Litigation funding. Some years ago, RAND, GlobalTort, and some others saw funding as a big deal. Others denied and complained, and indeed the US Chamber of Commerce continues to complain instead of finding the silver linings that certainly do exist.
Today, litigation funders are generating significant profits, and now Chicago has its own litigation funding group comprised of lawyers and financiers. The relevant information is collected in various posts and business magazine articles over the last week - a new post on the D & O Diary provides a good collection of article links and information. Perhaps the key quote is the following:
"The April 6, 2013 Economist article, entitled “Investing in Litigation: Second-Hand Suits” (here), reports that litigation funders are posting “fat returns.” The article cites the results of two of the publicly traded litigation funders. Juridica, which is listed on the London AIM exchange, on March 15, 2013 reported that during the prior year the company had made cash profits of $38 million on fund of $256 million under investment. Last year, the company “offered the highest dividend yield on London’s AIM market.” Burford Capital, which is also traded on the London AIM but is newer and bigger than Juridica, “boasts a 61% net return on invested capital in 2012.”
Years ago, it was obvious litigation funding would significantly change the litigation industry, and it continues to grow and thrive. Updates are available on AmLaw and D & O Diary. The D & O article includes a good set of links, but they are accompanied by some of the usual insurance industry's nonsensical handwringing about financial interests of funders. That's humorous when one stops to think the criticism comes from a thought leader for an industry built around making money off of litigation risks. Meanwhile, hedge funds also continue direct investment in litigation.
As to metrics. Burford announced the following, as summarized by AmLaw.
"Last week Burford announced that 2012 was its best year yet, as it took in $47 million in recoveries from 12 investments (either a single case, or a portfolio of cases with a single firm or client). Since the company began in 2009, it's provided $373 million in financing for 46 investments. Another sign of success: Burford has to share the litigation financing field with a growing list of competitors that includes Juridica Investments Ltd., Parabellum Capital LLC, and BlackRobe Capital Partners LLC."
The Financial Times is once again focusing on litigation funding, this time with an article on litigation funding investments simply as an asset class. The article also includes comments on the existing litigation portfolio at Juridica. It's important to keep watching this field. Despite objections and denials from the US Chamber of Commerce and others, litigation funding is an increasing force that will continue to grow and shape the litigation industry around the world. Despite parochial rules in various states, the US is not immune because overseas precedents and trends can and do move here. And, of course, multinationals already face risks around the globe.
Litigation funding includes real risks. This story provides an overview of the losses encountered by one lender that provided loans to a prominent plaintiff's firm.
Litigation funding continues to produce good outcomes for plaintiffs in need of financing, and the US Chamber of Commerce continues to complain about litigation funding. A recent example of funding by Burford highlights that litigation funding can be great for a business facing unfair actions by a another business (which may be why the Chamber dislikes funding). And, "big law" (Simpson Thacher) happily used the funding to represent its client, after introducing the client to Burford. The latest examples are set out below from a DealBook article by William Alden.
Litigation Funder Allowed Access to Documents to Decide on Funding for Claims in a Liquidator Action in Australia
In Australia, a trial judge has allowed a litigation funder access to "confidential" documents in order to decide whether to fund a claim in a liquidation. The article, by Addisons, is here.
Litigation funding for international arbitration takes center stage on June 25 for a New York State Bar Association seminar at Fordham law School. Registration is here. As always, Selvyn Seidel is one of the speakers, and the fee is very modest at $ 75.
The agenda is pasted below:
Themes and Objectives
A commercial claim is increasingly being viewed as a commercial asset, with value and use like other assets. Around this new asset class, an emerging industry is growing: third party capital investments to buy an interest in merit-based assets, with the capital to be used to prosecute the claim in return for some form of interest in the asset. If successful, the investor gets investment returns related to the recovery. If unsuccessful, the investor takes the loss.
Such investments are still unknown to the majority of the potential market members. They are gaining attention, and are increasingly being used by parties who need the financial support to pursue their claim. Top tier law firms, major multi-national corporations and sovereign states are among those starting to turn to third party funders. Funding need per case has a wide range, running from the thousands to the tens of millions. Recoveries anticipated in the cases are similarly wide ranging, from the thousands to the many billions. Although data in this emerging market and industry is scarce indeed, one thing is for certain: the market need dwarfs the available capital.
