Pandemic Is Expected to Bring More Lawsuits, and More Backers - The New York Times

If there is one thing that is almost always guaranteed in an economic downturn, it’s an increase in litigation.

Businesses are going to sue businesses. Tenants are going to sue landlords, who will sue their tenants right back. Insurance companies will contest claims, and start-ups will try to defend their intellectual property from more established companies.

Yet in this recession, one industry that was just getting started during the 2008 downturn has come into its own and is attracting wealthy investors looking for outsize returns.

Meet litigation finance, an esoteric, high-risk investment strategy that lures with the siren song of double-digit returns. It’s an industry with a few publicly traded behemoths, but it remains the preserve of private-equity-style funds that invest in cases, back law firms and act as financial intermediaries when settlements have been reached.

And the pandemic could be its time to emerge from its little-known niche. Some of this will come from coronavirus-related suits, like business interruption claims and lawsuits against landlords who do not fulfill their obligations to safeguard their buildings.

But a larger amount could come from litigation that arises when there is less economic opportunity and businesses begin fighting for what is left. Most of the litigation finance funds are set up to step in when one side is running low on money to continue a claim that could bring a substantial win.

“We have the wind to our backs in this unusual environment,” said Howard Shams, the chief executive of Parabellum Capital and an early practitioner in the industry.

The market can deliver returns of 30 percent or more. The type of claims and the law firms that seek financing vary. But so, too, does the investor base, which includes wealthy individuals and families, as well as college endowments and sovereign wealth funds.

Litigation finance is not about encouraging more legal battles, fund managers and investors say, but about supporting businesses and law firms that lack the resources held by the larger corporations they are often battling.

Bill Parizek, a partner at Pentwater Advisors, a business consulting firm, said he had one-third of his net worth in LexShares, which just raised its second litigation finance fund but also invests in one-off cases.

“At its core, it’s a level-the-playing-field type of thing,” Mr. Parizek, 59, said. “They’re backing the weaker spouse, as it were, in litigation.”

Since 2016, he and his brother, John Parizek, have made 49 investments at an average of $13,000 each. He said he had calculated that even if they lost 25 percent of the cases and recovered nothing, they would still have solid returns.

With 32 cases outstanding, he said, only four cases have lost money, while the other 13 have paid returns. They were up 30 percent last year.

The two titans in the industry are Omni Bridgeway and Burford Capital. But the industry is really a smattering of funds and what are known as fundless sponsors, or groups that find cases and then raise the money to invest in them.

LexShares got its start as a fundless sponsor in 2014. Bigger firms are primarily backed by pension funds and sovereign wealth funds, but LexShares counts many individuals as investors. They all have to be accredited investors, which means they have more than $1 million in investable assets or an annual salary greater than $200,000. It is raising a second fund, at $100 million, only two years after its first $25 million fund.

“We’re coming back because these deals fill up so quickly, so it’s hard to create a diversified pool of these investments,” said Jay Greenberg, chief executive of LexShares. The fund has a 70 percent victory rate, he said, but only 43 of 103 cases have been resolved.

As in other fund structures, the litigation funds are paid a management fee and then take a hefty cut of the settlement, depending on the success of the case. With litigants, the funds negotiate their return up front. In some cases, it’s a percentage of the settlement; in others, it’s a multiple of the money they invest depending on how long it takes for the case to settle. If it takes three years, for example, they might ask to be paid back three times their money.

In all cases, the investment is nonrecourse financing, meaning if the company or lawyers lose the case, they don’t owe the investors anything. This aspect is appealing because law firms and companies can minimize some of their risk while still having access to working capital. It’s also why investors need to ensure that they spread their money across many cases.

“There isn’t any case I’d put more than $25,000 in,” Mr. Parizek said. “There are some I liked and thought it would be great to put in $250,000 and win big, but you never know.”

Peter Suarez, who runs a marketing and lead generation company in San Diego, began investing in single cases, building a diversified portfolio. But, he said, as more investors began seeking high-quality cases, he turned to funds.

“It was already getting more difficult to invest individually,” he said. “I didn’t want to lose out on the opportunities.”

Of the 47 cases he has invested in since 2015, Mr. Suarez said, his return was 38 percent. But he is paring back his investment in litigation finance.

The Coronavirus Outbreak

• Frequently Asked Questions and Advice

  Updated June 16, 2020

  • I’ve heard about a treatment called dexamethasone. Does it work?

    The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.

  • What is pandemic paid leave?

    The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.

  • Does asymptomatic transmission of Covid-19 happen?

    So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

  • What’s the risk of catching coronavirus from a surface?

    Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

  • How does blood type influence coronavirus?

    A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.

  • How many people have lost their jobs due to coronavirus in the U.S.?

    The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

  • Will protests set off a second viral wave of coronavirus?

    Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.

  • My state is reopening. Is it safe to go out?

    States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

  • What are the symptoms of coronavirus?

    Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

  • How can I protect myself while flying?

    If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

  • How do I take my temperature?

    Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.

  • Should I wear a mask?

    The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

  • What should I do if I feel sick?

    If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

  • How do I get tested?

    If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.

---

“I’ve only had five losses, but when you lose, you lose everything,” he said.

His other complaint is that there is no way to roll these investments into something longer term. The case pays its returns, and the investor is left with that money to reinvest. There is not the same cash flow he gets from, say, real estate investing.

Another approach is to invest in a law firm’s portfolio of cases. A firm may have a half-dozen business litigation cases that it has taken on contingency. That means it is covering the costs during litigation with the expectation that it will be paid back more when the case is settled. But because it is not billing by the hour, the law firm is putting its own money at risk.

In a situation like this, the law firm may approach a litigation finance fund to offset some of its risk in return for a share of what it expects to recover, said Ralph J. Sutton, founder of Validity Finance and another early entrant into the field.

These cases are likely to be large because a firm like Validity wants the expected settlement to be five times what it is giving the law firm. The purpose is to give the law firm more flexibility, he said.

Since March, he has seen an increase in law firms reaching out for this type of funding. He attributes this to companies not being as willing or able to pay high legal fees, as well as to law firms being worried about their liquidity in a recession.

All the litigation firms I spoke with reported rising interest in their services. But that carries its own risk of investors becoming lax with their underwriting. Not surprisingly, the key to achieving high returns and a high win-loss record comes in the selection process, which, if anything, needs to get more rigorous.

Interest in the United States is up three times over last year, and in the rest of the world, it is double what it was a year ago, said Andrew Saker, chief executive of Omni Bridgeway, which has offices in 10 countries.

“The uptick is greater in the U.S. because the impact of Covid-19 was greater in the U.S.,” he said. The U.S. litigation market is also the largest in the world and is roughly double the next-largest market, Britain.

Therium Capital Management funds only 3 percent to 5 percent of the cases it reviews in regular times, said Eric H. Blinderman, the chief executive. But with increased volume, it will be more selective and fund fewer now.

He added that the firm needed to believe there was at least a 70 percent chance that the case would succeed, that the case would resolve in a set amount of time and that the losing party would be able to pay the judgment.

“To survive, you need discipline,” Mr. Blinderman said. “You cannot take a flier. We’re not funding on coin tosses. We’re not funding on maybes.”

Let's block ads! (Why?)

"bring" - Google News
June 19, 2020 at 08:36PM
https://ift.tt/37U4iBP

Pandemic Is Expected to Bring More Lawsuits, and More Backers - The New York Times
"bring" - Google News
https://ift.tt/38Bquje
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update

Bagikan Berita Ini