The History of Litigation Finance
As litigation finance has only continued to grow as an industry in the United States it seems like a good time to understand the history of litigation finance companies in the United States as well as the current status of alternative litigation finance.
Litigation finance companies are thought to have started in the U.S. in 1998 by Perry Walton in Nevada. The model used by Walton in his early business years is not that different than what is often used today. Even then this type of capital was not a loan but rather an advance that only had to be paid back if the litigation resulted in a successful outcome. Walton saw how effective this could be and began teaching others about the new industry. By 2000, 400 people had attended Walton’s seminars and litigation finance companies began multiplying.
Today it is hard to know exactly how many litigation finance companies exist as there is no registration requirement except in Maine and Nebraska. The American Legal Finance Association (ALFA) is the industry’s lobbying arm and currently has 33 member companies. This organization provides resources for the public and a Code of Conduct that its member companies abide by, serving as a form of regulation for those companies.
Together it is estimated that litigation finance companies advance approximately $100 million per year and have a total invest portfolio in excess of $1 billion. However, all of these organizations do not just provide capital to single individuals in personal injury cases. The large amounts of money come from highly complex commercial litigation. It is usually in large commercial cases that litigation finance companies work directly with law firms, including some of the largest and most profitable law firms in the United States and abroad.
While it is not necessarily common practice, some banks do loan money to litigation finance companies. Including large banks such as Citigroup, Commerce Bank of New Jersey, and Credit Suisse. But more commonly, litigation finance companies work directly with accredited investors to fund their cases.
Hopefully this background on the industry in the United States serves to explain what a booming industry this is as well as some of the growth that the industry has already seen its in few years here.
Topics: litigation finance, alternative litigation finance, third party funding
Works Cited: Terrence Cain, Symposium: 1. Fringe Economy Lending – The Problem, Its Demographics, and Proposals for Change: Third Party Funding of Personal Injury Tort Claims: Keep the Baby and Change the Bathwater, Chi-Kent Law Review (2014).
