Litigation finance faces ethical quandaries
Nov 7th 2019NEW YORKFROM A FINANCIAL perspective, a civil lawsuit is rather like a derivatives contract. Its value to a claimant comes from the performance of an underlying asset—litigation—with an uncertain, potentially lucrative outcome. No surprise, then, that some see the allure of funding legal expenses upfront in exchange for a share of the proceeds if the case is won or settled. Payouts are uncorrelated with other markets, so investors can use them to diversify. The complexity of the asset makes it hard to price, which offers room for shrewd calculation. Throw in reports of fat returns from third-party litigation-finance (TPLF) firms and it is easy to see why the industry is growing strongly. A survey by Westfleet Advisors, a litigation-finance broker, finds that commercial cases in America attracted $2.3bn of investment in the year to June.Speaking at an industry conference in New York in September, David Perla of Burford Capital, a litigation funder that is listed in London, trumpeted his firm’s $2.5bn in assets and $225m in half-year post-tax profits. Michael Nicolas of Longford Capital, a private funder, said that lawyers are now more receptive to TPLF. So too are companies and universities harbouring “monetisable” claims of patent infringement. Boosters champion the industry’s ability to provide capital, share risk and increase access to justice.Choose us for news analysis that respects your time and intelligenceSubscribe to The EconomistWe filter out the noise of the daily news cycle and analyse the trends that matterWe give you rigorous, deeply researched and fact-checked journalism. That’s why Americans named us their most trusted news source in 2017Available wherever you are—in print, digital and, uniquely, in audio, fully narrated by professional broadcastersThis website adheres to all nine of NewsGuard‘s standards of credibility and transparency.ORContinue reading this articleRegister with an email address