About Litigation Finance

The multi-billion global litigation finance market is expected to double in size by 2027. Up until now this growing market has only been available to elite investors. Now all investors can participate in this growing market through Liti Capital. 

Why Invest In Litigation Finance

Expanding Market
Litigation Finance a booming multi-billion dollar global market projected to more than double in under a decade.
Levels The Playing Field
Provides legal access regardless of their socioeconomic status, helping worthy cases reach court decisions and receive appropriate damages.
Impressive ROIs
The returns on investments are impressive, performing on average at a range between 50%-100%.
Not Impacted by Economic State
Litigation funding thrives even in bear markets because litigation assets are not correlated with the state of the economy. 
Portfolio Diversification
It’s an alternative asset market separate from the capital market, making it an attractive choice for portfolio diversification.
Now, Any Investor Can Participate
While it has been monopolized by hedge funds, venture capitalists, and elite financiers since its early stages, Liti Capital now makes litigation finance available to all investors.

What Is Litigation Finance

Litigation finance, also referred to as litigation funding or third-party funding, is the practice in which an outside party invests in a lawsuit or arbitration in exchange for a portion of the profit.

In the litigation finance market, a solid legal claim functions as an asset, and just like any other investment it comes with the potential of risk and reward. Litigation funders consequently finance their cases selectively and with discretion, backing the most worthy and winnable suits.

This investment method is traditionally non-recourse, meaning that if a client loses their dispute they aren’t required to repay the investor. Claims only guarantee returns when they reach a settlement or are granted recovery. Though the high ROI makes it an attractive gamble— per Steven Friel’s The Law and Business of Litigation Finance, on average funders are pocketing between three and five times more than their initial injections.

When is Litigation Finance Used?

A plaintiff, lawyer, or law firm will finance their litigation to offset piling legal costs, cover personal expenses, or keep their companies afloat while battling major lawsuits. Defendants may also receive financing in exchange for another form of compensation conditional to the case’s results, but this is less common.

Litigation funding is available in both commercial and consumer applications, though commercial cases are more actively pursued. Commercial funders traditionally target large-scale, complicated corporate disputes that are valued at over $10 million. Lawsuits of this nature could include anything from breach of contract to bankruptcy, antitrust, or copyright or trademark infringements.

Who Are the Major Players?

Since the market’s inception, litigation finance has been largely monopolized by hedge fund heavyweights and elite investors with the ability to go months, if not years, without access to millions of dollars of invested capital.

Despite this reality, the frequency and diversity of funding, the demand for funding, and the number of funders in the market continue to expand exponentially. This speaks to both the appeal and projected long-term success of the industry. According to a 2018 report released by market aggregator Absolute Market Insight, the global litigation funding market is expected to more than double by 2027

An Early History

Third-party funding dates back to medieval England when feudal lords and members of high society would finance claims made against their political or personal adversaries— primarily on the grounds of revenge, antagonization, or for plain old petty mischief.

To combat these abuses of law, legal doctrines were introduced to mitigate upper crust meddling and curb inequity in the court systems. Enter champerty laws, which formally prohibited unrelated parties from funding legal actions for financial gain. From the middle ages onward, champerty laws became standard and were eventually passed on to the majority of U.S. colonies during settlement.
medieval court - early history of litigation finance
New york city - litigation finance around the world

The 20th Century Comeback

In the mid-90s, the United Kingdom and Australia started rolling back on their outdated champerty laws. At that point, it was clear that a firmer grip on judicial exploitation had been established throughout the centuries, and thus rendered these laws largely obsolete. 

It wasn’t until the mid-00s that litigation finance hit the corporate American scene when Credit Suisse Securities set up shop with a litigation risk strategies group. At the time, litigation finance was extremely controversial, and the Chamber of Commerce used the might of the media and the breadth of its legal influence to prevent its looming decriminalization. This ultimately, of course, failed.

