Investment markets in everything

by on December 4, 2010 at 11:34 pm in Economics, Law | Permalink

While this business is in its infancy, Balance Point is part of a bigger trend – the growing industry that invests in other people’s lawsuits, arming plaintiffs with money to help them win more money from defendants. Banks, hedge funds and boutique firms like Balance Point now have a total of $1 billion invested in lawsuits at any given time, industry participants estimate.

Lawsuit lenders initially focused on personal injury cases, but over time they have sought new frontiers, including securities fraud cases brought by disgruntled investors, whistleblower claims against corporations and property development disputes.

Stacey Napp, a lawyer by training who has spent her career in finance, founded Balance Point last year with money from her own divorce. Since then, she has provided more than $2 million to 10 women seeking divorces. She says she is helping to ensure both sides can defend their interests.

The full story is here.

dirk December 4, 2010 at 10:54 pm

My sense of outrage goes to 11. (in your face, Andrew)

RR December 4, 2010 at 11:27 pm

Guess the law is an asset-rich ass.

omegaman December 5, 2010 at 2:11 am

This is the way the world ends…

s December 5, 2010 at 4:08 am

Whether or not this should inspire outrage or distorts justice surely depends on whether we believe the system to be working efficiently at the moment.
If yes, this will distort the 'market' in justice. If we think there is currently an inefficiency, e.g that plaintiffs against defendants with deep pockets are less likely to be appropriately compensated because they cannot sustain lengthy lawsuits and give up, then this 'distortion' is merely alleviating an existing inefficiency – Cash Flow vs. NPV

Personally, the latter seems plausible to me, but ymmv.

It seems underdog here is meant as a conditional assessment. While dirk may think men are more put upon in family courts, perhaps this is a selection bias of those cases that make it through the courts: the likelihood of getting something must be relatively high for the lower-income (or no-income) party to risk going through the courts, possibly ending up with the bill. Accordingly we would only see cases with high probability of getting something go to courts.

Balance Point seems to be solving a financing/cash flow issue, and not simply betting on a dog fight.

Bill December 5, 2010 at 5:29 am

They should call it a hedge fund and claim it as retained interest in order to pay the 15 percent rate.

Bill December 5, 2010 at 10:10 am

Salem, I think the analysis is a little more complicated.

You have to think of the investor as someone who will have to seek out information on the probability of winning–otherwise, he has made a bad investment if he doesn't. So, the investor won't frivolously invest. The plaintiffs attorney's time, at least to him or her, is not a free good either, as there are usually alternative uses for ones time. On top of this, there are fixed costs of litigation that you pay, if you lose as a plaintiff, such as expert witness fees, deposition transcripts, and court costs (although each side pays its own attorneys fees). Court costs are allocated based on who substantially prevails, winners or losers.

Because plaintiff attorney fees come out of the award (and are not in addition to it) (except in antitrust and RICO and I think securities law and a few other laws), the plaintiffs award if he/she goes to trial is going to be less if paying an hourly fee, and if a contingent fee, the attorneys real award could be lower. This places pressure on the plaintiff to settle, unless he/she has adequate resources.

Finally, don't assume this is a two person game: in fact, judges are players too, and if they sense that one side does not have a case will kick it out at summary judgment or lower the expectations of plaintiffs in a settlement conference.

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