Volatility in the Market

From The Practice September/October 2019
Recent developments in litigation finance you might have missed

Litigation finance has found its way into the news a lot in recent months—and for a myriad of reasons. Indeed, hardly a day goes by when there is not a major development in the sector. The following is a small collection of notable developments in the litigation finance industry over the past few weeks, reflective of both the increasing importance the sector plays in the legal profession and the speed with which change is occurring.

Outside of the major firms, legal finance startups are showing promising gains of their own.

Burford. Burford Capital, one of the largest litigation finance firms in the world, has had a particularly turbulent month in the press following a number of criticisms of the decade-old firm’s practice. In addition to some reported ethical concerns surrounding some individuals at Burford, arguably the biggest thread has followed accusations from hedge fund and research firm Muddy Waters surrounding the litigation finance firm’s accounting practices. Muddy Waters alleged in August that, despite its prior reputation as “the ultimate ‘trust me’ stock,” Burford misrepresented its financial figures and manipulated the value of its cases. In addition, Muddy Waters alleges governance concerns.

Following the release of the complaint, Burford’s share price fell more than 40 percent in value. In the weeks that followed, Burford posted a response to Muddy Waters’ claims, saw their shares recover some of the lost ground, and suggested Muddy Waters was guilty of illicit market manipulation. Some argue that these developments spell trouble—and more regulation—for the litigation finance industry as a whole, while others believe Muddy Waters’ concerns largely misunderstand how the industry works. One thing is clear: this dispute is far from settled.

Vannin. Elsewhere in the industry, Vannin Capital recently announced it has been acquired by Fortress Investment Group. Vannin Capital notably planned to go public in September 2018 before delaying the initial public offering the following month. Fortress will acquire all equity in Vannin Capital, but the remaining details surrounding the entity’s future remain unclear. The deal is expected to be completed by the end of September.

Oasis. Litigation funder Oasis Financial, along with a group of former CEOs and founders, has filed several lawsuits since its sale to Parthenon Capital in 2016. The most recent case alleges that attorneys at Littler Mendelson and Kirkland & Ellis, along with others, facilitated the 2016 sale with fraudulent documents and insufficient or intentionally deceptive communication with all stakeholders. The $71 million deal has sparked a flurry of lawsuits involving Oasis, its former founders, and others involved in the transaction.

Legalist. Outside of the major firms, legal finance startups are showing promising gains of their own. Legalist, the self-avowed AI-powered litigation finance firm founded in a Harvard dorm in 2016 and subsequently supported by startup accelerator Y Combinator, recently raised $100 million to fund plaintiffs in more than 100 cases across a two-year span. Just a few months earlier, in June 2019, former U.S. Circuit Court of Appeals judge Richard Posner signed on with the startup in an advisory role. “The principal motive for my retirement was the failure of the court to treat litigants without financial resources fairly,” said Posner according to a statement. “Litigation finance patches an important hole for businesses with valid claims who lack the funds to hire an attorney.”