Entrepreneurial litigation financing, a nightmare of more big and better-funded lawsuits

An article in Corp. Counsel, Vol.16, Jan. 2008, at A2, describes a world that should frighten general counsel: aggressive investors capitalizing massive lawsuits as business ventures. For example, the article mentions briefly a public company listed on the UK’s AIM exchange. “Its sole business is funding litigation.”

The article further explains that private financial investors, including hedge funds, who “seek above market returns based on careful assessment of litigation risks and probabilities,” see hefty returns from major lawsuits. They will pony up funds for law firms to pursue big-ticket recoveries (See my post of Sept. 29, 2006: several hedge funds lending to law firms.).

One lawsuit funder is Calunius Capital, which along with The Judge has underwritten a £50 million action against a UK law firm. The lawsuit is being funded through a “groundbreaking financial litigation package combining conditional fee agreements, after-the-event insurance (ATE) and third-party funding.”