Saturday, 18 January 2014

Third party funders & profiting from arbitration

Table 3 Buying into arbitration – some prominent third-party funders Burford Capital (US) The largest litigation funder in the world claims “a particular specialty in investment treaty arbitration [...] often mak[ing] the difference between a meritorious case being heard and needing to be abandoned” Juridica Investment LTD (UK) Juridica gained unwanted fame over an ongoing feud with its ex-client S&T Oil. Juridica first sponsored the firm’s claim against Romania with a US$3 million injection, but wanted its money back when the case was abandoned. S&T accused the funder of having an “unethical” business model and of fraud Omni Bridgeway (NL) One of the oldest litigation funders specialises in distressed debt in emerging markets. Investors, who are waiting for their money from an arbitration award against Argentina, are invited to “contact [Omni] for advice” Fulbrook Management (US) Fulbrook was only founded in 2011, by the co-founder and ex-chair of Burford , Selvyn Seidel. Seidel is probably the frontrunner in the industry and advocates a more active role for financiers in arbitrations – to drive up their value. Calunius Capital (UK) Calunius made the headlines with two recent investment disputes in the mining sector. It is sponsoring Canadian company Rusoro in a claim against Venezuela and British firm Oxus Gold’s US$400 million arbitration against Uzbekistan. Just how much money can third-party funders make ? Top tier financier Burford commits on average US$8 million to a case, while Juridica averages US$7.5 million9. Returns vary between 30 and 50% . No wonder litigation funders’ profits have been growing at staggering rates. Burford’s profits grew ninefold on their 2010 levels in 2011 . In the same period, Juridica saw a 578% growth in its profits . There has even been talk of third-party financiers creating new ways to maximise profits, as outlined by Fulbrook Management’s founder and chairman Selvyn Seidel: “There are other products we’re considering [...] Anything from derivatives, where we fund a single motion rather than the entire case, to a basket of five or six cases put together as a mini-portfolio to give some security through diversification. There is even the possibility – heaven forbid – that we could fund a case and then resell it to third parties, a bit like credit default swaps” . If this all sounds a little bit too familiar, sometimes it is the same investors who enabled Wall Street’s addiction to unrealistic profit margins who are now looking to gamble in litigation. Hedge funds “want to invest, and it is those [hedge funds] that were involved in the distress[ed] debt market, so they are used to it. This is just a new class of risk to them” . They are simply interested in the chance of winning, as John Jones of risk insuring company Aon explained: “In a typical case[,] a hedge fund, acting on behalf of already wealthy investors, will seek to accumulate yet more money – not by investing in business enterprise or wealth creation – but by gambling on the outcome of a legal action for damages. They have no interest in the justice or otherwise of the case – only in the chances of success – as they will demand a share of the damages awarded in return for putting up the stake money” . More from the link above . Litigation Funding: What Are your Options? Mick Smith, Partner & Co-Founder Calunius Capital LLP Gives us his views in Amsterdam Jan 2014

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