Looking for a New Investment? Try Litigation Funding

By Maximillian (Max) H. Matthies posted 09-19-2017 11:15


“Alternate litigation funding” made the news recently when Hulk Hogan’s lawsuit, entirely (but secretly) funded by Peter Thiel, ultimately bankrupted the gossip blog Gawker. Litigation funding is not new in Michigan. A simple Google search returns pages of companies offering funding services to Michigan litigants. The most common services provide nonrecourse funding for legal fees, costs, and expenses to individual litigants or working capital to stay afloat during litigation.

What is new, however, is the growing field of litigation finance investing. Commercial litigation finance is a growing industry. Recently, the University of Michigan agreed to invest $50 million in Lake Whillans, a company that invests in meritorious commercial claims with realistic damages in excess of $20 million and prosecuted by premier lawyers. Other funding firms offer “portfolio” funding that allows law firms to finance all contingency matters at once.

A factor driving the growth of this market is the use of “big data to measure litigation risks and value cases. Legalist scans millions of state and federal court cases using an algorithm to weigh many variables, such as the judge, court type, lawyer involved, and facts about the case, to assess the likelihood of success and whether it is worthwhile to fund.

Other companies such as LexShares allow investors with much smaller bank accounts to participate in the little-known industry of litigation finance. Both companies use a crowdfunding platform where potential investors can review cases and choose which ones to fund.

Legalist does its own funding, but the aims are similar: It provides plaintiffs with broader and more competitive ways of funding a lawsuit. The company feeds cases worth around $200,000, an amount too small to receive funding from such firms as Lake Whillans.

Through companies like these, it is now possible for people who are not ultrawealthy to invest in lawsuits through a model similar to real estate crowdfunding.