Securities and Shareholder Lawsuit Financing
In 2023, there were 44 mega Maximum Dollar Loss (MDL) filings with a total of $2.9 trillion, a 30% increase from 2022 and the second-highest value on record.
– Cornerstone Research/Stanford Law School Securities Class Action Clearinghouse
THE SECURITIES AND SHAREHOLDER
Securities and Shareholder Lawsuit Financing by Pravati Capital
Companies have a responsibility to make decisions that are in the best interests of their shareholders. When they neglect this duty or outright defraud their shareholders, lawyers specializing in securities and shareholder actions may be called to represent investors who want to file suit.
Taking Securities and Shareholder Actions to Court
According to Cornerstone Research, one in about eleven S&P companies was sued in 2018, and “the likelihood of litigation involving a core filing for U.S. exchange-listed companies was greater than in any previous year.” Companies are obligated to inform shareholders when they have information that can impact the share price—and when they don’t, problems arise.
Securities and shareholder actions usually end up as class action suits due to the sheer number of shareholders. While this can streamline the court process, class action suits can hamper a lawyer‘s ability to maintain operations and market for future clients.
Why finance your lawsuit?
A corporation may have a large number of investors, especially if it is publicly traded. In the event of alleged corporate wrongdoing, the large pool of potential plaintiffs can mean the potential for sizable damages.
Although the facts and law at issue in these cases vary considerably, many share common characteristics:
- Court filings to obtain class action certification;
- Discovery of large amounts of corporate and financial records;
- Documentation review based on proxy litigation;
- Expert witness involvement;
- Numerous witness interviews;
- Travel expenses.
Discovery in this litigation often seeks documents and records the corporation deems confidential. As a result, the parties may use significant resources to litigate the discoverability of such records. Firms engaging in this kind of litigation need to be able to accommodate these costly and time-consuming dynamics.
Litigation Funding as a Tool for Lawyers
Access to capital is paramount for lawyers and firms specializing in securities and shareholder actions. Incoming funds are constantly needed to pay for staffing, expert witnesses, and cover shortfalls after taking on a contingency case.
Conventional financing methods set strict terms on how capital may be used and often require personal guarantees from one or more senior firm members. Further, the amount financed is reflected on the firm’s balance sheet until it is paid in full, regardless of whether the case resolves favorably.
Law firm funding provides a flexible financing alternative to conventional funding methods. This form of financing helps law firms meet the rigorous demands of representing securities and shareholder clients without negatively impacting firm balance sheets. Terms are tailored to each firm’s circumstances, and the firm remains in charge of both directing the course of the litigation and allocating the capital.
FAQs
How much will it cost to get funding for a securities and shareholder action case?
Often more affordable than other forms of financing, the rates and terms of each fund agreement are created individually.
What does my firm need to offer as collateral?
The cases you’ve taken on are underwritten to determine their likelihood of success and to serve as collateral. Additionally, the funding is non-recourse.
At what point in the case should I apply?
That depends on when you need the funds. Once the case is established or, in class actions, certified to proceed, you can apply whenever you need the funds
