainty involved. But with legal funding—such cases become opportunities for sizable payouts. At the same time, diversification remains as important as ever. Next, as the litigation funding industry grows more mainstream, funders have adapted to an array of new situations. In the industry's early days, funding was for class action cases or David v Goliath situations. While that’s still an important part of funding, the industry can now engage in insolvency matters, award enforcement and portfolio funding, as well as help businesses monetize existing legal assets. There’s every expectation that the industry will continue to develop new ways to expand access to justice. Third, the increasing number of players in the litigation funding space creates a need for IP-focused legal teams to stay current on what’s happening. As funders develop specialties and relationships with other legal entities, knowing how to find the right funder for one's specific situation is more important—and potentially more difficult—than ever before. It’s been suggested that the IP community do their own diligence regarding funders. As funders learn more about the IP industry to better serve those customers, so should the IP industry study up on the funding opportunities that exist.
Case Developments Commercial

Supreme Court Rules Data Claim Against Google “Doomed to Fail”

This week, the Supreme Court blocked a data protection claim against tech giant Google—saying that the case was doomed to failure. The court unanimously affirmed the appeal from Google. Law Society Gazette details that in Lloyd v Google, the Supreme Court was asked to overturn an earlier ruling from the Court of Appeal—which held that a representative for millions of iPhone users in England and Wales could file their case outside of the jurisdiction. The High Court disallowed the out-of-jurisdiction filing, though the Court of Appeal reversed this decision the following year. Richard Lloyd began proceedings in 2017 on behalf of anyone impacted by the ‘Safari workaround’ that was in use from August of 2011 through February 2012. Lloyd has said that the recent ruling sets the bar unreasonably high for damages in data rights cases. Lloyd still believes other claims will come forward. The Supreme Court held that damages for any breaches of the Data Protection Act 1998 (section 13) can only be claimed when the alleged breach resulted in material damage or distress to the claimant. Lord Leggatt stated that section 13 can’t reasonably give an individual right to compensation without proof of material damage. This interpretation led the judge to suggest that the claim has no chance of winning because it was framed as a collective action. Without proof of individual damages, the claims cannot hope to win.
Case Developments Commercial

Affiniti Finance Goes into Administration

Last week, one of the largest third-party litigation funders in the UK was placed into administration. According to a notice in the London Gazette, Affiniti has stopped taking in new business. Law Society Gazette reports that Affiniti has not made a public statement, nor have they responded to requests for comment. It’s not clear how the company will resolve the many large funding agreements currently in place. Affiniti was founded in 2014 and began by funding personal injury cases. Affiniti also has a commercial division that focuses on class actions and large claims for individuals. The administrators include Andrew Hosking, Paul Zalkin, and Sean Bucknall of Quantuma Advisory Limited. In the last month, two other firms have been placed on administration: Pure Legal, and Hampson Hughes—both based in Liverpool.
Commercial Regulatory Issues

Canada Embraces Litigation Funding

Like much of the world, Canada’s legal system can be expensive to access effectively. Even well-off Canadians may not be able to afford to follow up on meritorious claims against powerful defendants. Enter third-party legal funding. This practice affords potential clients the financial support needed to pursue meritorious cases without the risk of incurring a huge legal debt. Above the Law details that the non-recourse nature of litigation funding is a powerful tool for leveling the legal playing field. Commonly associated with class actions, third-party funding has evolved into a resource for individual clients, corporates, and even law firms looking to share risk and reap large rewards. In Canada, litigation funding is being used in insolvency proceedings, IP disputes, award enforcement, and more. Portfolio funding arrangements are increasingly common, allowing risk to be shared across a slate of unrelated legal cases belonging to a single company or firm. Typically, funders receive a percentage of an award or recovery if the litigation is successful. If the litigation fails, the funded party is not obligated to repay the funded amount. The funder, on the other hand, loses their investment. This is why new cases are vetted carefully and why these funder fees are much higher than interest from traditional bank loans. Once laws against champerty and maintenance were set aside in Canada, funding was viewed as a necessary aspect of increasing access to justice. Typically, LFAs (Litigation Funding Agreements) do not need court approval in Canada, though this is a recent development. LFAs are rarely made public except in class actions. The Ontario Superior Court of Justice recently affirmed the public policy benefit of legal funding, particularly for those seeking damages from wealthy corporates. Legal funding in insolvency cases has been a boon to debtors trying to save struggling businesses. Funds can help maintain operations by monetizing existing legal assets, benefiting debtors.
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.
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.

Commercial Regulatory Issues

New Zealand Law Commission Reviews Litigation Funding Regulations

At present, the New Zealand Law Commission is reviewing regulations regarding class action regimes and litigation funding. The expectation is that a new round of regulations could be introduced to the minister of justice by summer of next year. Lexology explains that there is no class action regime, nor are there rules specific to litigation funding in New Zealand. The High Court Rules govern class actions—which has proven incomplete to effectively regulate a complex process like third-party funding. Until recently, New Zealand had no cause to consider how, or even if, the civil justice system should take steps to accommodate litigation funding or encourage class actions. Because legislation is lacking, funders and courts have had to rely on other factors when making decisions on class actions or third-party funding agreements. This lack of regulation results in inconsistent rulings on vital issues, including:
  • Various aspects of disclosure
  • Securities for costs
  • Opt-in vs opt-out in class actions
  • General legal costs
Officially, New Zealand has not abolished champerty laws as much of the world has. This means the very legality of third-party funding is still being litigated on a case-by-case basis. As the official report is being developed, the Law Commission has released a basic report affirming the following:
  • Litigation funding is a net gain for increased access to justice.
  • Third-party funding should be permitted under the right circumstances.
  • There are specific concerns regarding funding that should be addressed.
  • A statutory class action regime should exist in New Zealand.
A widely publicized case involving Harditex building materials ended when funding was withdrawn mid-case after a ruling that hurt the plaintiff. This left claimants in a lurch after waiting 6 years for the case to reach the trial phase. Ultimately, the Law Commission has a duty to recommend regulations that work for funders, as well as claimants, in order to continue increasing access to justice. Final recommendations from the commission are expected in May of next year.
Case Developments Commercial

Binance Freezes Customer Withdrawals of Crypto Assets

Referencing a “large backlog,” Binance has put a temporary hold on customer withdrawals of crypto assets. The number one cryptocurrency exchange tweeted the announcement earlier this week. Crypto Briefing details that Binance resumed allowing withdrawals within minutes of the hold. Later that day though, withdrawals were again withheld. Meanwhile, other major crypto exchanges, like Coinbase, are still functioning normally. This is not the first time Binance has experienced overloads, and unintentionally shut customers out. The same thing happened in May of this year, leaving users without access to their accounts as prices fell dramatically. Liti Capital is now suing Binance on behalf of traders impacted in that shutdown. No word yet from Liti on whether this latest outage will factor into their claim against Binance, or whether the funder will launch an entirely new claim altogether.