First it was guns and then guitars; but now the ultimate American investment vehicle has arrived: lawsuits.
With millions of lawsuits filed in the U.S. paying out billions of dollars a year, the thought of investing in the outcome of huge litigation is an appealing investment opportunity. The NY Times reports that one company facilitating these investments has seen returns of greater than 20% for litigation investments!
Litigation investment isn't limited to one or two small firms; many hedge funds also invest in litigation, and there are numerous specialty investment firms. You can even invest in the IPO of a company whose only asset is the outcome of a 13-year-old lawsuit.
That's right, for the low price of $1, you could invest in the outcome of a $5 billion dollar lawsuit! If mismanagement lawsuits aren't your bag, and you'd rather invest in personal injury lawsuits, that's easy to do as well. There's a company in Florida called Injury Funds Now, which solely provides financial backing or personal injury lawsuits.
One of the upsides to lawsuit investing is that it can help get cases heard in a court of law where the plaintiff couldn't otherwise afford the cost of going to trail. In some cases these investments pay for legal fees and in others, like the $5 Billion dollar IPO and Injury Funds Now examples, they provide living expenses for the claimants.
One of the major downsides, also noted by the NY Times, is that there will be more individuals and companies invested, literally, in the outcome of a case which could lead to meddling. Another issue is that unscrupulous investors could back frivolous lawsuits in hopes of scoring a big payday for a company who settles rather than fights; this would clog up courtrooms and raise the cost of purchasing the company's goods or services.
This is certainly one of the most interesting investment vehicles I've come across, and if the claims of 20% returns are accurate, possibly one of the more lucrative investment opportunities in the recession. Just keep in mind that the outcome of lawsuits can be delayed or changed by many factors. Before you invest, check out this list of questions from LawMall to ask about lawsuit investing.
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