In 2012, the online publication Gawker published excerpts from pro wrestler, Hulk Hogan’s sex tape.
When Hogan (whose legal name is Terry Bollea) decided to sue, Gawker founder Nick Denton had no idea how much of a legal war this invasion of privacy case would turn into.
A Florida jury awarded Hogan $140.1 million in early 2016. After the verdict, Gawker was forced to file for Chapter 11 bankruptcy. It was sold to Univision later that summer and operations ceased at the main Gawker website.
After the sale, Hogan was paid $31 million plus a percentage of the proceeds from the sale of the company.
While millions of dollars of legal fees were accumulated on both sides, Hogan’s legal fees were being financed secretly by Peter Thiel, the billionaire silicon valley entrepreneur.
This process is called third party litigation funding.
In his blog, Nick Denton wrote:
… [an] all-out legal war with Thiel would have cost too much, and hurt too many people, and there was no end in sight. The Valley billionaire, famously relentless, had committed publicly to support Hulk Hogan beyond the appeal and ‘until his final victory.’ Gawker’s nemesis was not going away.
Why did Peter Thiel provide third party litigation funding in Hulk Hogan’s case?
The former PayPal founder allegedly held a grudge against Gawker for their printing an article that outed him as gay without his consent.
Investing in Hulk Hogan’s lawsuit and providing that third party litigation funding against Gawker may have been a way for him to publicly voice his disdain for the company when he had no legal pathways he himself could pursue.
Thiel is not the only person who finances legal battles for other people. The practice, called third party litigation, is becoming more common in the United States. Whether it’s for love or money, investments are booming!
Making money off of someone else’s lawsuit is an easy way to gain a big return on your investment.
If you are the one financing someone else’s trial, you can negotiate for a healthy slice of the proceeds of the trial. The rate of return will vary by the individual case. But it can be very sizeable.
You also never have to set foot in a courtroom. There are websites that help you make these investments it with a few clicks of a mouse.
For example, the platform Mighty allows funding for personal injury cases. If a case follows through and closes in the plaintiff’s favor, you stand to make 25% to 30% interest. That’s a big win!
Third party litigations are assets with zero correlation with anything else in your portfolio. There is no conflict of interest with another stock most of the time, and major swings in the market will likely not affect it.
Third party litigation funding was originally founded in Australia, and is spreading to countries as far apart as Hong Kong and the Cayman Islands. We may see even more opportunities for investment in overseas cases open up within the next decade.
However, your returns depend on one factor: Who ends up winning the suit.
Selecting the wrong case to invest in may result in little to no payout for you.
There’s also a risk that extraneous factors around the trial may lead to less payout for you. Research the cases you invest in before adding your money to their assets.
Minimum investments vary by case and by platform. They can be as low as $15,000 and range into the hundreds of thousands. Timing of payout also can vary. As anyone who’s contested a parking ticket knows, there are lots of variables that can speed up or slow down the progression of a court case.
If you’re invested in a case, you may be tempted to try and influence the case from the outside. This is a big no-no, as it creates an ethical dilemma for everyone involved in the lawsuit. The Institute for Legal Reform describes one particular case where things got icky:
In the infamous Chevron case in Ecuador, the funding contract with the plaintiffs stipulated that the funder would have veto power over the choice of attorneys and receive priority in the disbursement of any monetary award. Arrangements such as these make a mockery of our system of justice by placing the interests of outside investors ahead of the interests of the parties in court.
The short answer to all this: Investing in a lawsuit doesn’t mean you have a vote on how the case is handled. You’re just one of the financial forces behind it.
More laws surrounding third party litigation funding may emerge in the next few years. A report from the Joint Task Force (consisting of the International Council for Commercial Arbitration and the School of International Arbitration at Queen Mary University of London) on the subject will be presented in April 2018.
LexShares.com allows anyone to raise funds for legal fees, as well as invest in cases to fund others.
According to their website, one of the biggest benefits of investing in the $200 billion litigation market is that it is a great way to diversify your portfolio.
Unlike other platforms, LexShares does not allow investment in personal injury cases. This may be due to the increased volatility of these cases.
They have plenty of different case types for you to potentially invest in, including:
LexShares stands out because it allows you to track the individual cases in which you have invested. They thoroughly survey each individual case before opening it up for investment.
This feature allows you to have a more personal connection with the cases. You can use your money to support the sides of issues you believe in, and be an entirely different kind of “activist investor.”
As previously mentioned in this article, Mighty is a platform where people can participate in lawsuits. Though they have also recently pivoted their business toward providing software for firms searching for funding.
The company’s spotlight article in Forbes describes their appeal best:
Schwadron's ambition is to generate enough data about the risk and returns of lending small amounts of money to plaintiffs in personal injury suits to turn litigation finance into a respectable alternative investment—one predictable and large enough to draw affluent investors who don't chase ambulances for a living.
Burford Capital may be a familiar face to existing investors. This company was originally investing only in venture capital. But they decided to dip their toes into third party litigation funding. They’re unique in that they work to combine different lawsuits into groups, to provide lower risk for investors. They offer investment options for cases involving construction disputes, not just personal injury.
YieldStreet is an ideal choice for people looking to explore alternative investing in general. Offerings range, and include real estate and pre-assembled portfolios. Different types of legal investments may be made on this platform. This includes third party litigation, but also class action lawsuits and financing entire law firms.
Their page of rejected investment projects shows off their desire to curate lots of shorter term investments for their customers. This platform also allows for investments as little as $5,000 and with target durations of three years or less. Yieldstreet is definitely the platform for those looking to dip their toe into the field!
If you’re the type of investor willing to put the time into research before investing in anything, third party litigation funding may be the investment you’ve been looking for.
In general, the individual investor should research the cases available for investing and decide for themselves the prime level of risk. Minimum investment amounts vary drastically by case type and duration.
Third party litigation funding is also an easy choice for people looking to diversify their portfolio but perhaps are hesitant to invest in a company that may be affected by current market trends. Court will progress no matter what the price of Bitcoin may be that month.
Ha! Stay with me here.
This investment type acts mostly like an asset but can often offer a much more substantial payout over a shorter period of time. Certain firms may offer bundles of court cases that may prove even more secure than individual cases, leading to even more market security.
If you care deeply about issues such as civil rights or whistleblowers, third party litigation funding can be a great outlet for supporting others facing legal challenges around those issues.
Peter Thiel invested in Hulk Hogan’s case to hold Gawker accountable for what he viewed as continual breaches of privacy. Third party litigation funding works great for those looking to support others in pursuit of their principles!
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