According to Gary Barnett, executive director for the International Legal Finance Association (ILFA), the concerns that foreign entities are influencing US litigation through third-party financing are groundless. The recent report illuminates that the estimated $13.5 billion litigation finance industry has been scrutinized considerably in the past year.
A bipartisan bill has been introduced in Congress to require litigation disclosure of foreign entities investing in federal courts. This legislation would also prohibit foreign governments and sovereign wealth funds from investing in cases. Certain states and federal courts already require the disclosure of third-party funding.
ILFA is the representative battling against the disclosure on behalf of the commercial litigation finance industry. The group largely attributes the U.S. Chamber of Commerce for increased scrutiny of outside funding in lawsuits, which they view as scaremongering.
Globally, two major litigation funding investors – Burford Capital and Fortress Investment Group – who have significant investments from sovereigns, are rarely disclosed. In particular, Burford Capital has an $872 million funding arrangement with a sovereign wealth fund. Fortress Investment Group, currently raising its second fund to invest in legal assets, is in the process of having 90% of its equity acquired by Mubadala Investment Company, a sovereign investor based in Abu Dhabi.
In response to efforts to enforce disclosure, Gary Barnett argues that it has not gained significant traction, despite the bill being raised in Congress and similar legislation in some states achieving modest success. Barnett asserts that most are not opposed to disclosure, but the requirement of disclosure in every case can complicate matters than proving worthwhile, prolonging the duration and cost of litigation.
Given the recent closure of Validity and the attempt of Woodsford to sell off its passive US assets, Neil Purslow, ILFA Chairman and Chief Investment Officer at the UK-based litigation funder Therium, believes that the legal finance industry still offers diversification advantages within a portfolio. The constant change in the legal finance industry and scrutiny of the third-party funding feasibly suggests the industry may face more future regulations.