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Betting on Courtroom Verdicts – The Multi-Billion Dollar Litigation Funding Industry

betting on court cases with a gavel and some books

When it comes to investing, several opportunities are available. Investors might choose to put their money in mutual funds, commodities, or real estate investment trusts. They also might pursue hedge funding investing, bonds, or T-bills. There are even stock trading apps. But there’s an interesting investment opportunity that many have never considered. Known as litigation funding, investors can choose to provide funds for lawsuit participants who otherwise may not have support. If the person loses the case, the investor receives nothing and loses their investment. But if they win, investors stand to win big, often doubling their money. And for those who choose cases well, betting on court cases can be quite lucrative.

someone betting on court cases with a gavel and some cash
Want to invest but hate the finance industry? Betting on court cases might be your thing.

(Please, don’t waste time with legal counsel from an AI. Get a real lawyer. Read this Bold story to find out why.)

Believe it or not, the litigation funding sector is a multi-billion dollar industry. One reason for this is that betting on court cases have become more popular. In the past, only a select few investment companies specialized in this area. But now, hedge funds, foreign government funds, and wealthy individuals are also getting in on the act. But the real reason this sector is booming is because lawsuits and attorney fees are incredibly high. That means smaller companies and individuals are more likely to turn to someone like litigation funders for help. But in doing so, they may well face additional risks of which they weren’t aware. Without regulatory oversight of these practices, anything goes when it comes to litigation funding.

“Accessing the courts in a civil process is a luxury good in today’s America.  Lawyers charge hundreds of dollars by the hour.  So if you have been injured, if you have been discriminated against, if a contract that you have entered into has been breached, it’s simply too expensive to bring your case in court.” – Maya Steinitz, law professor at the University of Iowa

How Litigation Funding Works

The basic premise of litigation funding is two-fold. First, from an investor side, betting on court cases can be notably risky. Should one make a sizable investment, and the case is lost, they stand to lose all their money. This may seem excessively risky, which is how investors justify large percentages of an award if a case is won. But in actuality, court cases fluctuate much less than the stock market. And if you’re an attorney who knows how to effectively vet cases, this risk isn’t as bad as it appears. In fact, some of the most prestigious investment firms in this sector guess right about 90% of the time. This is what makes litigation funding attractive for investors.

On the other side of the coin, those seeking litigation funding also benefit from the arrangement. The majority of cases where such supports are being pursued are those involving larger corporations with deep pockets. They have little problem intimidating smaller companies or individuals through lawsuits and litigation procedures. In fact, many will even appeal lost cases, knowing their opposition has inadequate funds to proceed. For the less powerful, financial supports are needed to pay legal bills and court fees. Litigation funders are happy to do so if the chances are winning are strong. And those receiving the funds don’t mind sharing their award with investors simply for the opportunity to win in court.

“Clients are free to run their litigations as they see fit. They’re free to work with their lawyers as they see fit. And we don’t interfere with that relationship.” – Christopher Bogart, CEO of Burford Capital

the scales of justice shining in the light
Justice may be blind, but she still likes the sound of coins on her scales.

The Ethics of Litigation Funding

On the surface, investments for legal fees sounds like a win-win situation for investors and recipients alike. But unlike attorneys, virtual or otherwise, litigation funders do not have to abide by any specific ethical codes of conduct. The industry is also unregulated with no real oversight. The concern is therefore that those investing could have undue influence over the legal process. Being that they’re the ones providing financial resources, they could pressure recipients to settle a case. Of course, this may not always be in the best interest of the recipient of the funds. But by settling, investors eliminate the risk of receiving nothing. This makes betting on court cases much likely to be profitable as a result.

(The virtual law practice is here. Read more in this Bold story.)

Larger litigation funding firms state that this is not the case. They insist they allow clients to make whatever choices they want when it comes to their own case. But even when overt coercion is absent, that doesn’t mean litigation processes aren’t affected. Just by nature of selecting which parties to fund, they influence which cases proceed and which ones don’t. They also can affect how long a case is pursued and the percentage of those that settle. And several instances have been reported where recipients of funds received a tiny portion of their award. Predatory practices have been blamed for these instances, which is another reason many believe this industry should be regulated.

“One entity that’s been very vocal is the U.S. Chamber of Commerce that represents big businesses because the sector that’s most concerned about this is big corporations. Now there’s money to sue them, and there’s money to persevere, and not to settle early at a discount.” – Maya Steinitz

Growth Is Attracting Attention

a judge wanting that litigation funding cash
Litigation funding is exactly what it sounds like… and if you know what you’re doing, a good way to invest.

Given the recent growth of litigation funding, it seems to be increasing in popularity. Larger firms betting on court cases only invest in cases that require $5 million or more in an investment. They also expect to double their money, whatever that may be. Given that the best firms only lose 10% of the time, it’s no wonder investors are migrating toward these opportunities. Receiving 100% ROI on an investment nine out of ten times looks pretty attractive. Thus, it’s not surprising this is a rapidly growing investment area.

Of course, investors are not the only ones interested in the growth of this industry. Big corporations, who are the ones previously benefitting from their deeper pockets for litigation, aren’t pleased. Having opponents who have received litigation funding means the playing field has been leveled. As a result, they are advocating for industry regulations through the U.S. Chamber of Commerce. And others concerned about consumer welfare are doing the same. For now, however, betting on court cases through litigation funding is still permissible and open. As long as both parties agree, there’s nothing to stop this industry from continuing to grow.

 

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