Litigation Funding is Moving into the Mainstream Through Startups

Sara Randazzo reported on Friday at The Wall Street Journal Online that, “Once reserved for hedge funds and other deep-pocketed investors, litigation funding is moving into the mainstream through startups like LexShares in Boston and Los Angeles-based Trial Funder Inc., a website that raises funding for personal-injury and civil-rights cases.

“With promises of double-digit returns, the platforms have attracted thousands of investors looking for profits that aren’t influenced by the broader investment market. For both websites, users must meet Securities and Exchange Commission standards for ‘accredited investors,’ which require individuals to have made more than $200,000 annually for the past two years or have $1 million in assets outside of their primary residence.”

The Journal article noted that, “The investments are far from foolproof. Lawsuits can drag on for years, tying up investor dollars, and litigation funders lose everything if a suit isn’t successful.

“‘It’s an opening for the smaller investor,’ though a potentially risky one, said Selvyn Seidel, a litigation-finance investment adviser.

“Cade Joiner, an Atlanta business owner who invested $1,000 through Trial Funder in May, said he knows losing is a possibility but hopes to see a 30% to 40% return. ‘It’s an untapped area; that’s what was so exciting to me,’ he said.”

Ms. Randazzo added that, “LexShares’ 30-year-old co-founder, Jay Greenberg, a former investment banker, said the company targets commercial cases that need $100,000 to $1 million in funding. That’s too little for most traditional litigation-finance companies to consider. Mr. Greenberg’s team evaluates each case, and reports turning down 95% that come their way.

“So far, LexShares has raised around $5.5 million for 15 cases, including a legal malpractice lawsuit brought by an athletic association, a breach-of-contract suit against an investor group over a soured real-estate project and several suits against Fortune 500 companies over allegedly harmful products.”

“Trial Funder funds even smaller cases, providing as little as $2,000 either to lawyers or directly to plaintiffs for personal expenses,” the Journal article said.

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