Litigation Crowdfunding Slowly Gaining Traction

At this point, you can crowdfund just about anything. Campaigns to raise funds for medical bills, student loans, movies, new inventions, and startup capital have sprung up from all over the world, which led the crowdfunding industry to generate $16.2 billion globally last year in funding transactions. A new trend is emerging within the industry – platforms designed solely for litigation crowdfunding.

Platforms such as Invest4Justice, which became operational last year, have set out to provide both plaintiffs and defendants with legal funding from a crowd of investors or donors, asserting that those investors and donors can collect rewards that exceed 500 percent of the amount of funding provided. To date, the site claims to have raised $2,969,736.65 for 31 litigation crowdfunding campaigns. 

According to the Swiss-based site, plaintiffs can offer a reward or request donations, but defendants must typically ask for donations since they will not receive compensation if they win their legal case. If 100 percent of funding is raised, the amounts are pooled and transferred to the litigant’s lawyer via Paypal or wire transfer. If the case wins, the litigant gives the percentage of compensation they have offered as a reward. If the case loses, they pay nothing. The platform receives 4 percent of the amount of funds that are raised at the time of transfer and also allows users to find peer-reviewed lawyers throughout the world, regardless of whether funding is needed, or to connect with third-party funders who might be interested in paying for the entirety of a case.  The site states that continued developments within the crowdfunding and peer-to-peer lending industries as well as recent changes in champerty laws led to the development of their platform.

There is already a thriving, roughly two-decade old, offline market in the commercial funding of litigation, especially in the US and UK, through attorneys’ no-win, no-fee arrangements or third party investment. The trans-Atlantic litigation-finance firm Burford Capital, for example, reported revenue from litigation of $47.9 million in calendar 2014, up 23 percent from 2013, and total income of $82 million, up 34 percent from 2013, after increased revenue from its insurance unit and a foreign exchange gain of $8.5 million. 

Like nearly every type of crowdfunding campaign, many question the viability of some of the cases presented on litigation crowdfunding platforms; however, Invest4Justice and its counterparts all claim to remove claims deemed as fraudulent and those that obviously lack merit – a practice that has become nearly ubiquitous within the crowdfunding industry as a whole. As this relatively new form of crowdfunding develops it will be interesting to see what types of cases are funded and what exactly the average return for investors will be.