While investments in commercial disputes have something of a history, particularly in
Despite growth, several important parts of the industry have remained relatively untouched. Funding of international arbitration claims is one such area, and a critical one. Only now is it starting to gain some attention in the market, in the press and in academic institutions. The market is demanding that notice be taken.
This Roundtable is among the first to respond. It is devoted to investments in international arbitration claims. The Roundtable is designed to strategically cover this important topic and to provide a platform and springboard for expansion of knowledge, analysis and understanding.
Presentations, comments and questions by prominent experts in the field, including providers, users, academics and the media, will explore the current market structure, status, issues and opportunities. You will learn how the industry and the law is developing, what funders look for in making their investment decisions, what commercial, professional, and ethical considerations need to be reviewed, why international arbitration may be ripe for expanded use of such investments, and what empirical research reveals and predicts for the future. Join us for knowledgeable and cutting edge discussions and presentations on an emerging practice that may serve to benefit the market and industry.
To supplement the discussions, written materials will also be distributed to address topics covered as well as to fill in gaps where limited time prevents discussion.
Scope of Program, and Those Who May be Interested in the Program
The program is designed for those interested in the emerging industry and market which involves third parties to a litigation providing capital to fund financial needs including the litigation or arbitration costs involved in prosecuting meritorious commercial claims in return for an interest in a recovery in the dispute. It is focused on the most recent sector of that industry attracting interest and importance, the financing of international arbitration claims.
Cutting edge topics to be covered include areas relating to professional and ethics issues (such as champerty, confidentiality and lawyers’ duty to avoid interference with their independent professional judgment); funding’s possible impact on the attorney-client relationship; attorney-client privilege; conflicts of interest among the participants; operational issues such as finding a funder, the role and responsibilities of the lawyer, the different structures available for funding, the various funder products and funder services provided, and the returns to and risks of the funder; analysis of how “sacred” the contract is in this industry; and “hands-on” versus “hands-off” considerations.
The program will therefore be of particular interest to business entities and others who need such support; to attorneys whose clients need such support; to arbitrators; to judges; to academics; and to the media.
Third Party Funding of International Arbitration Claims:
The Newest “New New Thing”
1:00 – 1:45 Registration and Lunch
1:45 – 2:00 Welcome and Introduction – Edna Sussman, ADR Practitioner in Residence,
Chair NYSBA Dispute Resolution Section
2:00 – 3:00 The “Old” - Third Party Funding Basics
Moderator: Timothy Scrantom, Co-Founder and CEO, Fulbrook Management; Founder, Juridica Management
Panelists: Jonathan Ames, Senior Contributor, London Times; Editor, European Lawyer
Mark Beckett, Latham and Watkins, Partner and Co-Chairman, International Litigation and Arbitration
Timothy Nelson, Skadden Arps Meagher & Flom, Partner, International Litigation and Arbitration Group
James Tyrrell, Patton Boggs, Member, Executive Committee; Chairman, Funding Alternatives
What is Third Party Funding of Commercial Claims?
Products, Services, Finding a Funder, Various Structures, Issues, Case Law, Status
3:00 – 4 :55 The “New” – Third Party Funding of International Arbitration Claims: Similarities and
Differences from Funding Litigation Claims, Products, Services, Issues, Recent Jurisprudence, Status
Moderator: Bernardo Cremades, Founder, B. Cremades y Asociados
Panelists: Michele DeStefano Beardslee, Associate Professor, University of Miami Law School
Nigel Blackaby, Partner, Freshfields Bruckhaus Deringer
Bruce Green, Louis Stein Professor, Fordham Law School
James Rhodes, Arbitrator and Mediator
Maya Steinitz, Associate-in-Law, Lecturer-in-Law, Columbia Law School
The Work and Impact of Funding in International Arbitration
Importance and Implications
Distinctions Between Funding Arbitration and Litigation
Actual and Potential Benefits; International Arbitration v. Litigation
Actual and Potential Ethical and Other Issues; Perceptions and Publicity
New York, Front and Center
United States compared to United Kingdom
4:10 – 5:00 Where do we go from here?
