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January 14, 2014

Litigation Financing in the U.S.

Third party litigation financing (TPLF) is a practice that is more common overseas than in the United States but that could be changing, reports the Wall Street Journal.

“There is no oversight, no regulation, nothing dealing with conflicts of interest or disclosure [of funding agreements], either to the defendants or to the judge,” ILR president Lisa Rickard told the Journal.

Underscoring the growth of litigation funding in the U.S., the New York Times is reporting that a fund has raised hundreds of millions of dollars to invest in litigation.

Litigation funding agreements can be shrouded in secrecy, produce windfall profits for third party funders, and lead to conflicts of interests due to the relationship between funders and lawyers. Look no further than Australia, the birthplace of TPLF, where total settlements in mostly TPLF-led securities class actions topped $480 million in 2012, bringing the total value to more than $1 billion over the last twenty years. If litigation funding continues to grow in the U.S., the problems that have been seen elsewhere in the world, such as Australia, have the potential to grow to an even larger scale.

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