David Kay Interview on CryptoWeekly Podcast

Mike Grantis, CEO of Crypto Weekly talks to David Kay, Liti Capital Executive Chairman about Liti Capital, the world's 1st Blockchain-Based Private Equity Firm.

The Key Benefits of Litigation Financing

When a strong and deserving legal claim is financed through litigation funding and goes on to achieve a successful outcome in recovery or settlement, it’s truly not an understatement to say that everyone involved wins big. 

The plaintiff walks away with the large majority of what they were awarded by the courts, with the added bonus of having successfully avoided tying up their financial resources throughout the case’s likely lengthy duration. The litigation financiers get to rake in the extremely attractive returns— per Steven Friel’s The Law and Business of Litigation Finance, they’re often pocketing between three and five times more than their initial investments. On top of that, they also get to flex their good samaritan muscles by giving their claimant fair access to justice. Lawyers get to enjoy having an extra win under their belt, and potentially were able to take on the case due to financing, if lack of funds to pursue it was a pressing issue. Really. Everybody wins.

Increases Access to Justice

There are a multitude of different reasons why a potential claimant might shy away from pursuing a worthy dispute. Most of these reasons revolve around financial hesitation. The biggest, and perhaps most obvious reason, is that they simply can’t afford to push their case through. Lawsuits are expensive and slow-moving. For many, the price tag for a resolution is an uncrossable hurdle. Others might be able to afford their legal costs, but are generally risk-aversive and don’t want to end up accruing the associated debt should the outcome not be in their favor. In another camp, there are the tentative litigants who might be willing to take a gamble but don’t want to deal with having their money locked up for quite possibly multiple years without the guarantee of getting it back. 

Litigation funding remedies all of these issues. It provides capital to those that don’t have it so that they can seek justice. It takes the stress off of the table for those vacillating due to risk, or those that need the flexibility of having full access to their finances— so that if they want to start a business, get a degree, or buy a home while in a legal dispute, the piling costs aren’t holding them back. You may be asking yourself, how does litigation funding remove the financial pressure? Simple. When claimants enter into a litigation finance contract, they are typically non-recourse. This means that if the case doesn’t reach settlement or recovery isn’t granted, then the client isn’t obligated to repay the investor. This is a huge sigh of relief to any plaintiff if money is causing legal action reluctancy. As previously touched on, plaintiffs still retain the bulk of the profit when they sell a portion of their case if it ends favorably for them. If it doesn’t, they are no worse off from where they started.

Levels the Playing Field

There’s certainly some irony in the fact that litigation financing is a rather new (or revived) industry due to fears surrounding it catalyzing court system imbalance, as it is currently proving itself to be a powerful equalizer. 

The idea that this form of financing can be abused stems from medieval England when feudal lords and high society members would fund claims made against their political and personal enemies for sport. This ended up creating and prolonging petty cases, and/or penalizing the sincere claimants caught in the crossfire. Fortunately, our 21st-century court systems are much less corruptible and exploitative. In a modern context, litigation financing is bringing focus back to a case’s merit, instead of putting it on who can write the biggest paycheck. 

When access to legal representation is separate from socioeconomic status, court decisions naturally become more impartial. This is a huge shift away from traditional scenarios in which it wasn’t unlikely in commercial settings for new businesses to get squashed by big, established conglomerates due to lack of capital. In this regard, litigation financing is incredibly exciting and humanizing market working for the people, rather than against them.

Builds Bargaining Power

As it can easily be gleaned by this point, legal representation costs money, and the courts are fairer places when both sides have the amount of it they need to fully make their case. When there’s disparity, injustice has the potential to rear its ugly head. 

When a claim is appropriately funded, the claimant is opened up to a wealth of opportunity they wouldn’t necessarily have otherwise— like bargaining power. If a dispute makes it to settlement, a plaintiff unconcerned by finances is going to act differently than an exhausted plaintiff coming from a position of desperation. Litigation financing acts as a form of leverage for the former, giving them leeway to not default to the first offer made, particularly when it isn’t an impartial one. Through having access to capital, claimants are empowered to realize the full scope of what a successful case conclusion means to them. 

Case Study

One of the most famous examples of  litigation financing comes from the 2016 lawsuit Hulk Hogan v. Gawker. Hogan, born Terry Bolleau, sued Gawker for invasion of privacy after the media company posted a sex tape featuring Hogan and his friend’s wife. 

Hogan, unable to carry the burden of his accumulating legal fees in the four-year-long battle, was eventually financed by Peter Thiel, PayPal co-founder and first outsider investor of Facebook. This was seen as controversial, as Thiel had a well-known bone to pick with Gawker after they outed him as gay. Though Thiel’s personal opinions on the company should’ve been seen as irrelevant, as suggesting that it would make the legal battle less fair somehow would be to suggest that the court itself is unprincipled or inept— as all his funding had the power to do was to keep the case going until it reached a court decision. 

In the end, a jury awarded hogan a 140 million USD judgment. Gawker stated publicly that they would appeal, but ultimately chose to settle with Hogan for a cool 31 million instead. Gawker was heavily impacted financially by paying out the settlement, and filed for bankruptcy that summer. They sold the company to Univision a couple months later for 135 million USD. 

