About Consumer Alternative Litigation Funding

Financial Planner Software Updates

The TPF is one of the firms that pay the big-bucks for those ads (and is where some of the funders' money goes).

First, the gist of it is that you (an investor or an RIA investing for your clients) are lending money to the TPF company. This money is then used to pay for (fund) all of the following activities.

The big thing to remember is that these major (mostly medical product liability) lawsuits have already been won. The deal is done, the bad people / corporations have been convicted, there's no more appeals, and the court has ordered them to be punished - in the form of paying uber-money into a court-administered escrow account.

So the defendant(s) have already lost and paid their money in damages to the injured parties. This huge pot of money is now sitting in escrow waiting to be distributed to people that have been harmed. So the vast majority of the hard work has already been done.

The heavy lifting was getting the legal system to convict these corporations of wrong-doing, and to make a settlement to punish them so they won't do it again, to deter the another corporation from going down the same road, then to put the money in escrow so they can't control it anymore. So that's all a very done deal, nothing more needs to be done.

The injured parties just need to become aware that they may be entitled to their money. Then they have to do the work needed to file a claim.

Then their claim has to go before a judge to ensure it's valid, and they qualify as someone that's been harmed (AKA fitting pre-determined insurance underwriting guidelines).

When that's done and won, their part of the money that's waiting for them in escrow is paid to the attorneys. Then they pay everyone in the process. The funders get paid first, before anyone else does.

So the first step is to do things like run those annoying ads on TV to get the information out. This is also where some of the funders' money goes.

Then people that think they qualify see the ads, and call into to their call centers (which are also funded by funders).

Then a groups of screeners do their things (including paying for medical exams) to see if the potential plaintiff actually qualifies to collect some of these funds. This is expensive, so most of the funders' money goes to pay for these folks (very little goes to the partnering law firms).

Then the TPF packages qualified plaintiffs / cases, and sends them to one of the nine partner law firms to litigate in court.

TPF law firms also pay the partner law firms an expense for each case. This is where the partners pay off the funders at the end of the process. So there's little-to-no gambling with funders' money.

Then over 90% of all cases "fund." This means everything went as planned, the plaintiff got their money from escrow, and everyone was paid.

Plaintiffs that don't qualify are screened out, and those that do qualify have individual suits filed against the escrow account. This is also where some of the funders' money goes. This is also why each case is handled as a $10,000 non-recourse loan.

When funders fund, it's in $10,000 chunks. So each chuck goes to fund an individual case (suit). So if you loan them $100,000, then you're funding ten cases.

Then if and when an individual case wins, everyone is handsomely rewarded (because the bottom-line payout to the plaintiff from escrow is usually plenty to pay everyone in the process back). This is where the funder gets their non-recourse loan paid back.

That's about it in a nutshell. There's not much more to it than that.

If you loan the TPFs money, then you're a funder. Your funds fund lawyers (that pretty much do nothing but this) to bring individual cases to court. Since the vast majority of the heavy lifting has already been done, and people have already been screened, it's basically just pushing paper through the court system (if the plaintiff qualifies, they pass medical exams, and is not screened out along the way, or they don't want to endure the process, etc.).

The screeners ensure the plaintiff qualifies before the medical exams to prove it are funded. After that, then it's sort of a well-refined paper-pushing factory that spits out money, and pays everyone off, at the end of the process.

Then the people that fronted the money (you, the funder) needed to pay the factory to push the paper, are well rewarded for taking these risks.

That's the deal in a nutshell.

So far, there's no mutual fund or ETF that one can "invest in" to have all of your loan be a part of this action. There are a few mutual funds that invest a small portion of their assets into this business (e.g., Alliance Bernstein). So if you invested in those, then less than 10% of your money would get a piece of this action.

So being a direct funder is the only way to put all of your money to work to get a pure piece of this action.

This is, should be, and is growing up to be, a sub-asset class all in itself; as there's nothing else like it.

Here's an analogy compared to traditional funding vehicles: Other than not being FDIC insured - it's similar to a medium-risk two- to three-year CD, usually with no early surrender charges if you chicken out and want your money back before 24 months; that pays between 125% to 150% at maturity.

The risks are higher than a CD, even with the Contractual Replacement Guarantee. There's hundreds of cases in the pipeline at any point in time, so if it looks like a case isn't going well (especially in the first 45 days), then it's replaced for free. In other words, if your $10,000 chunk looks like it's going to fail, then they'll replace it for free with a fresh one.

As you may know, there hasn't been a new asset class to use to diversify an investment portfolio come along, for what, over fifteen years now? The last one was Internet in 1996, unless you think water is a sub-asset class, then 2012.

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