High Return Investing: How to Invest in Litigation Funding

Going to court can be expensive, especially when one company needs to sue another one. According to "The Wall Street Journal," some litigation funders invest between $2 million and $15 million in each lawsuit that they fund. Litigation funder Gerchen Keller Capital LLC estimates that plaintiffs and defendants spend $200 billion on litigation, so it is a large market. Smaller litigation funding firms might provide money to pay for smaller cases, such as a $45,000 investment in a medical malpractice case.

Investing in litigation funding could put your money to work paying the expenses of different types of cases. Some litigation funders help pay the costs of attorneys who work on contingency to represent people who can't afford to pay them up front. Others provide money to fund corporations that want to sue other corporations but can't afford to bear the entire cost or choose to save their own money for larger cases.

Some litigation funding firms are publicly traded. For instance, "The Economist" magazine highlighted a selection of British companies that trade on the London market but fund lawsuits in the United States, such as Burford and Juridica. Other litigation funding comes from banks, hedge funds and even insurance companies, so if you are in a position to invest in those organizations, you can indirectly invest in litigation funding. Another strategy could be to directly contact legal funding organizations to see if they are actively seeking capital.

Litigation funding is a relatively new field. Two of the largest firms in the field started in 2007 and 2009, so the industry doesn't have much of a track record. Some of the stocks are traded on foreign markets, adding currency risk. Litigation funders also have to deal with the risk of the lawsuit process. If they lose in court, they won't get their projected returns and they could lose their entire investment in the suit.