More Litigation Funding News

Another litigation funding business is out there - this one (Arca) is said to have $ 110 million and a focus on Silicon Valley.

Major Bankers and Financiers, Litigation and "Litigation Reform"

 With today being a holiday in the US for Dr. King's birthday, I decided to take a holiday on the usual torts in favor of a little excursis on bankers, litigation and "litigation reform." The main point? Recent events exemplify why some but not all of the "litigation crises" in the financial sector may be laid squarely at the door of major bankers and financiers.Therefore, one might well conclude that it's wise to think critically before drinking too much kool-aid poured from the pitcher full of "litigation reform." It also seems wise to drink - carefully - from the pitcher full of real regulatory reform.

Today, the focus is on litigation and crises in the financial sector. A stunning body of evidence continues to mount to prove that litigation in the financial sector keeps growing because too many highly placed business persons consider litigation just natural fallout from money making activities. They see litigation and crisis as just a part of the process, and really don't give a damn because the reality is they are making money from present deals, and don't care what happens in five years because by then they will have made a huge pile of cash, and may have exited the scene.

Proof ? Start with Paul Krugman's January 15  "Clueless Bankers" column in the NYT that dissects as follows some of last week's Congressional testimony from various leading luminaries on the Street:

"There were two moments in Wednesday’s hearing that stood out. One was when Jamie Dimon of JPMorgan Chase declared that a financial crisis is something that “happens every five to seven years. We shouldn’t be surprised.” In short, stuff happens, and that’s just part of life.

***

As an aside, it was also startling to hear Mr. Dimon admit that his bank never even considered the possibility of a large decline in home prices, despite widespread warnings that we were in the midst of a monstrous housing bubble.

Still, Mr. Dimon’s cluelessness paled beside that of Goldman Sachs’s Lloyd Blankfein, who compared the financial crisis to a hurricane nobody could have predicted. Phil Angelides, the commission’s chairman, was not amused: The financial crisis, he declared, wasn’t an act of God; it resulted from “acts of men and women.”

Was Mr. Blankfein just inarticulate? No. He used the same metaphor in his prepared testimony in which he urged Congress not to push too hard for financial reform: “We should resist a response ... that is solely designed around protecting us from the 100-year storm.” So this giant financial crisis was just a rare accident, a freak of nature, and we shouldn’t overreact."

'To quote Colonel Potter: it is "horse hockey" to suggest the causes are not known and were not foreseeable. Numerous books and articles have documented the realities - I like best Judge Posner's book - A Failure of Capitalism. It seems pretty plain we need to listen when a University of Chicago "free markets" guru is telling us that the markets failed us and we need meaningful reforms. To Judge Posner and others, it's quite plain that the financial fiasco was predicted by some (who made a lot of money from doing so), it did arise from bankers and lawyers severing risk from responsibility via CDOs and various derivatives, it did arise from rating agencies issuing groundless ratings, and it did arise from AIG and other entities buying and selling purported contracts without regard for whether the parties could honor the obligations. And, all of that does not even address the outright frauds and intentional cheating exemplified by Parmalat, Madoff, Galleon, Enron, and so many others, not to mention the subprime scandals from the various banks that knew they were selling real junk.

I'll also cite a good friend who is probably one of the smartest people in the world when it comes to understanding and managing risks. He spent some 20 years in incredibly senior positions in banking and finance where he put to use his stunning grasp of math, combined with common sense and humble roots. His view? Much of the Street is rotten to the core (especially AIG) and it was eminently obvious to anyone smart who bothered to look (at the time, he was looking at g AIG's 2008 SEC filings and finding them completely inscrutable). He also says the financial system will melt down again "soon" unless derivatives and other like contracts are forced onto regulated exchanges.


A final piece of proof ?  Go to the Epicurean Dealmaker's latest priceless and candid post. The theme ? He largely accepts Mr. Krugman's rant about super giant financial entities taking society back towards future a financial fiasco, but then draws a line that only makes things worse  According to the Dealmaker, the global bankers are far from clueless. Instead, he says, most investment bankers simply don't give a damn,  and will work hard to find a way around the milk toast reforms presently on the table, as is set out in the following excerpts from the post:


"Wednesday, January 13, 2010

I'm Dancing as Fast as I Can

"Good morning, class.

* * *

I recalled this quote to mind today when I read Paul Krugman's latest broadside against all things—and people—financial in The New York Times. In his jeremiad, "Bankers Without a Clue," Mr. Krugman picks apart the recent testimony by four Wall Street CEOs at the Financial Crisis Inquiry Commission and asks the rhetorical question

Do the bankers really not understand what happened, or are they just talking their self-interest?