Moderator: David Samuels, Managing Editor, Global Arbitration Review
Panelists: Bernardo Cremades, Founder, B. Cremades y Asociados
George Bermann, Walter Gelhorn Professor of Law and Director of European Legal Studies, Columbia Law School
Maurice Mendelson QC, Blackstone Chambers, London
Timothy Scrantom, Co-Founder and CEO, Fulbrook Management; Founder, Juridica Management
Selvyn Seidel, Co-Founder and Chairman, Fulbrook Management LLC; Co-Founder, Burford Group Ltd
Stefan Vogenauer, Director, Oxford Institute of European & Comparative Law, Oxford University
Growth of Information and Analysis
Spread of Credibility
Impact on Market and Industry
Rules, Regulations, Regulators
5:00 – 5:30 Open Question and Answer
Moderator: Selvyn Seidel, Co-Founder and Chairman, Fulbrook Management; Co-Founder, Burford Group Ltd
5:30 – 5:45 Conclusion: Edna Sussman
5:45 – 7:00 Reception
Litigation Loans - One More Part of the Story from the Series by the NYT and Citizens for Public Integrity
This past Sunday's NYT brought this latest article in a series on litigation funding. The story, in short, covers the the high price of some forms of litigation funding, and provides some information about states regulating the process.
One hopes that future articles will touch on related subjects not mentioned in the article. For example, whether the price will come down as more companies join the market ? Why are plaintiffs sometimes so desperate for money that they take out expensive loans (e.g how long has their case dragged on; why are insurers not paying for medical treatment or paying claims) ? Should lawyers be allowed to make loans ? If not, why not?
In short, reality is that injuries and ill health drive much of the tort litigation industry, and the litigation system has built in delays that can readily leave a person in desperate financial and physical straits, for years. Non-recourse loans are expensive , but are one means people use to cope with the situation. Are there better ideas out there for addressing the situation ? Are they workable? Funded? Available right now ?
The ABA paper presents a sensible set of issues and ethical concerns. For example, consider this Delaware ruling on privilege in the context of litigation funding.
Yesterday's Sunday NYT included this front page article by Binyamin Appelbaum. The article presents the latest chapter in an ongoing series on litigation funding. This article focuses on litigation funding in divorce cases.
A sidebar note explains:
"Articles in this series — which is a collaboration between the Center for Public Integrity, a nonprofit journalism group in Washington, and The Times — are looking at the growing practice of investing in lawsuits."
Here is the first article in a promised series on litigation funding. A note at the end of the article states:
"This project was initiated by the Center for Public Integrity, a nonprofit investigative news organization in Washington. It is based on reporting by Ben Hallman of the center and Binyamin Appelbaum of The Times, and was written by Mr. Appelbaum."
Here is an iteration of the article at The Center for Public Integrity.
It will be interesting to see if the articles go into depth, and actually portray the realities of litigation. An encouraging sign is that the authors apparently interviewed Steven Yeazell, a real expert on the subject. Click here for a prior post which links to Prof. Yeazell's seminal paper on civil litigation funding. The same post also links to information on RAND's first seminar on litigation funding. This later post links to information on RAND's second seminar on litigation funding.
The NYT article is followed by myriad uninformed "comments" by readers, with most attacking the US legal system and plaintiff's lawyers. One hopes they keep reading and learn. By reading and thinking, they might even figure out that widespread litigation funding actually decreases the market power of plaintiff's lawyers who historically have been the sole source for funding claims.
This AmLaw article by Andrew Longstreth addresses a new opinion on privilege in the context of case with litigation-funding in place. The article is well worth reading for background, but seems to me a bit gloomier than is warranted as to the impact for litigation funding. The article also is amusing for the addition of a later comment offered by the US Chamber of Commerce, which is NOT a fan of litigation-funding.
