Litigation finance is a good business, especially in the area of securities and investment litigation. In recent years, numerous funds have been established around the world specializing in litigation funding. In 2018, capital has rushed into this space like a flash flood into a canyon gully. Many of the benefits are obvious: for litigants, a wider choice of funders; for law firms, tools to boost profits and realization rates. With the 2018-binary options ban and the collapse of the crypto space, we expect a lot of respective litigations for 2019 – and a respective boom in the litigation finance industry.
Litigation Finance Is a Huge Global Business
In the United States, the Teacher Retirement System of Texas (TRS), for example, is actively participating in class action lawsuits that are resulting in multi-million dollar settlements, Newsmax Finance reported. They are not only financing securities litigations in the United States but also abroad with a special focus on Europe and Israel.
Typically, litigation finance or litigation funding is when a third party provides capital to a plaintiff (or sometimes even a defendant) in return for a portion of any financial recovery from the underlying lawsuit. The capital provided by monetizing a legal claim is often directly applied to the costs of litigation, including attorneys’ fees, investigative fees, expert witness fees, and court expenses.
The litigation finance market size is now $50 billion to $100 billion. said that the returns available to litigation funders are more attractive than equity and fixed-income investments. In 2017, the world’s largest litigation finance firm, Burford Capital, reported a return on equity of 37%. Burford currently has $3.3 billion committed to litigation finance.
“There are new laws in Europe now that didn’t previously exist, which require securities class action litigation to be made possible in all EU countries,” said Frank Peters, an attorney with bureau Brandeis in Amsterdam.
Litigation Finance In The Crypto-Space
In view of the many failed ICOs such as ENVION, we can expect a wave of lawsuits that will also be financed by specialized investors. The German ENVION project or its founders still have sufficient funds, so they are an interesting target for litigation finance. In addition, Germany has a proven legal system that can be assessed by plaintiffs, lawyers, and claim financiers.
“We believe there is a large amount of capital looking to enter this market,” said Michael PEET, an analyst at Goldman Sachs Group Inc. “Litigation funding is rapidly emerging as an alternative asset class.” Between 2016 and 2018, more than 5,000 ICOs were conducted and received at least USD 30 billion from investors worldwide. Most of these projects have not yet met the commitments made in their white papers. This makes the ICO issuers an attractive target group for the litigation funders.
