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Alternative Market Briefing

Diligence gaps raise flags as litigation finance gets boost

Tuesday, March 31, 2020

Bailey McCann, Opalesque New York:

Litigation finance firms could be unexpected beneficiaries of the coronavirus crisis. Litigation funders are usually paid out when cases resolve. However, as cases stall out in courts that are either closed or wrestling with how to conduct virtual trials, litigation funders stand to make higher returns as a result of the delays. If a case gets caught up in court, litigation funders are often entitled to a bigger payout than they otherwise would be to account for the delay.

Performance gains in litigation finance are likely to draw even more investors to this booming niche. Litigation finance funds claim to offer private equity style returns that are uncorrelated to the broader market. That claim has drawn billions of dollars in investor capital in recent years. Like private equity, investors can come into cases at different stages. The riskier vehicles invest in cases early on. The surer bets are later in the trajectory of a lawsuit when attorneys are reasonably clear on the size and scope of potential settlements and can craft investment agreements accordingly. To be successful in litigation finance, investors and funders alike have to be skilled at due diligence and modeling potential returns. Some high profile cases are raising questions about how much due diligence is really happening within litigation finance firms.

Shell games

Cases involving two Florida lawyers, a handful of litigation funders and the SEC, are n......................

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