The opinion is an appeal from a ruling by a magistrate judge, so of course review was limited and deferential. The district court opinion is here. I've not yet obtained the prior ruling, but will add it when possible. The key exceprts on privilege are as follows, and indicate that Judge Farnan sees the law as open to development in this area:
"Judge Stark noted that the state of the law regarding common interest is unsettled and that this case presented a close question. (Tr. at 65:24 66:3.) He then conducted a survey of cases demonstrating the differing views within the Third Circuit on "how common the supposed common interests have to be," and noted the apparent trend favoring Facebook's position. (Tr. at 66:4-68:5; 69:15-18.) Although Leader summarily contends that the Order was clearly erroneous because documents were exchanged after a common interest was created, Leader has made no argument, and the Court has no basis on which to conclude, that Judge Stark misapplied the relevant law. Moreover, Judge Stark took into consideration that Leader had the burden of establishing the exisstence of the privilege, and the numerous policy considerations, including the need for litigation financing companies and the truth-seeking function of litigation. (Tr. at 69:19-70:16.) Additionally, Judge Stark looked to ethical guidelines from both Pennsylvania and New Jersey suggesting that privilege may be waived in a situation such as this. (Tr. at 70:17-71:22.) Aside from disagreeing with the outcome, Leader has failed to argue that there are any specific deficiencies or flaws in the ruling. In light of the thorough and well-reasoned analysis conducted by Judge Stark, the Court cannot conclude that the March 12, 2010 Order was clearly erroneous."
Litigation Funders - Not Quite Rock Stars, But the Cover of AmLaw's Litigation 2010 is Pretty Good for Lawyers
It's not quite the rock star niche Dr. Hook described when he sang about the status achieved from appearing on the cover of Rolling Stone, but litigation funders Selvyn Seidel and Rick Fields did make the cover of American Lawyers' supplement magazine, Litigation 2010. The related article is titled "London Calling," a reference to Messrs. Seidel and Fields leading litigation funding businesses which are public companies registered on the UK's AIM market.
The article, by Richard Lloyd, is preceded by this teaser:
"Two publicly listed funds are investing in early-stage commercial litigation. Is this the start of a revolution, or a sideshow for a few former Am Law 100 lawyers?"
The answer, in my view, is pretty plain. Over time, litigation funding will cause as much of a revolution as can possibly occur in the already massive litigation industry that is tied up in hundreds of years of precedent and balkanized legal systems. In saying that, I'll admit to some possible bias because my professional life brought me into contact with both gentlemen, and Selvyn Seidel was kind enough to accept an invitation to speak at a litigation seminar I chaired last year in London.
On the merits of the debate about what will happen with litigation funding, start with Mr. Lloyd's article. For more depth, the relevant past GlobalTort posts are collected under the links to the right for the topics Litigation Funding, and Litigation Funding - Litigation industry. Also take a look at the papers related to the 2009 and 2010 seminars hosted by RAND as it has focused on litigation funding. Finally, make sure to consider also this recent post on the impact litigation funding is having in Australia.
New York Times ran this interesting article by David Kocienewski on litigation funders moving towards buying interests in IRS whistle blower cases. One litigation funder sees this as a growing market.
"David Desser, whose capital management firm specializes in litigation finance, said the market was likely to expand once the I.R.S. awarded its first whistle-blower a check under the expanded program, which is expected later this year.
“As soon as the I.R.S. begins paying whistle-blowers, more people will realize that this is a whole new class of assets to be monetized,” Mr. Desser said. “It will be limited in size, because only a percentage of whistle-blowers will have incentive to sell. But for investors there is potential here for outsized returns.”
Banks in Australia Face Massive Billion Dollar Class Actions Over Excessive Fees - Litigation Funders Once Again Seem to be Making it Happen
Courtesy of a friend in Australia, note this Sydney Morning Herald article by Adele Ferguson and Michael West on huge new billion dollar class actions against banks in Australia. The class actions arise from excessive bank fees. Litigation funder IMF Australia, mentioned yesterday in this post, is once again said to be squarely behind the litigation action. Maybe it's time to rethink whether to attend the RAND litigation funding conference on May 20 and 21 in the DC area.
Key excerpts from the article are set out below:
"Australia’s banks face the biggest class action in corporate history for overcharging their millions of customers about $5 billion in penalty and late fees over the past six years.
"Leading litigation funder IMF Australia will pay for more than 10 class actions against the banks, including the big four - Commonwealth Bank, ANZ, Westpac and National Australia Bank - in an effort to claw back at least $400 million in what its lawyers will claim is a systematic gouging of banking customers.
