Community Spotlight: Aaron Winston, Strategy Director, Express Legal Funding

Whilst litigation finance is now a mature and established industry, this does not stop rogue actors from engaging in fraudulent schemes to try and reap personal benefit at the expense of unwitting investors.

Reporting by Bloomberg Law provides details on a lawsuit brought by the Securities and Exchange Commission (SEC) against a father and son in Florida who are accused of using a supposed litigation funding scheme to defraud investors out of $125,000. The lawsuit filed last Friday alleges that Michael Chhabra and Vineet “Vincent” Chhabra set up Tort Fund LLC in April 2019, claiming that the company would provide litigation finance to law firms, when in reality the pair used it as a personal fund for their own legal fees and miscellaneous expenses.

The SEC’s suit, which was filed in the United States District Court for the District of Columbia, claims that Tort Fund LLC’s owners had advertised the fund as a way for investors to support mass tort cases being brought against medical device and household product manufacturers, but did not enter into any funding agreements with law firms to do so. The $125,000 raised was then used to cover legal costs in Michael Chhabra’s own bankruptcy proceedings, paying for the pair’s personal expenses, with around $40,000 spent on maintaining the fraudulent scheme by paying individuals who solicited new investors. 

In its lawsuit, the SEC is asking the court to impose civil penalties and pay out the profits from the scheme, and to prohibit the pair from running any companies that have a class of securities registered in the future. The SEC’s filing can be read here.

The long-running dispute between Malaysia and the heirs to the Sultanate of Sulu has been one of the most high-profile cases in recent years, and one that has generated plenty of debate about the role of litigation funders in legal proceedings targeting national governments. A new development in the dispute has seen the Sulu heirs receive yet another unfavourable judgement, with potentially negative implications for their litigation funder, Therium Capital Management.

Articles in Bloomberg Law and Solicitors Journal covers last week’s ruling from the Supreme Court of the Netherlands, which dismissed the Sulu heirs’ appeal to enforce the disputed arbitration award given out by arbitrator Dr. Gonzalo Stampa in Paris. As a result of the Dutch Court’s ruling, the Sulu claimants will now have to cover the legal costs for the appeal and have lost the opportunity to enforce the award by seizing Malyasian assets in that jurisdiction. The finality of this ruling represents a blow to Therium, which invested $20 million in the Sulu heirs’ claim.

Azalina Othman Said, minister in the Malaysian Prime Minister’s Department (Law and Institutional Reform), stated: “Malaysia welcomes this landmark ruling as a momentous victory for the rule of law, representing a further step towards the end of the Sulu case and the preservation of the sanctity of international arbitration as an alternative form of dispute resolution.”

Therium did not respond to Bloomberg Law’s request for comment at the time of publication.