He concludes that it does not matter, and answers his own question thusly:

Wall Street executives will tell you that the financial-reform bill the House passed last month would cripple the economy with overregulation (it’s actually quite mild). They’ll insist that the tax on bank debt just proposed by the Obama administration is a crude concession to foolish populism. They’ll warn that action to tax or otherwise rein in financial-industry compensation is destructive and unjustified.

But what do they know? The answer, as far as I can tell, is: not much.

By happy coincidence, I enjoyed a quiet morning in the office this past Wednesday free of client obligations. I took advantage of my liberty to view a good chunk of the televised testimony of Messrs. Blankfein, Dimon, Mack, and What's-his-name on C-SPAN. I have to admit that I too was underwhelmed by the bankers' grasp of and ability to explain the recent crisis. At one point, for example, Commissioner Johnson asked Jamie Dimon why the financial industry had attracted so many bright and talented individuals away from other, presumably more productive pursuits. The lackadaisical and uninformative reply Mr. Dimon returned revealed in stark detail a critical fact: he neither knew nor cared to know the answer.

And this example cuts to the heart of the matter: it's not his job to know such things.

* * *

Let there be no mistake: Mr. Dimon, Mr. Mack, and Mr. Blankfein are not stupid or uninformed. (The jury is still out on What's-his-name.) They are damn smart; scary smart, in fact. You don't get to the top of the greasy ladder of a major global investment bank's executive suite by being dull, incurious, or lethargic. People like that get sliced to ribbons and thrown into the chum bucket in my industry before they reach Managing Director, if they ever get inside in the first place. These guys got game, people. Serious game. You would be foolish to doubt it.

But they also have absolutely no interest whatsoever in the whys and wherefores of the financial crisis, the proper size and role of banks and investment banks in the domestic economy, or the moral imperatives inherent in stewarding the financial plumbing undergirding the daily lives and livelihoods of six billion people. For one thing, they don't have time to worry about such things. Most of a senior bank executive's time is consumed competing against other scary-smart investment bankers and executives at other firms, who are hell-bent on grinding his bones into dust beneath their bloody heels, while trying to prevent his own firm from flying apart under the internal stresses generated by thousands of egotistical prima donnas all scrapping for more than their fair share of the pie. There is too much going on, and unrelenting change comes too fast and furious to allow quiet contemplation of the order of things.

Most thoughtful people would agree: it's not wise to try to classify boreal flora and fauna when you have a tiger by the tail, much less think about how you would like to turn the forest into a time share resort.

For another thing—and because the volatile, high velocity nature of the business attracts such people—the people who go into the industry are not really interested in thinking deeply about why things are the way they are. You will almost never find an investment banker "sicklied o'er with the pale cast of thought." It's just not in their genetic makeup to be reflective, introspective, or speculative in an intellectual sense. Investment bankers have almost no interest in why things are the way they are. Rather, they spend all their considerable intellectual and psychological resources on understanding how they can take advantage of the way things are.

***

This explains not only their obvious lack of intellectual curiosity about the sources of the crisis—nothing remotely unconventional or even interesting on that topic left the mouths of any of the CEOs present at the hearing—but also their resistance to any major change in the way the industry or the markets are regulated. Why should they support change? It's hard enough just trying to keep ahead of the buzz saw of unbridled competition and unrelenting demands for profitability from lenders, shareholders, and employees without having to cope with changes in the rules as well. Of course they want to preserve their current profitability and size. Who wouldn't? But they do not assume—and neither, Dear Reader, should we—that changing regulations will necessarily make the industry less profitable. Investment bankers have well-justified confidence in their ability to turn new regulations to their advantage. It's just that, being in an industry that is constantly creating, reinventing, and destroying itself, investment bankers have a very healthy respect for change. You might even say we fear it.

So yes, Mr. Krugman, you are basically right. Don't look to investment bankers for answers on how we got here. We don't know and we don't care. We take the world as we find it and try to make money."

_____________________________________________________________________________

So, tell me again:  why it is our nation offers the financial sector the protections of  Iqbal/Twombly, CAFA and other "reforms?

The US Chamber of Commerce Does NOT Like Litigation Funding, and Pause to Reflect

This prior post referred to a then-upcoming seminar and mentioned the question: what does the US Chamber of Commerce think about litigation funding. Thanks to an article today at Pointoflaw, we now know the unsurprising answer is: the Chamber does NOT like litigation funding. Go here for the Chamber's paper.

