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Don’t judge litigation funders by the rogues

There’s stiff opposition in some jurisdictions to the principle of litigation funding. In those jurisdictions, lawyers and clients are excluded from working with litigation funders. And in some locales, lawyers remain unable to work on a “no foal, no fee” (no win no fee) basis as well.

No doubt, the recent news that a litigation funder in New York (also a lawyer) has pleaded guilty to one criminal count of securities fraud has done little to help this often polarized debate. Attorney Jaeson Birnbaum, 47, of Boca Raton, Florida, is facing a parallel civil lawsuit filed by the SEC, too.

His methodology was straightforward: he defrauded investors by double-pledging the same lawsuit returns to multiple investors as sureties, stealing more than $3 million in total.

There are several aspects to litigation funding. In this instance, the case centers around advancing money to victims expecting a payout on a claim in exchange for a share in the proceeds and then the double-pledging of that share to different investors. 

As a lawyer who works closely with litigation funders, I find this scenario disappointing. Stories such as this may lead to the integrity of the litigation funding industry being called into question.

From the outset, litigation funders are commercial enterprises. They work hard to profit from their endeavors. For funders to engage, there must be a significant claim to invest in. Civil litigation is extremely expensive, especially when investigating complex cross-border fraud and asset recovery matters, as firms like ours do. But there is another side to this that many overlook: the plight of the victim in major fraud cases.

If you are a fraud victim, it is currently almost impossible to have law enforcement intervene and prosecute your case. Some of the reasons for this are obvious, including a lack of resources and the difficulty in meeting the high burden of proof for a criminal prosecution.

If you meet with law enforcement, one of their go-to responses will be that this is a civil matter and, therefore, they can’t become involved. In fact, this is rarely the case and is simply a way for police to dodge a costly and time-consuming bullet.

If, for argument’s sake, these situations are to be treated as civil matters, what then? The victims, in some instances, have lost their life savings. In others, companies have been dragged to the threshold of bankruptcy by crooks who don’t care about the consequences. In both instances, neither the individual nor the company can afford to embark upon costly civil litigation intended to recover their losses.

Cases of this size are too big and too expensive for lawyers to undertake on a pro-bono basis. This is where funders come into play. If you are a victim and several millions of dollars out of pocket, and a funder offers to support your legal process for a proportionate share of any success, then most will gladly sign-up; without the funder, all is likely lost, and usually, it is better to recover something than nothing. 

We need to dispel the perception that litigation funders are some kind of “vultures.” I believe that they have a valuable and significant role to play, especially when bringing justice to victims. Without funders, these victims could potentially lose everything and have little or no access to justice. 

When one thinks about their role in this context, very few of us would shy away from signing up to an agreement with a litigation funder, even if this meant giving away a percentage of any recovery. It is this perspective that I would bring into focus. 

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With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).

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