Through Thiel’s backing, Hogan was able to bring his case to a conclusion and claim a settlement rather than automatically having to pull out when he was financially drained, only to drown in previously-accrued legal debt. Without litigation financing, this case would’ve taken a much different, darker direction. Thankfully, Hogan was able to well-deservedly make it to the end and reap the associated rewards. 

How Liti Capital Makes a Difference

At Liti Capital, our first-of-its-kind, blockchain-backed equity token serves as a means to get more funding to more deserving plaintiffs, and to generate impressive returns for our investors while we’re at it. As LITI tokens represent shares in our company, consider investing in us to help us make the court systems that much fairer. Click here to learn more.

Constantin Kogan Interviews David Kay

Constantin Kogan hosts David Kay, Liti Capital's Chief Investment Officer for an in-depth interview discussing how Liti Capital is making Litigation Financing available to all investors through the blockchain. David shares numerous details of how Liti Capital operates: asset-backed equity tokens development; first decentralized private investment firm investing up to 80% of capital in various cases.

Jonas Rey Speaks at DeFi Summit

Liti Capital's Co-Founder, Managing Director and Head of Strategy Jonas Rey, speaking with Michael Huynh during Demo Day at the DeFi Summit on June 17, 2021.

Learn More about the DeFi Summit here: https://www.defisummit.com/

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Why the 1% Flocks to Litigation Finance

Since its inception, litigation finance has been cornered by hedge fund heavyweights, highly illiquid litigation funding firms, venture capitalists, and elite investors. To participate in litigation funding as an individual, you not only had to be an accredited investor, but you also had to make at least $200,000 a year and have a net worth above $1 million (and still do if you’re based in the United States). Suffice it to say, the barriers to entry have been traditionally steep and the industry as a whole has been largely an exclusive one. 

While Liti Capital is opening the door for investors of all levels to participate in the market, it still begs the question— what gives the 1% such an appetite for litigation finance? 

The potential of making millions off of someone else’s legal disputes aside, the litigation funding market has a lot to offer those looking to get in on the action. Litigation financing, or the practice of investing in lawsuits for a profit, has made significant strides in its twenty-five-year history. The market is well-established while remaining relatively small and unexplored, it’s predicted to more than double in under a decade, it boasts enticing global opportunities, and the average returns are nothing short of impressive. 

Let’s take a more in-depth look at some of the reasons why third-party funding is quickly becoming a fixture of upper-class investment portfolios.  

It’s Countercyclical

When you participate in litigation financing, your investment isn’t structured like a loan, but rather like an asset purchase or a venture capital. This means that any assets you acquire are independent of the capital market. So if the stock market were to crash, for instance, or interest rates were to explode, the performance of your litigation purchases would remain virtually unaffected.

This is extremely attractive to anyone looking for investment portfolio diversification, because not only does the litigation finance market operate separately from all economic cycles, but it could also be regarded as countercyclical. Put simply, it’s crisis-friendly. 

Take COVID-19, for example. While economic fallout was felt globally, the demand for third-party funding shot up in response to the pandemic. According to The Financial Times, the COVID-19 crisis could potentially provoke a meteoric rise in claims, and the ramifications are projected to linger far beyond 2021. In this sense, having litigation assets can serve as a helpful means of mitigating unwanted losses in unstable financial markets. 

The ROIs Don’t Lie 

In terms of return on investment (ROI) appeal, litigation funding blows all other alternative asset markets out of the water. According to Steven Friel’s The Law and Business of Litigation Finance, litigation funders are seeing on average a 50%-100% return range on their initial investments at the portfolio level and are typically banking three to five times their original capital. 

While it’s true that most litigation funding arrangements are non-recourse— meaning that the funder could lose their investment if the plaintiff doesn’t receive a settlement or a recovery— the high return rates make it so that when cases do win they are by and large home runs. When those home runs add up, they help to offset or more than make up for the cases that don’t make it to a favorable court decision. Doing thorough due diligence in the case selection process also aids in lessening the associated risk. 

Casual Counts 

As a relatively new industry, the litigation finance world offers a very limited formal structure. Currently, bar a handful of states putting laws forward surrounding extending cash advances for plaintiffs waiting on settlement payments and a code of conduct sanctioned by the ministry of justice in the United Kingdom, litigation finance is a predominantly unregulated market. 

That means that funders are obligated to upholding the agreements they’ve consented to in contracts with their clients— and not much else, though self-regulation measures have been implemented by associations in the United States and elsewhere. 

This paves the way for freedom and flexibility in how you invest, when you invest, how much you invest, and whether or not you disclose that you invested. Some believe that strict regulations and disclosures are inevitable as the demand for third-party funding grows, but all related legislation put forward has failed to take thus far. This is alluring for those looking for scope and leeway in claim investments. 

Care to Join the 1%?

Thanks to Liti Capital, you no longer need a million dollars in the bank to participate in litigation financing. At a 20,000% discount, a $50 investment allows you too to reap the aforementioned benefits. Want to learn more? Click here.