The Rise of Third-Party Funders of Lawsuits
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While stories coming out of the law world have lately been dismal and draught with headlines of unemployed graduates and legal outsourcing, there is one sector of the legal world that is doing well for itself. Welcome to the world of third party funding. The previously untapped market of high cost corporate lawsuits is now becoming bankrolled by large hedge funds and banks. Born from the era of financial innovation that brought you the subprime crisis; litigation financing offers the opportunities of high rewards at high stakes.
Never Settle
In the most basic sense, third party funders act to provide funds in a claim in exchange for a size of the eventual outcome of the case. For many companies, litigation costs are recurring and often times too high. Litigation funding is an opportunity for them to stay in court and stay fighting while keeping their finances in check. Law firms clearly benefit from this arrangement as well as they can continue keeping clients in active litigation mode, thus racking up millions in services that directly go to the firm. The investors in the field of third-party funders are traditionally hedge funds, institutional money managers, big banks like Credit Suisse, and even some insurance companies. Who is not involved? The government. There has been a recent congressional hearing that called for oversight into this growing field. Otherwise, the area of litigation financing remains outside the peripheries of traditional oversight agencies.
Litigation funding is less of a novel idea in England where third-party financing has been available to pay legal fees since 1967. However, it’s only been recently that large firms that specialize specifically in legal funding have emerged across the pond. Americans also have some experience with lending in the legal sphere when it comes to pre-settlement funding and syndicated lawsuits. The distinction between then and now is that the now concept of litigation funding has grown largely in magnitude, both in scope and dollars.
Read original articleTags: hedge funds, legal outsourcing, litigation funding