What's in the paper? Parts of it are fairly helpful reviews of litigation funding in Europe, Australia and elsewhere. Other parts are pretty shallow arguments that do not explore a wide range of interesting possibilities, some of which could even benefit defendants. But that's an argument for another day - no need to give anyone in the US heartburn just before Thanksgiving.

Best wishes to all for a joyous holiday, with time to pause and reflect There are, after all, real people behind the statistics and data points, and some are real tort victims suffering from brutal cancers or other terrible diseases.
For some, Thursday will be a bittersweet day as they will have no choice but to acknowledge that they almost certainly will never again gather with their loved ones to celebrate Thanksgiving here on earth.

New Opinion in Australia on Registrations for Litigation Funding and Class Actions

Courtesy of Mondaq and Google, I encountered this article from AU law firm Middelton's regarding a new appellate opinion in Australia on litigation funding. The appellate court opinion arises in the context of funding for a class action. The Middelton's article kindly included a link to the opinion, which is here. The upshot seems to be that there are more required registrations than had been perceived for litigation funding in Australia for class actions.

The entire article and opinion need to be viewed. But, here's the short summary from the article:

"Consequences

There are numerous shareholder or investor class actions currently before the courts or that are anticipated and many of those are backed by litigation funding on terms similar to those present in this case. The Full Court's decision means that those class actions should probably have been registered as Managed Investment Schemes.

Running a Managed Investment Scheme entails a wide range of commercial, legal and compliance issues, including the requirement to hold an Australian Financial Services Licence (AFSL). Whilst such issues are not insurmountable for the litigation funder, obtaining the AFSL and registration of the scheme is a complex process that ordinarily takes many months. Where the litigation funder is a foreign entity (as is the case with ILF), that process is likely to be further complicated.

In the Brookfield Multiplex case, the Full Court stated that the defendant in a representative proceeding is entitled to have confidence in its dealings with the solicitors, for the claimants that they are properly authorized to act, and that the proceedings will not, in the future, be disrupted or delayed by any intervention by ASIC or a disgruntled group member, asserting an irregularity of the nature identified here. Those comments call into question the status of other class actions currently before the courts and may present an obstacle for claims in contemplation unless suitable arrangements are put in place.

The other consequence of the judgment may be that litigation funders and solicitors running representative proceedings shy away from class actions that involve retail investors (ie the "mums and dads" of the investment community) as an investment scheme involving large or institutional investors will not require registration (but the manager of that scheme will still need an AFSL).

To view the citation to the judgment please click here.

New Litigation Investment Fund Expected to Complete IPO in October - Burford Capital, Ltd.

The previously-mentioned London asbestos conference included a presentation regarding a new £200 million litigation investment fund that is to come online this fall through an IPO on AIM. The fund seeks to invest in litigation in the US and elsewhere. The presentation seemed to very much surprise some insurance industry personnel attending the conference. Others said they were not surprised,perhaps because the reality is that some insurers have in the past invested in litigation.

The IPO also was covered briefly by the WSJ in its September 29, 2009 edition. The article is here. It states:



By MARGOT PATRICK LONDON -- Burford Capital Ltd., a closed-end investment company, said it wants to raise up to £200 million ($319 million) in a share placing on London's junior market to mark its place in a small but growing sector of funds that help finance companies' legal costs in commercial disputes.By providing cash to help companies foot their legal costs, Burford said it hopes to pick up a share of any awards or settlements and then pay out money to its shareholders in the form of dividends.

The Guernsey-based company said it will start out by investing in disputes between companies in the U.S., as well as in those going to international arbitration. Later on, it might expand into to other jurisdictions, it said. A typical investment is expected to be for more than $3 million and as high as $15 million.It didn't say what percentage of proceeds it would ask for, but similar funds take between 20% and 45%.

The company's investment adviser is Burford Group Ltd., set up by U.S. lawyers Christoper Bogart and Selvyn Seidel."Third-party commercial-dispute finance is a high-growth market, helping plaintiffs or defendants get civil justice," Mr. Bogart said in a statement. He said these kinds of investment can generate highly attractive returns that aren't tied to the performance of stock markets.

Mr. Bogart's previous jobs include serving as executive vice president and general counsel of Time Warner Inc., and as chief executive of Time Warner Cable Ventures. Mr. Seidel most recently was a senior partner at law firm Latham & Watkins, where he co-founded the New York office and was chairman of the firm's international practice.

