A multi-billion dollar industry is quietly reshaping the American legal landscape—and nearly all of it operates without regulation or transparency. Litigation funding, in which investors pay for lawsuits in exchange for a share of any winnings, has exploded in recent years, raising profound ethical and policy questions.
“It’s actually safer in today’s environment to invest in litigation than in the stock market,” Christopher Bogart, CEO of Burford Capital, the world’s largest litigation funder, told 60 Minutes.
How It Works
Litigation funders provide non-recourse financing—if the case loses, they get nothing. In exchange, they take a significant percentage of any award. Burford, which has $5 billion invested in lawsuits, typically expects to “largely double our money” on average.
The model can help level the playing field for plaintiffs unable to afford protracted litigation against well-funded corporate defendants. Craig Underwood, a California farmer, used litigation funding to continue his breach of contract lawsuit against Huy Fong Foods, the maker of Sriracha hot sauce, after the company abruptly ended their relationship. He won a $23 million judgment but had to pay his funders $8 million to satisfy a $4 million investment—a 100% return.
“Some people might think that was predatory,” Underwood said. “I didn’t feel that way because they stepped in and helped us out when we couldn’t have gotten money from anybody else.”
A Growing Market
Burford represents just one corner of a rapidly expanding industry. Hedge funds, foreign government funds, and wealthy individuals are also entering the market. But because most jurisdictions lack regulations, litigation funders often remain anonymous in court proceedings .
In 2012, billionaire Peter Thiel secretly funded Hulk Hogan’s invasion of privacy lawsuit against Gawker Media, ultimately driving the website out of business—a case of litigation funding used to settle a personal score.
Predatory Practices in Consumer Funding
A separate category of litigation funding companies offers quick cash to individuals suing over personal injuries. But the rates can be staggering. Donald Seph, a former NYPD officer entitled to $90,000 from the 9/11 Victim Compensation Fund, borrowed $2,000 from R&D Legal Funding. He was required to repay $64,800—a 150% effective interest rate.
Seph’s lawyer called the contract “very confusing. I couldn’t even understand it. I’m a lawyer, 40 years.”
The New York Attorney General sued the company, which settled in November, providing $600,000 in debt relief and agreeing to stop doing business with 9/11 compensation fund recipients—while paying a $1 penalty.
The Case for Regulation
Law professor Maya Steinitz of the University of Iowa argues that litigation funding is essential for accessing justice in an era of expensive litigation.
“The courts in this civil process is a luxury good in today’s America,” she said. “It’s simply too expensive to bring your case in court.”
But she argues the industry needs regulation.
“Funders are not regulated. There’s nothing precluding them legally from pressuring a client to settle,” she said. “All of this is happening without transparency. We have one of the three branches of government, the judiciary, that’s really being quietly transformed, and there’s very little oversight.”
Even the U.S. Chamber of Commerce, which generally opposes regulation, has called for oversight of the industry—a recognition that litigation funding poses a significant threat to corporate defendants.
“Accessing the courts is a luxury good in today’s America,” Steinitz said. “So if you’ve been injured, if you’ve been discriminated against, if a contract that you have entered into has been breached, it’s simply too expensive to bring your case in court. I think litigation funding is essential. However, I think litigation funding should be regulated.”
