StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Investing in Lawsuits?!!

04 Jun 2009
Posted by Pete Davis

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.

 

 

 

This is old news in the tech industry

People have been selling shares in patent litigation for 20 years or more. It helps finance a small company's battle against a "big boy". I suppose it's reasonable to extend that to other torts. Equity is not available if one side can win by requiring too much spending.


Bill Lerach

Esentially this is what now imprisoned San Diego lawyer Lerach did. He had a stable of professional investor litigants in the wake of the 1988 Supreme Court decision in Basic v. Levinson.

Whenever a stock--often a Silicon Valley venture--saw a price drop of over 10% Lerach raced to the courthouse to sue. Which gave him a license to plow through the firms paperwork looking for an ACTUAL reason to sue.

Arthur Levitt, then head of the SEC, worked with the Republican congress to control these lawsuits, resulting in the Private Securities Litigation Reform Act of 1995.

Though little was accomplished by that act. It did allow me to catch both Paul Krugman and Ben Stein shilling for Lerach in 2002, which was its own reward.


well..

..I'd be more impressed by both the asbestos and Lerach examples if I didn't know their history. Don't real conservatives hate shortsighted, self-dealing managers who provide an opportunity for the asbestos- and securities-litigation ecologies to develop?

Competent management would have forestalled both.


Alternate history?

Okay, wcw, let's hear your version of Lerach's M.O.




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