The action comes at a delicate time for the banks as politicians accuse them of exploiting their heightened market dominance - in the aftermath of the global financial crisis - to rachet up fees and charges to unreasonable levels.
Besides the big four, another seven Australian banks are expected to be targeted for alleged wrongful and unfair overcharging. These include the Bank of Queensland, Bendigo and Adelaide Bank, Suncorp, HSBC and Citibank."
Litigation Funding Changing The Game to Open Access to Courts in Australia; RAND Litigation Funding Conference on May 20 and 21 in DC Area
D & O Diary reports on and links to a new NERA study of the rapidly increasing rate of securities class actions in Australia. Of note, a major factor is said to be litigation funding provided by IMF (Australia) Ltd. The IMF firm is contributing one of several excellent speakers at a May 20 and 21 RAND conference in the DC area on litigation funding. According to Mr. LaCroix' summary:
"Seventeen out of the 24 Australian securities class action lawsuits that have been filed since 2004 have been financed by a commercial litigation funder. The Australian commercial litigation funding business is dominated by IMF (Australia) Ltd., the first publicly listed litigation funder in Australia. IMF has financed 14 securities class action lawsuits and has proposed financing in an additional three suits that have not yet been filed. Though IMF dominates, according to the NERA study, a number of new firms have recently entered the market."
Following up on the same kind of conference last May, RAND's Institute for Civil Justice is hosting another great looking seminar with experienced and smart people talking about litigation funding. The agenda is here; some excerpts are set out below. It will be interesting to see what new research RAND is going to issue, as is mentioned in the agenda (see below). The seminar is in DC (Arlington, Va) on May 20 and 21.
Some interests strongly dislike litigation financing. Indeed, The US Chamber of Commerce previously attacked litigation financing as a bad idea - see this prior post on the topic, with a link to the Chamber's paper. My personal view remains that litigation financing is here to stay, especially since mass tort and mass fraud litigation is now global in many cases, and other countries have squarely embraced litigation financing. The Chamber's paper does, however, provide a nice overview of developments to date in other nations.
"The RAND Institute for Civil Justice recently launched a research initiative to analyze and explore the convergence of law, finance, and capital markets in the United States, including phenomena such as outside capital invested in law firms, alternative fee structures, and third party litigation funding. The Program endeavors to examine the effects of alternative litigation finance on the efficiency, fairness, and transparency of the American civil justice system through policy analysis, events, and a comprehensive Web presence at http://www.rand.org/icj/programs/law-finance/.
The 2010 Conference will bring together practitioners, policymakers, judges, and researchers to discuss and debate issues and trends related to alternative litigation finance in the United States. The extensive program will feature presentations, panels, and speakers on practice and policy topics as well as offer continuing legal education.
The conference agenda is designed for interaction and will be based on soon-to-be-released RAND research." (emphasis added)
"Be Careful What You Wish For In Litigation" - Might that Rule Apply to the Iqbal/Twombly Pleading Standard ?
At a recent asbestos litigation conference, one of the speakers reminded everyone of the old maxim to " be careful what you wish for" in litigation. In that vein, consider the current US legislative battles about the Iqbal/Twombly pleading standard that makes it materially harder for plaintiff's to allege a complain that withstands a motion to dismiss. In this dawning age of global litigation, choice of venue and law issues are increasingly important due to global financial markets. Within that realm, consider the importance of the pleading standards as applied to, for example, the fact pattern set out in the text below from this interesting article about an investigation into an investigation by the SEC, with both investigations related to a sudden plunge in the price of a biotech stock.
Suppose the report referred to below is made public, with or without full facts being disclosed in the report . Under the new Iqbal/Twombly pleading standards in the US, would incorporation of the report be enough for a complaint to survive a motion to dismiss ? If not, are US firms going to find themselves facing class actions in Europe, Australia or other venues where pleaidng standards are now or may be less demanding than the Iqbal/Twombly standard ? Will suits seek out countries where class action laws exits and litigation funding is far more accepted than it is in the US ? If that happens to one degree or another, will US defendants be more or less happy than they were under the old Conley v. Gibson pleading standard ?
