Difference between revisions of "Initial Litigation Offering"

Revision as of 07:08, 11 February 2022

Initial Litigation Offering is an offering of blockchain tokens, allowing funding and gamification of the US court systems. The US legal system has recently been utilized as an asset class with litigation financing, providing returns on investment. The utilization of blockchain technology to crowdfund litigation in cases where a plaintiff may be liquidity constrained allows regular people to invest in litigation with crypto tokens. When financial settlements are given to successful plaintiffs, returns are given to investors on their initial capital. Funding legal efforts directly in courts is a fairly new phenomenon, beginning with the passing of the Obama JOBS act in 2012, leading to increased decentralization in funding efforts. Blockchain has more recently entered this niche due to its inherently decentralized nature and ability to be used for high security encrypted contracts.

Rise of Litigation Financing

With legislation barriers removed, litigation financing as an asset class opened up a plethora of opportunities for investors seeking an asset with consistent returns uncorrelated with the state of the economy. Other developed countries like Australia and the United Kingdom have used litigation financing type structures with class action lawsuits. These countries allow claimants to submit funding to a case and collect financial reparations when the case is settled. The United States did not use any form of this type of financing for class action lawsuits until the rise of litigation financing. Essentially, litigation financing allows for common investors and institutional investors to fund plaintiffs in court cases where they see fit, and they receive portions of any financial settlement in return. Several years after the Obama JOBS act, which opened many doors to such investments, the COVID-19 pandemic began a period of economic unrest and the need for hedging against an uncertain market. Both law firms and corporate legal teams have utilized the various marketplaces now available to raise capital for litigation financing. In 2020 alone, over $2.47 billion was deployed into commercial litigation financing, showcasing rapid growth and the designation as a safe haven asset. The average size of a total transaction was around $7.8 million, meaning each case raised around this amount. In addition, around 46 active litigation funders were identified in the US with a combined assets under management value of $11.3 billion in 2020, which is an 18% increase from the prior year.

Obama JOBS Act

At the start of his second term, President Barack Obama signed the JOBS act, which aimed to reduce barriers to investment and spur startup growth across all industries. Part of this act involved allowing increased funding of investments by accredited investors, and securitizing these assets. Allowing micro-loans and funding from investors granted equity in all investments, even in legal offerings. The Obama JOBS Act was not initially intended for such types of crowdfunding, but rather to help startups gain rapid equity investments through applications like Kickstarter, which aimed to secure small amounts of angel funding from family and friends, who could then send a link around to raise awareness and further funding. In the case of litigation financing, companies and law firms began to fund defense efforts and the accredited investors who agreed with the cause were able to donate. Yet because the financing required a specific equity investment, this opened up an opportunity to make investment gains through the court case as an asset by itself.

LexShares

LexShares was founded shortly after the JOBS act in 2014, creating a marketplace for defendants to receive funding from investors and quickly becoming the industry leader for litigation financing across all types of clients and investors. This is primarily a digital medium used to fund plaintiff's cases and does not involve in directly affecting case outcomes in court. LexShares has funded millions of dollars in cases and returns pre-set portions settlement money back to investors as if the legal case were an asset. The primary aim of LexShares is to support smaller plaintiffs against larger defendants in cases where they see wrongdoing, and would believe the public also would sympathize with the plaintiff. Being a marketplace and financing company, LexShares also allows for portfolio investments, meaning the financing of multiple cases can be bundled together into one fund for investors. The key selling point according to LexShares of their asset class appears to be the emphasis on "justice" within the business, and the fact that the litigation financing asset class is largely uncorrelated with the market and can prove to be a "safe haven" asset. LexShares assures no control over the prosecution in a vast majority of cases and many major accredited investors both within and outside of LexShares have made large investments in litigation finance, leading to upside returns.

Use of Blockchain for ILO Financing

Blockchain technology, which is immutable and encrypted, can be used to create unique tokens and coins for decentralized investment in various assets. Tokens and cryptocurrencies can be used to either create alternative currencies or a form of backing for a specific asset class.

Tokens

Smart Contracts

Avalanche Labs

Apothio LLC vs Kern County et al

In the case of Apothio LLC v Kern County, an Indiana hemp producer

Ethical Concerns

The primary ethical concern surrounding ILOs and litigation financing in general is the fact that it is wholly unregulated by the federal government. As a result, there is no way to protect against powerful investors potentially swaying legal proceedings and manipulating verdicts to redirect settlements. In turn, witnesses or jurors may be invested at some point during the trial unknowingly, whether it is part of a portfolio investment of individually.

References

https://ryval.market/ https://www.avax.network/ https://republic.com/apothio https://cryptoslate.com/initial-litigation-offerings-ilos-show-blockchain-isnt-a-solution-looking-for-a-problem/ https://www.institutionalassetmanager.co.uk/2020/12/15/293542/initial-litigation-offerings-bring-usd10bn-asset-class-avalanche-blockchain https://www.businesswire.com/news/home/20210127005148/en/2.47-Billion-of-Capital-Deployed-Last-Year-Across-U.S.-Commercial-Litigation-Finance-Industry-As-Growing-Sector-Weathers-Pandemic-Storm https://www.lexshares.com/?utm_campaign=Google%20Ads&utm_source=ppc&utm_term=LexShares&utm_term=lexshares&utm_campaign=LEXSHARES+%7C+Apr+2018&utm_source=adwords&utm_medium=ppc&hsa_src=g&hsa_ver=3&hsa_grp=54470404736&hsa_net=adwords&hsa_acc=5450014216&hsa_mt=e&hsa_cam=1348828778&hsa_kw=lexshares&hsa_ad=389384394214&hsa_tgt=kwd-314132464746&gclid=Cj0KCQiAosmPBhCPARIsAHOen-N6JaNTx8cMSgmakRSqXZaOQYdXDAaWVoTTc86CF68MlsoEyW4iMLYaAgfVEALw_wcB https://www.nytimes.com/2012/04/06/us/politics/obama-signs-bill-to-ease-investing-in-start-ups.html https://www.seedinvest.com/how-it-works/regulation-cf https://law.justia.com/cases/federal/district-courts/california/caedce/1:2020cv00522/372089/72/ https://www.degruyter.com/document/doi/10.1515/til-2018-0004/html?casa_token=HMr-fnws9fYAAAAA:fIcLa9K-y4u2pYdh7kt9ISlcWBh2RnsRNz3qQ4JrzBNi2VtWZomqhAQllBdIoVNbQITGxablKJM