Skip to main content

Crowdfunding Lawsuits

Has the popularity of crowdfunding reached the litigation realm? With the appearance of companies like LexShares, it appears so. Crowdfunding, or funding a project or venture by raising monetary contributions from a large number of people, typically via the internet, has grown tremendously in popularity over the last five years. In a typical crowdfunding endeavor, the person with the idea or project seeks funding from individuals who are interested in benefiting from, or being related to a funded project, through a third-party platform that brings the groups together. Kickstarter and GoFundMe are among the popular crowdfunding platforms that have been used successfully to fund filmmaking, video games, technology products, and even Super PACs for political campaigns.

Just as it is expensive to finance the making of a film or the development of new technology, funding litigation can be equally costly. Though, for example, a small business may have a claim that is likely to lead to a large verdict or settlement, the costs of initiating the litigation and pretrial proceedings may be prohibitive. While plaintiff’s attorneys have long recognized this reality and have negotiated contingency agreements to bring cases that plaintiffs could not otherwise afford, crowdfunding allows for a few or many unrelated investors to share in the risk. LexShares is one of the first companies to do this- the company selects from its applicants commercial claims determined by its team of experts  to have strong merit. Then, the claims are offered to accredited investors through a registered broker-dealer. Investors must be accredited, as defined by the SEC, and meet certain financial and net worth requirements. If enough accredited investors decide to fund the litigation that the fundraising goal is met, LexShares receives a portion of the fund for its fee, and the balance goes to the commercial plaintiff to fund the suit. Should the plaintiff prevail, the investors receive a return based proportionally to their investment. If the claim fails, the plaintiff does not have to repay the investors.

The company hopes that this will be a way for smaller companies to gain leverage against larger companies who may have stolen ideas, but have almost limitless litigation resources. Though this David vs. Goliath concept is appealing for many, the success of this new style of litigation financing will likely depend on the size of investors’ returns in a market that is far from certain.  

Comments

Popular posts from this blog

The Congressional Report on the Executive Authority to Exclude Aliens Released Days Before Immigration Ban

On January 27 President Donald Trump signed an Executive Order, Protecting the Nation from Foreign Terrorist Entry Into the United States. Four days earlier, on January 24, the Congressional Research Service released its own report:  Executive Authority to Exclude Aliens: In Brief.
To those unfamiliar, the Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the Library of Congress, charged with providing the United States Congress non-partisan advice on issues that may come before Congress, including immigration.
Included in the report are in-depth discussions on the operation of sections of the Immigration and Nationality Act (INA) in the context of the executive power . Discussions of sections 212(f),  214(a)(1) and 215(a)(1) report on how the sections have been used by Presidents, along with relevant case law and precedents. Most interesting is the list of executive orders excluding some groups of aliens during past presidencies; the table all…

GAO Launches Government Transition App

Want to learn more about the upcoming presidential and congressional transitions? There’s an app for that. 

The Government Accountability Office (GAO) recently launched its Priorities for Policy Makers app (available free of charge for iPhone or Android), which is intended to “help President-elect Donald Trump and the next Congresstackle critical challenges facing the nation, fix agency-specific problems, and scrutinize government areas with the potential for large savings,” according to Gene Dodaro, Comptroller General of the United States and head of the GAO. The app allows users to search by agency or topic, and provides brief summaries of relevant issues as well as links to more detailed GAO reports. 

You can also find GAO priority recommendations on the agency’s Presidential and Congressional Transition web pages.