[bdowling]

> CEO of edisonlf.com, a law firm

Their web site makes it clear that they are not a law firm, they are a litigation finance firm. As I understand it, litigation financing takes away some of the financial risk from plaintiffs and/or attorneys by allowing them to borrow against a future return from a judgment or settlement. For plaintiffs, they can get access to money when a normal bank would not loan against an uncertain recovery. For law firms, they may be able to take cases on contingency without having to advance all of the costs of litigation. Loans are non-recourse, meaning that if the plaintiff loses, then the lender is not repaid and has no way to collect. As you might expect, the interest rates on these types of loans are incredibly high.

[dmurray]

I would think of it as closer to an equity investment: they provide some of the capital and share in some of the upside. And they likely provide some of the things equity investors do: strategic advice, domain knowledge, access to their network, all of which may or may not have value.

In some jurisdictions they may need to structure and describe it as a loan. But a non-recourse high-interest variable-payback-schedule loan is really blurring the lines between equity and debt no matter what you call it.

[bdowling]

> ... blurring the lines between equity and debt no matter what you call it.

I agree that calling litigation financing a loan may be misleading because it could look more like debt or equity, depending on the structure. If the premium is fixed, then it looks like a zero-coupon corporate bond, except with uncertain maturity. If the premium is a percentage of the recovered amount, then it looks more like a stock investment.

The structure will probably also depend on the entity being funded (a corporate entity, a law firm, or an individual plaintiff). For a law firm, there are ethical restrictions on fee-sharing with non-lawyers. For individuals, there may be consumer protection laws that apply. Also, if the structure looks like a loan then laws regulating lenders may apply.

I'm not an expert in this, I just know enough to know it's complicated.

[jacobwilliamroy]

It is literally litigation financing. As in "I don't have enough money to pay my lawyer, but my lawyer doesn't want to work on contingency, so please LEND me some money to pay upfront and I will pay you back later... if everything works out..."

It's litigation financing. It does exactly what it says it is.

[vinceguidry]

You didn’t seem to grasp parent’s point. Debt and equity aren’t apples and oranges, they’re Fuji and Honeycrisp. What makes debt attractive as a lender is recourse, taking that away removes the incentive to lend without other reasons, reasons which invariably look a lot like the ones you would employ in the decision making process to take an equity stake.

[parenthesis]

Yes, debt and equity shade into each other with things like preference shares and convertible bonds.

[krageon]

Regardless of the technical details, they have a vested interest in their own advice.