Unusual Investments

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Litigation Finance

Litigation Finance is a type of investment that many people did not know existed.  When a Plaintiff has been wronged by another party, they might seek financial compensation by suing that other party.  However, there might be significant legal and other fees (expert testimony, depositions, administrative, travel costs, etc.) that are incurred up front prior to any recovery being made.  Those costs could run into the hundreds of thousands or even millions in some cases.  There is always a risk that the Plaintiff won’t win the case and will be out all the money they spent with nothing to show for it.  (They might even end up having to pay the Defendant’s legal fees)  There are other cases where the lawyers work on a contingency basis but are willing to trade off a portion of their contingency fee down the road (and a portion of the risk) with an investor in exchange for money up front.

Lexshares.com is one of the new platforms out there.  It lists several cases that are available for investment (as of the time of this writing, all 9 of their cases were fully funded).  Surprisingly, they allow investments as small as $2500. They list several types of cases: products liability, civil rights, business torts, breach of contract, and whistleblower cases.  There are several large firms that advertise on Google as offering debt or equity financing for legal cases.  One of them, Gerchen Keller Capital raised a $260 million fund to invest in lawsuits in 2014.  They are active in larger cases where their average investment is $5+ million.  I would presume that the minimum to invest in their fund was in the hundreds of thousands if not millions.

Litigation Finance Requires Substantial Due Diligence

Any investment in someone else’s lawsuit would require extremely thorough due diligence up front.  Someone with a detailed knowledge of that type of litigation would need to vet the case; this would likely by a practicing attorney or a former practicing attorney that was still very aware of recent developments in that legal specialization (personal injury, class actions, etc.)  Although I am not a lawyer myself, I could see where litigation finance would be an investment opportunity that would appeal to lawyers.  They could apply their knowledge in order to vet the case; additionally, through their personal networking, they would probably have access to and be aware of cases that might require outside investment.  An in-process case with a high chance of receiving a payoff is an asset, and like most assets, can be sold in part or portion, or loaned against.

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