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Litigation a boon for investors as economy falters

Litigation a boon for investors as economy falters

While large law firms across the globe are struggling to maintain profits, companies that invest in corporate litigation cases are flying high.

WHILE large law firms across the globe are struggling to maintain profits, companies that invest in corporate litigation cases are flying high.

The flagging economy has boosted the industry that helps fund corporate litigation, reports The New York Times

The cases in question are not the run of the mill disputes; they are the large, more costly and potentially more lucrative disputes which often involve major corporations pitting against each other in court.  

“It’s always a good time to invest in litigation,” chief executive of Juridica Capital Management, Richard Fields, said. 

Juridica Capital Management runs a fund that invests in one side of a lawsuit in exchange for a share of any winnings. While business is generally strong, when the recession hit the phones “started ringing off the hook” claims Fields. 

Of 122 cases the company looked at last year, it ended up providing capital for 17. 

Firms in this business do not reveal which cases they invest in, but they claim strong returns. Shares of Juridica Investments, the fund, have risen 24 per cent since they began trading on the London Stock Exchange in December 2007. The company’s average investment is $7.5 ($9.3) million, Fields said, and it has about $200 million under management.

Fellow litigation investor David Desser, the managing director of Chicago-based Juris Capital, said his company typically provides $500,000 to $3 million to fund a case. In return, investors are earning "well in excess" of 20 per cent annually on their overall portfolio.

“Given the conditions in the economy, you have a set of circumstances that are pushing both clients and law firms to look for outside investor help,” said Desser.

The investing companies say that because they do not take control of the lawsuit from the company and lawyers waging it, their most important task is identifying cases likely to produce a substantial return. That means, for example, rejecting claims that raise novel legal questions or that will probably end up before a jury. 

“Juries are a coin toss,” and that is too much uncertainty, Field from Juridica said. The company also avoids cases where the outcomes are difficult to predict because they could draw political attention or could be reversed on appeal, and cases in which the other side lacks deep pockets.

While interference in court cases is discouraged, such investments may be good public policy if they encourage companies to pursue valid claims that they might otherwise not have the funds to pursue.

However, the use of outside money raises potentially tricky legal questions, said Anthony Sebok, a professor at Benjamin Cardozo School of Law in New York, who has studied the business. 

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