Guest author Max Volsky is co-founder of LexShares, a valued WealthForge partner.
Business litigation is always a costly proposition. Although fraught with risk, it often represents a party’s only hope for redressing wrongs. The decision to bring suit is a momentous one, with the power to make or break entire companies. Yet those parties unable to bear the financial burdens of litigation themselves are precluded, making that important decision at all, regardless of how strong their underlying claim – their right to restitution – might be.
In much of the world, and the United States in particular, access to justice depends on money. Depositions can cost from $1,000 to $5,000 per day, excluding the cost of pre-interviewing potential witnesses and other parties to the case. Expert witnesses and their evaluations or opinions can run from $200 to several thousand dollars per hour, depending on their rate and how much time each expert must devote to studying the facts of the case and developing useful testimony. There are also court fees, court reporters, analysts, trial exhibits...to name just a few. An attorney’s time is another matter, with most lawyers charging a steep hourly fee. Upon appeal, these expenses can easily double. For more complex cases, travel expenses, document management and production costs can also add up. These costs will also increase if the legal battle occurs in expensive jurisdictions like New York or Los Angeles.
As litigation costs increase, many individuals and companies who feel they have a compelling case will choose to defer or ultimately abandon legal recourse. Many potential litigants seeking justice are unable to either pursue their claim due to the high costs associated with lawsuits and the uncertainty accompanying each claim. They are forced to find the cost of pursuing their case in court too high when considering potential outcomes, especially if their opponent is a wealthy defendant with ready access to legal representation. Even when the underlying case is quite promising, many decide not to sue, or to settle for a fraction of what their cases are worth. Although the contingent fee has gained ground in equalizing access to justice for tort cases, it is not widely available for commercial cases.
Faced with forfeiting their opportunity for redress, individuals and companies need access to lawsuit investors who can help monetize the outcome of their claims so they can afford the high costs of litigation.
A litigation finance model recently introduced by LexShares.com now allows accredited investors to make investments into commercial claims for as little as $2,500, helping equalize the bargaining power of litigants by providing capital to undercapitalized plaintiffs. Businesses can now take their cases to many third-party investors via LexShares and fundraise some or all the costs of litigation in return for a stake in the lawsuit's future proceeds. Capital is generally available for funding business disputes such as breach of contract, intellectual property, securities fraud, insurance bad faith claims, and statutory claims like antitrust.
This type of commercial litigation finance is in essence venture capital for lawsuits and is intended to fund litigation costs, although the funding facility may also be used for the plaintiff’s working capital and for personal use.
Litigation finance offers a compelling value proposition. Lawsuit investments are typically non-recourse -- a no-win, no-fee arrangement similar to a contingent fee. Capital provided by lawsuit investors is off-balance sheet and non-recourse, allowing businesses to hedge litigation risks.
Securities offered through WealthForge, LLC. Member FINRA/SIPC. This post is an industry update from WealthForge. The message does not constitute a research report or recommendation and does not take into account the specific investment objectives, financial situation or particular needs of the recipient. This message is not an offer to sell or the solicitation of an offer to buy any security or interest in any fund, which only can be made through a private placement memorandum that contains important information about the risks, fees and expenses of a fund.
Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice.
Disclaimer: Altigo provides this information for educational purposes only. It should not be construed or relied upon as legal or tax advice.
