What is Financial Litigation?
Financial litigation is a practice where a third party will loan the funds to an individual or company who is looking to take another individual or company to court. In return, the lender asks for a percentage of any money recovered in the lawsuit.
Who is Involved?
There are generally three parties involved in a financial litigation case. Those involved include:
- Plaintiffs: The plaintiffs are the individuals or companies involved in a lawsuit who are looking for funding help.
- Investors: The investors are those who lend funding to the plaintiffs in return for a percentage of the money gained from the lawsuit.
- Lawyers: Lawyers and their law firms provide investors information about plaintiffs. They also serve as custodians to the funds and are the ones to distribute the funds.
Benefits of Financial Litigation
All three parties involved benefit from financial litigation.
- Provides cushion for personal expenses
- Allows access to better lawyers
- Helps underfunded cases go further in court
- Earn yields in new asset classes
- Diversifies their investments
- Get a voice in the legal cases
- Receive cases they normally wouldn't due to plaintiff not being able to afford their fees
- Typically removes the risk of plaintiff running out of capital during the case
- Can offer more flexible payment options
- Recoveries in line with case merit more achievable
Cons of Financial Litigation
- Litigation is only available to those with a good chance of winning
- Investors are primarily interested in cases that can win 10x the amount of their investment
- Investors are attracted to short lawsuits
- Investors also get a say in where the case goes
- Risk of losing the case
- Risk of making less money than initially thought to
- The case takes too long, therefore return investment is delayed
- Investors may also want a voice in the case
- Add investors can prolong cases due to their demands for an option to make more money
- Professional independence may be questioned or diminished
Why Use Financial Litigation?
There's a lot of reasons to go through with financial litigation. One common reason is if an individual or small company is looking to sue or receive justice in a case but cannot afford to fund the lawsuit themselves. This gives an individual or small company a chance at taking on those bigger guys they wouldn't normally have a chance against due to financial barriers.
Fortune 500 companies are also realizing that financial litigation is a great tool. Those bigger companies will oftentimes use financial litigation to prevent their budget from showing substantial losses due to lawsuits. Funding for lawsuits keeps those losses from showing on their budget, thus keeping their investors happy.
For more information about financial litigation, contact a lawyer near you.