*** Pandemic Is Expected to Bring More Lawsuits, and More Backers
An investment strategy that funds lawsuits is expected to grow as more companies become involved in litigation during the economic downturn. "Peter Suarez has invested in litigation financing since 2015. His return is 38 percent, but losses can be big, too," an investor says. "I'm not a lawyer, I'm just a guy who likes to have fun," a lawyer says.
LexShares got its start as a fundless sponsor in 2014. Bigger firms are primarily backed by pension funds and sovereign wealth funds, but LexShares counts many individuals as investors. They all have to be accredited investors, which means they have more than $1 million in investable assets or an annual salary greater than $200,000. It is raising a second fund, at $100 million, only two years after its first $25 million fund.

“We’re coming back because these deals fill up so quickly, so it’s hard to create a diversified pool of these investments,” said Jay Greenberg, chief executive of LexShares. The fund has a 70 percent victory rate, he said, but only 43 of 103 cases have been resolved.

As in other fund structures, the litigation funds are paid a management fee and then take a hefty cut of the settlement, depending on the success of the case. With litigants, the funds negotiate their return up front. In some cases, it’s a percentage of the settlement; in others, it’s a multiple of the money they invest depending on how long it takes for the case to settle. If it takes three years, for example, they might ask to be paid back three times their money.

In all cases, the investment is nonrecourse financing, meaning if the company or lawyers lose the case, they don’t owe the investors anything. This aspect is appealing because law firms and companies can minimize some of their risk while still having access to working capital. It’s also why investors need to ensure that they spread their money across many cases.

“There isn’t any case I’d put more than $25,000 in,” Mr. Parizek said. “There are some I liked and thought it would be great to put in $250,000 and win big, but you never know.”