Sex tapes, lawsuits, and profit
You may not be aware, but, in a round-about way, hedge funds are appearing in court rooms more and more.
Take the Hulk Hogan case for example.
Over the last 48 hours, media has been rife with the news Peter Thiel, one of the so-called ‘Paypal Mafia’ was effectively bankrolling Terry ‘Hulk Hogan’ Bollea’s multi-million defamation lawsuit against website Gawker.
Gawker had published a sex tape featuring Hulk Hogan.
Hogan sued and was successful in being awarded $140 million after a Florida jury found the publishing of the sex tape wasn’t in the public interest.
It was an amount the publisher gawked at (pun fully intended) – but what the jury and many didn’t know until now was that Thiel gave Bollea $10 million to mount his defence.
In an interview with the New York Times (where you can read the full background on the case), Thiel said the funding was part of a larger agenda against Gawker – the publication which had effectively outed him as gay back in 2007.
As people digested the news that Thiel was secretly bankrolling the case, all kinds of juicy questions around whether or not money and power should reach that far into the justice system entered into the discussion.
Here was a multi-billionaire using his wealth to effectively influence the law of the land and actively go after an organisation using his financial muscle.
People, pretty rightly, were uncomfortable with the idea that money could effectively buy a way into the court room and decide which cases make it to trial and which don’t.
Add the rise of the class action lawsuit and you have a heady mix of power and politics potentially influencing court room decisions.
You’d be surprised to learn that hedge funds are already funding litigation in the hopes of seeing a profit.
It’s known as lawsuit funding – and it’s a growing trend in the US.
Hedge fund EJF Capital made waves early last year when it announced that it was moving into the litigation funding game by bankrolling several law firms who were pursuing mass class action law suits – in return for a slice of the payout should the case be won by the plaintiff.
It was quick to point out that it didn’t actually play a role in which cases the law firms decided to pursue – but this was big money effectively greasing the wheels of litigation.
Would many of the class action law suits have made it this far without the EJF funding?
At a time when the rise of the class action lawsuit has caused consternation in the legal profession, do we really need another source of capital to enable even more class actions to come to the fore?
Many advocates of litigation funding point out the cost of mounting a case is increasing at a rapid rate and it can be difficult for those not well-resourced to make it to court to seek some kind of justice or remedy without the cash.
Would Hulk Hogan been able to take Gawker to court if Thiel hadn’t tipped $10 million into the defence?
Of course it goes beyond wrestlers and sex tapes – many bankrolled class action lawsuits involve things like taking a bank to court over exorbitant credit card fees and the environmental destruction of a key area.
There is a legitimate place for litigation funders looking to take a profit – and several mechanisms exist to keep cases from being called solely for this purpose, but does commercialising the legal system really lead to great outcomes?
Companies such as Burford are starting to spring up solely to fund litigation.
Burford was behind the law suit against Chevron on behalf of Ecuadorians for environmental damage – and one key figure, attorney Steven Donzinger, loomed large.
He was successful in initially persuading an Ecuadorian court to slap Chevron with a $19 billion fine, but Chevron managed to secure a ruling in New York after alleging the suit involved coercion, bribery, and fabricated evidence.
By that point in time, Burford had sold off its ‘stake’ in the litigation to another investor, according to Bloomberg.
Did attempting to secure a return for his investors play any sort of role in Donzinger’s alleged coercion, bribery, and fabricated evidence?
It’s a tricky area – to say the least.
What’s more surprising is that the litigation-happy US jurisdiction isn’t leading the practice, rather places like the UK and little old Australia are leading the way.
Australia has the world’s largest litigation funder, IMF Bentham.
It’s listed on the ASX, too.
IMF Bentham boasts impressive numbers in its investment portfolio.
Again, there are some rules around this behaviour so it doesn’t get out of hand – but it’s an interesting thing to consider.
While everybody is shocked that a Silicon Valley billionaire is funding a wrestler’s sex tape case in what appears to be an attempt at some kind of revenge – hedge funds have been trying to profit from the legal system for years.
What’s more shocking?
Short-term positions in small, early stage ASX companies,
with high potential and near term price catalysts.
Focusing on resource exploration, early-stage tech, and biotech.
Exceptional opportunities across a broad range of
early-stage growth sectors with strong management.
Seeking 1,000% plus returns across medium to long-term holds.
Longer-term positions in a variety of sectors.
Seeking strong management where traction is established and have entered into a growth phase.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.