The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Litigation Funding

  • From Vol. 6 No.42 (Nov. 1, 2013)

    Hedge Funds Realize Material Return by Funding Litigation Over a Tax Refund in a Bank Holding Company Bankruptcy

    Litigation funding – generally, debt, equity or other investments in third-party legal cases – can offer absolute and uncorrelated returns.  See “In Turbulent Markets, Hedge Fund Managers Turn to Litigation Funding for Absolute, Uncorrelated Returns,” The Hedge Fund Law Report, Vol. 2, No. 25 (Jun. 24, 2009).  In a recent example of a successful execution of such a strategy, several hedge funds funded litigation on behalf of a bankrupt bank holding company involving a tax refund dispute with the Federal Deposit Insurance Corporation (FDIC).  Those funds are poised to profit handsomely following a decision by the U.S. Bankruptcy Court for the District of Delaware (Court) in favor of the bank holding company.  The four hedge funds financed the tax refund litigation on behalf of the bank holding company after the bankruptcy trustee ran out of money to finance continuing litigation.  The hedge funds also held notes issued by the bank holding company.  At issue was whether a huge tax refund was owned by the bank holding company or by a bank subsidiary.  If the bank subsidiary owned the refund, its receiver, the FDIC, would take it all.  However, if the bank holding company owned the refund, the FDIC would have to share it with other creditors of the bank holding company, including the hedge funds and other noteholders.  This article summarizes the facts of the case, the Court’s legal analysis and the anticipated distribution of the tax refund.  This article also identifies an ongoing bankruptcy that is factually similar (i.e., a bank holding company bankruptcy involving a dispute over a sizable tax refund) and may therefore lend itself to a similar litigation funding strategy.

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  • From Vol. 5 No.25 (Jun. 21, 2012)

    How Can Hedge Funds Mitigate the Risks of Investments in Litigation? An Interview with Kenneth A. Linzer

    Investing in litigation, like investing in hedge funds, can generate returns that are not correlated with the returns on other assets.  In an environment in which previously disparate assets are moving in unison – in large measure, being dragged down all at once by Europe – uncorrelated returns are coveted and hard to come by.  Litigation funding therefore offers an attractive opportunity for hedge fund managers as well as hedge fund investors.  However, litigation funding involves a litany of unique risks.  To help hedge fund managers, hedge fund investors and others unravel some of these risks and see more directly to the potential merits of the strategy, The Hedge Fund Law Report recently interviewed Kenneth A. Linzer, Esq., founder of law firm Hobart Linzer LLP.  We posed questions to Linzer on the following topics: the definition of litigation funding; types of investment managers and specific names active in the space from a sourcing and management perspective; the types of entities and specific names that invest in litigation or litigation funding vehicles; typical structures whereby investors in litigation make such investments; how to “value” litigation for purposes of equity-like investments; the “market” for key terms of debt-like investments in litigation; how to surmount the time issue; sourcing; due diligence; substantive legal areas that lend themselves to litigation funding; whether litigation funding has a role on the defense side; champerty; policy; and performance of the strategy.  The full text of our interview with Linzer is included in this issue of The Hedge Fund Law Report.

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  • From Vol. 2 No.25 (Jun. 24, 2009)

    In Turbulent Markets, Hedge Fund Managers Turn to Litigation Funding for Absolute, Uncorrelated Returns

    As economic recovery lags and absolute, uncorrelated returns remain hard to come by, litigation funding – an investment strategy that has been popular in the U.K. and Australia for many years – is gaining traction among U.S. hedge funds.  The strategy essentially involves advancing a portion of the costs of a lawsuit in exchange for a multiple of the investment paid out of any damages or settlement.  This article provides a thorough overview of litigation funding, based on interviews with leading practitioners in the field, including discussions of: finding investment opportunities; the unique due diligence process; how litigation funding deals are structured; relevant legal concerns, including champerty and maintenance; attorney-client privilege issues; avoidance of influence on the litigation; the appeal of litigation funding as an investment strategy; and who is investing in the strategy.

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