Investing in Lawsuits?!!
In yesterday's New York Times, Jonathan D. Glater wrote about Juridica Capital Management's investments in company lawsuits in return for a share of any damage award. CEO Richard W. Fields crowed, "It's always a good time to invest in litigation." Juridica Investments fund has risen 24% on the London Stock Exchange since December 2007 and has about $200 million under management now.
As an economist, I've often been struck by the cost of litigation and how justice seems to exist only for the well off. Why shouldn't an investor keep a lawsuit going for a firm that doesn't have the wherewithal to fight a behemoth? On the other hand, if this takes off, will we could see venture funds instigating lawsuits against targets of opportunity. Anyone who has followed asbestos litigation knows how punishing that litigation became for firms that barely had any connection to cancers that arose in workers decades later. Enforcing property rights is very important for a well functioning economy, but burdening firms with frivolous, but successful, litigation could be a significant cost as well.