Investing in litigation is a gimmick from my next novel, Makers, coming next fall from Tor and HarperCollins UK — the idea is that you can get rich by bankrolling people who have grievances against giant corporations in exchange for a piece of the award or settlement (this is something that plaintiff-side lawyers effectively do when they do work on contingency). I based it on a crusading lawyer I know who raised money from a philanthropist this way, but as far as I knew, that was the only case of it at the time.
No more: investing in litigation is now a sound business strategy, says the NYT:
Mr. Fields is chief executive of Juridica Capital Management. which runs a fund that invests in one side of a lawsuit in exchange for a share of any winnings.
"It's always a good time to invest in litigation," Mr. Fields said, though he added that the weak economy helped. "When the recession started to bite, the phones started ringing off the hook. Last year, we looked at 122 cases and we made 17 investments." A small but growing number of investors are exploring this idea, helping companies avoid some of the risks and costs of litigation in exchange for part of any money paid out when the case is settled or resolved by a court. After all, it can be costly to hire lawyers, who may charge close to $1,000 an hour at the most elite firms.
Credit Suisse has a unit devoted to this kind of investing. Juris Capital, a Chicago firm backed by two hedge funds, also does it. Several other hedge funds do, too.