The Pros And Cons Of Investors, Like Hedge Funds, Bankrolling Lawsuits


Posted on 15th November 2010 by gjohnson in Uncategorized

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Hedge funds and banks are anteing up “hundreds of millions of dollars” to fund other people’s lawsuits in order to get a share of their awards, according to The New York Times.

In its lengthy Page One story Monday The Times outlined the pros and cons of investors paying for the costly experts and research necessary to litigate medical malpractice and other types of lawsuits. The story, by the way, was funded by the Center for Public Integrity. 

The benefit for plaintiffs is that the investment from outside parties is allowing people who may not have had the resources to sue, despite the merits of their cases, their day in court. Less litigation leads to less justice, as one person told The Times.

But there are a lot of  downsides in this kind of money-lending. By lending money, investors can control or even initiate a suit, or get access to confidential information. Lawyers are not even bound to tell their clients that they have borrowed money to proceed with the litigation. The interest rates on these types of loans are also high, more than 15 percent, according to The Times.

As an example of how lending works, the newspaper cited a case in which New York lender Ardec Funding forked oover $45,000 this summer to a Manhattan attorney who was representing parents with a baby who sustained brain damage at birth.

The attorney retained two doctors, a physical therapist and an economist to appear at the trial. A jury directed the delivering doctor and hospital to pay a $510,000 award, The Times reported.

“Ardec is collecting interest at an annual rate of 24 percent, or $900 a month, until the award is paid,” The Times said. 

The detailed story, headlined “Putting Money on Lawsuits, Investors Share in the Payouts,” raises interesting arguments on both sides of the issue. 

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