I'm not sure how this all turns out. But I am starting to wonder if the Iqbal/Twombly standard will end up being one of those wishes that it is later regretted by US industry. In short, it seems to me the wish for the higher pleading standard could end as a wish that ultimately accelerates litigating tort claims outside the US, . Outside the US, defendants certainly will have work to do to try to obtain the benefit of the Daubert standard so much loved by defendants.
Dendreon stock mauling probed by regulators
By Matthew Goldstein
NEW YORK (Reuters) - A lightening fast sell-off of shares of biotech company Dendreon <DNDN.O> last April is drawing scrutiny from U.S. securities regulators and the independent monitor assigned to keep tabs on those regulators, said people familiar with the matter.
They said an investigation by the Securities and Exchange Commission into the still unexplained trading event, during which shares of Dendreon plunged more than 69 percent in 70 seconds, is ongoing.
It is not clear if the SEC inquiry into the incident, which some academics and investors have blamed on a combination of short-sellers and high-frequency trading programs, will lead to an enforcement action, said these same sources.
SEC spokesman John Nester declined to comment.
The SEC investigation partially overlapped with an inquiry conducted last summer by SEC Inspector General H. David Kotz to determine whether securities regulators were paying enough attention to the matter.
In December, Kotz submitted a confidential report on the results of his inquiry to SEC Enforcement Director Robert Khuzami, the sources said.
The SEC is considering a Freedom of Information request from Reuters to release the inspector general's report. But a person familiar with the situation said regulators will likely deny the request on the grounds that the report discusses an ongoing probe.
The SEC cited a similar reason for rejecting an earlier FOIA request from Reuters, seeking information about any complaints filed by investors over the April 28 incident.
It is unusual for the SEC's inspector general to conduct an inquiry into the agency's handling of an ongoing investigation. Kotz's office initiated the investigation at the request of an investor and Sen. Charles Grassley, according to sources and the inspector general's semiannual
Grassley spokeswoman Beth Levine said his office had not received a copy of Kotz's completed report.
The Iowa Republican has had a history of taking issue with the pace of SEC investigations and asking Kotz's office to review the agency's handling of enforcement matters.
A Dendreon spokeswoman declined to comment on the investigations.
Last April, the $16 plunge in shares of the Seattle-based biotech generated a good deal of head-scratching on Wall Street. That's because in little over a minute, the equivalent of an entire day's worth of trading activity in Dendreon shares took place before Nasdaq Stock Market officials halted the stock.
Stock market officials initially suspected the rapid-fire selling was sparked by a so-called fat finger trade, or a broker putting in an erroneous order to sell too many shares. But Nasdaq officials, without issuing any comment, did not void any of the trades.
The April 28 plunge of Dendreon shares coincided with speculation in the market that the company was going to report poor test results that afternoon for its prostate cancer drug Provenge. In fact, the opposite occurred, and the company reported generally positive test results.
Once trading was allowed to resume, the stock quickly regained all of its losses. But the freak sell-off resulted in losses for retail investors who had so-called stop-loss orders with their brokers to sell shares at a predetermined price.
When a stock plunges quickly, it can trigger a stop-loss order, a sale at a previously designated price intended to limit losses. A stop-loss order can cause an investor's shares to be sold at price lower than the one he wanted.
Reuters reported in October that many investors with stop-loss orders lost money in the sell-off and some complained to regulators and asked them to look into the matter.
There have been numerous theories for the unusual trading event.
Some investors have blamed the sell-off on a so-called bear raid by short-sellers looking to profit from a precipitous decline in a stock. Others attribute the ferociousness of the selling to computer-driven high-frequency trading programs that scan the markets looking to take advantage of trading trends.
James Angel, a professor at Georgetown University's McDonough School of Business, previously told Reuters that high-frequency trading programs may have exacerbated the plunge when the algorithms these trading firms use all glommed onto the same trend.
(Reporting by Matthew Goldstein; Editing by Steve Orlofsky)
Another litigation funding business is out there - this one (Arca) is said to have $ 110 million and a focus on Silicon Valley.
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 crises 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?
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.
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:
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.
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 firstname.lastname@example.org
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.
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.