A quarter-century later, though litigation finance remains a relatively new industry, the appetite for it and its growing legal presence is undeniable. Experts predict that the market will only continue burgeoning.
Click here to learn more about history of litigation finance on Harvard Law School website

Little Guy v. Big Business

“Litigation funding allows lawsuits to be decided on their merits, and not based on which party has deeper pockets or stronger appetite for protracted litigation.” 
— Eileen Bransten, New York Supreme Court Justice
The legalization of litigation funding marked a turning point for the justice systems aforementioned, as it created an opportunity for access to legal representation to be independent of socioeconomic status.

Unfortunately, it isn’t uncommon for litigants to pull out of cases or not pursue deserving claims at all because of a lack of financial capital. Third-party funding helps bridge the gap of wealth imbalance by making legal services available to a wider net of potential litigants, thus making lawsuits both more likely to come to a court decision and more impartial. In this sense, litigation funding serves to correct an inequity, not create one.

Who Benefits?

If a claim is solid enough, everyone can benefit from litigation financing.

Plaintiffs are aided by not only getting to keep their cases active until a conclusion is reached, which can take years, but also by getting to take some of the financial pressure off. Through immediate access to capital, plaintiffs can cover their stiff and ongoing legal, personal, or business expenses. Using funding as a means of redistributing risk and mitigating costs is also becoming a popular practice, as claimants will still retain a majority of the estimated settlement or recovery, but will not face repercussions if the suit doesn’t result in their favor.

The law firm or attorney has the opportunity to take on a broader spectrum of litigants that wouldn’t be able to pay for their representation under different conditions. It assists them in achieving justice, fairer rulings, and reduces the chances that their client will abandon their case. Most legal practitioners who have utilized litigation financing would use it again.

Investors have the potential to make millions off of other people’s lawsuits and participate in a new asset market. Litigation funding doesn’t function like a loan, but more like an asset purchase. This makes it separate from the capital market, and thus advantageous for portfolios in need of variety. Seasoned, connected funders can push strong cases forward and ensure that they are properly financed for a just court ruling, helping them to see their returns sooner. Additionally, the ROIs are much more tempting than they are in other alternative asset markets.

Market Debates

As with any new industry, litigation financing has raised some differences in opinion on how the practice should be applied and managed in its formative years. This most commonly presents itself as the question of whether or not disclosure and government regulation are necessary for this field.

Legislators have made attempts to pass bills that would require public disclosure when third-party funding is used in a lawsuit, though none have been made into law. The type of disclosure, how much disclosure is necessary, and when information must be disclosed has been a point of dispute. Some courts have exercised compromise by giving the judge alone access to relevant documents and disclosures.

As it stands, investors are not obligated to anything but the agreements in their contracts with clients. The case has been made that overarching regulations will be demanded as the market expands further.

Another voiced apprehension is that litigation funders will attempt to usurp the cases they finance to make key decisions on critical matters like when to settle or when to go to trial. While it remains uncertain how often claims are influenced by their investors, the American Bar Association recommends ensuring litigation funding contracts are clear and comprehensive, noting in writing that the client will maintain full control over their case.

How Individuals Can Invest in Litigation Finance

Liti Capital is bulldozing down the barriers to entry into the litigation finance market through the use of blockchain technology and tokenization solutions. Though historically dominated by heavy-hitting investment groups and hedge funds, Liti Capital’s equity token offering will make it possible for the everyday investor to get a piece of the action for as little as $50. Click here for more information.

Helpful Terms and Doctrines

Plaintiff: A person who brings a case against another person in a court of law.

Defendant: An individual, company, or institution sued or accused in a court of law.

Disclosure: The action of making new or secret information known.

Maintenance: An arrangement in which an unrelated party supports a party in a lawsuit so that they can pursue a legal claim.

Champerty: An agreement made between a plaintiff and unrelated party that exchanges the financial support of a lawsuit for a portion of the recovery.

Attorney-Client Privilege: A common legal concept that protects the client’s right to refuse disclosure, and prevents any other person from disclosing, confidential communications between client and attorney.

Barratry: The persistent incitement or encouragement of lawsuits.

Work-Product Immunity: The protection of materials that are prepared in anticipation of litigation from discovery by an opposing cancel.

Recovery: The acquisition of something of value through a court judgment.

ROI (Return on Investment): The ratio between net income and investment. It is used to assess the value of an investment or to compare the values of investments.

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