Investing In Lawsuits

Spreading risk and reward from big lawsuits makes sense. They can pay out billions, but involve huge upfront costs and take years to resolve. And of course, the value of a losing case drops to zero. Some $30 billion in litigation finance already circulates in an ad hoc fashion, according to Koutoulas. He aims to create tradeable securities, which can be bought or sold at various stages of a lawsuit’s progress, from inception to settlement or judgment.

“You’ll see two or three turns on these cases,” he explains. “We allow investors to pick when they want to come in, like VC investors pick the A-round or C-round.”

Koutoulas draws on his experience helping customers of bankrupt derivatives dealer MF Global recoup $6.7 billion from bankruptcy proceedings a decade ago. Launched in March, Miami-based JurisTrade has so far listed nine cases, with drivers ranging from California wildfires to sexual assault and a nominal recovery value of $70 million. It’s a start.

Not that JurisTrade aims for a Bloomberg ticker and retail investment flows. “This is very much a big boy world,” Koutoulas says. “Every investment is very bespoke.” The exchange’s minimum stake is $500,000. In practice, he says the investors are institutions and family offices that deal in much bigger sums.

Lawsuits lack the transparency that moves stock and bond prices: financial statements, profit guidance, and ratings agencies. Early-stage investors rely heavily on the track record of the litigating firm and “descriptions of the case without the parties’ names,” Koutoulas says.

He explains that this is potentially good news for plaintiffs’ lawyers who want additional funding to pursue their other cases, but it may not be such good news for corporate defendants. “The big opponent of litigation finance is always the chamber of commerce, which claims it will generate more frivolous suits,” says Koutoulas.