Fox-Pitt, Kelton Ltd. is handling the share placement on the Alternative Investment Market and will be the company's nominated adviser and broker. Execution Ltd. is acting as co-lead manager on the placement. The shares are expected to start trading around Oct. 16.

A similar company called Juridica Investments Ltd. listed its shares on AIM in December 2007, raising £80 million.

Write to Margot Patrick at margot.patrick@dowjones.com

Caveat/Disclosure: As a result of this prior post on May 24, 2009, I ended up receiving a call from Mr. Seidel to talk about the topic of litigation funding. As indicated in the prior post, it seems plain to me that litigation funding will become a dominant agent for change in litigation over the next decade. So, I invested the time to meet with Mr. Seidel a couple of times. The plans of Mr. Seidel and his colleagues make great sense to me, and I hope to work with them some day if the situation is right.

Contingency Fees in Europe - Spain's Supreme Court Allows Contingency Fees and Thus Increases the Pressures on Other Nations

I'm back to work after enjoying about 10 days of travel in Europe. Each day of the trip revolved around law in one way or the other and provided some great opportinuties for learning It was great to meet new people and exchange ideas and information about legal systems and law around the world. On and off over the next couple of weeks, some posts here will provide brief comments on some of the exchanges relevant to tort litigation. If interested, read after the line below for more specifics on reasons for the trip and the resulting learning opportunities.

One new piece of knowledge gained is that Spain's Supreme Court ruled last November that contingency fees can not be prohibited and so are now legal in Spain. This news was provided by Albert Azagra Malo, a Spanish law school instructor who has written extensively on mass tort issues and this year was in Chicago to obtain an LLM from the University of Chicago. Albert is a great person and quite learned - you can find him here on LinkedIn.

Overall, the ruling in Spain makes the point that it's time to forget the old bromide that Europe will never allow contingent fees. UK countries and others already allow "uplift" fees that provide a modest fee through a fee multiplier, and the countries are are under increasing pressures to embrace pure contingency fees. Indeed, I spoke with an excellent UK defense lawyer who said he expects to see contngency fees adopted in the UK within the next few years. The ruling in Spain adds to the pressures because the gist of the ruling is that prohibiting contingency fees unduly restricts competition and imposes a minimum fee requirement. Here is a paper - in Spanish - that provides more specifics on the opinion. The SSRN abstract for the paper calls the ruling a revolutionary decision and explains the ruling as follows:

"Contingent fees have been traditionally prohibited in the Spanish legal system. However, on November 4th, 2008, the Spanish Supreme Court rendered a revolutionary decision on the issue. Under Competition Law, the Court quashed the prohibition under the reasoning that it affected competition by restricting the attorney and its client to freely set the price of the legal assistance and, therefore, imposing indirectly a minimum fee."

___________________________________________________________________

Among other things, two organized events provided opportunities for learning. One event was an asbestos litigation conference I chaired in London on asbestos claiming around the globe. The conference was attended by lawyers from Australia, UK, Switzerland, Germany, Italy, Spain and France. We made the conference quite interactive and so everyone learned even more.

The second opportunity for learning was a meeting of 99 lawyers from 49 countries for the annual meeting of international law group known as the International Business Law Consortium. The IBLC provides global contacts and resources for medium and small law firms around the world. My law firm has been a member for about 4 years and the meetings, calls and emails offer a great way to meet excellent lawyers and learn more about what's happening in the real world. We also seek to refer work to each other, and thus last month I spent some time working with a lawyer in the Netherlands on trademark issues.

Tort Litigation Industry - What the the Plaintiff's Side Is Talking About

PointofLaw (Walter Olson) has a post here with a link to the online convention brochure for the the American Association for Justice, which is the trade association for the plaintiff's bar in the US. It's well worth reading to see what's ahead. For example, there are entries indicating panels or presentations aimed at increasing sophisticated issues at all levels of the claiming process and international issues:

1) tips on following insurance back to include reinsurance,
2) tips on delaing with ERISA, subrogation and the "make whole" doctrine;
3) an international practice section focused on Mexico, Canada, England and the US;
4) the "resort tort" litigation group; and
5) a review of tort reform in Canada. which the brochure calls "tort recovery restrictions."


In general, it seems inevitable that itigation as an industry will keep growing because:

1) non-US countries such as the UK and Australia increasingly treat treat law as the business it is and are allowing outside investment in litigation and law firms ,

2) litigation funding is booming thanks to investors that include insurance companies seeking better ROI, and

3) science is finding more and more "bad things" out in the world, ranging from endocrine disruptors to the cancer rate rising materially around the world.