From investments and credit, straight through to pensions and tax, the sheer complexity, scale, regulatory environment and value of the financial sector make disputes inevitable and financial services litigation inescapable. A dispute in the financial services industry is essentially a legal disagreement that relates to a financial service, product or provider. In this instance we’re providing a detailed guide on finance litigation help also known as pre-settlement funding where you can have an outside party provide funding for your lawsuit.
What is Finance Litigation?
Financial litigation includes criminal, civil and/or administrative claims and inquiries against individuals and entities that concern financial dealings. These include banks, consumer finance companies, mortgage lenders, credit unions and credit card companies. They also involve brokerage firms, payment processing firms, multi-currency service firms and investments funds and firms, such as insurance companies and hedge and private equity funds.
Essentially, financial litigation is a product that takes on all the financial obligations of legal claims in exchange for a portion of the recovered amounts.
Classic Financial Services Disputes
• Financial Misselling Claims
This kind of dispute could happen between an individual or group and a financial services provider. In the dispute, the claimant could believe he or she was not informed of the risks, misled, sold an inadequate or unsuitable product or obtained erroneous advice. For instance, the mis-selling of investments, bonds, loans, insurance, interest rate swaps and pension transfers.
• Regulatory Disputes
These types of disputes can come about between a provider of financial services and an industry regulator like the Financial Conduct Authority (FCA), the Pensions Ombudsman or the Financial Ombudsman Service (FOS) if you are located in the UK.
• Trustee Disputes
As suggested by the name, this dispute occurs between trustees and investors or between individual trustees. For instance, these could involve claims of investment mis-management, pension scheme and conflict of interest.
• Professional Negligence Claims
This type of dispute is between an individual or a group and a tax adviser or financial adviser. In this dispute, the claimant typically believes he or she has received bad advice from a financial professional. For instance, negligent advice associated with a tax or investment mitigation scheme.
• Contractual Disputes
This dispute takes place between an individual or group and a provider of financial services. The dispute could be something like a simple administrative error that has severe financial consequences or the provider failing to pay out the correct benefits or returns.
Typically, banking and finance litigation arise from particular loans, transactions, trades or financial products. They can also occur due to disputes and probes regarding commodities and stock exchanges, pricing, management, disclosure and servicing matters. However, since public shareholders and/or consumers are frequently involved, these businesses are categorized among those that are most highly scrutinized and regulated.
Financial services institutions such as banks, several of which are public, are obligated to comply with (and can be easily accused of infracting upon) any number of laws. These include state and federal securities laws, the Bank Secrecy Act, Dodd-Frank, the Patriot Act, Truth in Lending, Credit Card and Consumer Protection laws, Fair Credit Reporting Act, Fair Debt Collection Practices Acts and Equal Credit Opportunity.
Typically, banks and other financial organizations become the targets of enforcement or investigative proceedings brought about by governmental entities. Included among the government regulators that target these institutions are FINRA, the Securities and Exchange Commission, State AGs, Department of Justice, FTC, Commodities Futures Trading Commission, Treasury Department, OCC and the Consumer Financial Protection Bureau.
A vital aspect of the role of the financial litigator is to counsel companies on the potential risk and liability they will face if they fail to conform to relevant regulations and laws. Generally, financial litigators are experienced in representing individual and corporate clients in a broad spectrum of affairs involving the federal securities laws, along with consumer, state corporate, bankruptcy proceedings and securities and other common laws.
For example, these matters could include shareholder class action cases and secondary suits that challenge the appropriateness of transactions and the validity of disclosures. There could also be lawsuits alleging broker-dealer non-compliance, insider trading, securities or other frauds and misrepresentations in financial reporting. In addition, financial litigators should be qualified to accurately represent officers and corporate directors in litigation’s brought about by alleged infringements of their fiduciary duty and other financial duties. The duties of directors and officers are frequently entwined with the substantive claims contended against the entities for whom they provide service.
Additionally, competent financial services litigators regularly prosecute and defend claims arising from intricate securities, commodities, derivatives and foreign exchange deals. This is done both in arbitration and litigation proceedings all over the United States and internationally. Often, success in handling such claims requires an in-depth understanding of the regulations, customs, laws and practice in different states across the U. S. and in foreign countries.
“Fees and costs” financing for a single case is the most common type of litigation funding. A litigation finance service provider pays a portion or all of the fees associated with the litigation and additional costs related to bringing suit; this is done in exchange for a portion of the proceeds of the case. Typically, the litigation funder’s contract is not with the law firm but with the claim holder and the funder effectively covers the costs and fees on behalf of the claimant.
Typically, fees-and-costs funding is structured in such a way that the three stakeholders (the claimant, the funder and the law firm) have some funds invested in the case. For instance, a funder might agree to pay 50 percent of the legal fees, while the law firm agree to invest the other 50 percent in return for an interest (contingency fee) in the proceeds of the case.
For the law firm, this transforms the agreement into a “hybrid.” This is designed to mitigate the risk of the firm in comparison to a full contingency arrangement. However, this ends up being a “full contingency” on the fees for the purposes of the client (as no portion of the legal fees is being paid by the client). Comparably, a funder might agree to pay 50 percent of the litigation costs, while the claim holder accepts responsibility for the other 50 percent of the costs.
Regardless of which stage the case is, funders can opt to invest. This is an especially salient point considering the economic climate that currently exists. There are some clients who seek out funding from the beginning of a case; however, funders frequently see cases “midstream,” whenever the claimant has been paying his or her attorney by the hour until the money runs out. Sometimes the claimant just needs an added burst of support as the trial date approaches.
Funders have the option of converting an hourly case into one backed by litigation funding. In addition, they can convert a “full contingency” matter of a law firm into a hybrid matter when the law firm is looking to share the risk. The high demand for litigation financing by lawyers and claim holders demonstrates the enormous value of having a third-party funder undertake some of the litigation risks.
The primary insight of litigation financing is that a legal claim is viewed as an asset. Similar to how claim holders can utilize their lawsuit as an asset to get funding to finance the costs and fees needed to convert their lawsuit into a final judgment. Additionally, they may use the lawsuit to secure operating capital or working capital or funds that can be utilized for general purposes. A funder has the option of giving the claim holder some amount of funds, such as $500,000 in cash at closing, which will be secured against the proceeds of the case.
Conclusion: What to Expect from a Litigation Finance Company
The finance litigation company will agree to bear all of the legal costs of a claimant, which could include attorney’s fees, solicitor’s fees, court fees and charges of independent experts. In addition, the litigation company will provide a guaranteed indemnity to take care of any unfavorable cost exposure against the plaintiff in the case of a failed claim.
In exchange, the company will get a portion of the amounts recovered along with reimbursement of all costs. The fraction the company receives will fluctuate between 15 percent and 40 percent based on the amount of financing provided.
It should be noted that litigation finance does not provide the company any access to the assets of the claimant. The litigation company will recover only fees and costs if the legal action is successful. In the event that the litigation is unsuccessful, the company will have to bear all the costs.