Friday, July 15, 2016

Climateer Line of the Day: "...The Only Risk Was Theft By Lawyers" Edition

Down toward the bottom of Matt Levine, Esq's Bloomberg View morning linkfest:
Litigation finance.
Here is a Securities and Exchange Commission lawsuit against Roni Dersovitz and his hedge fund, RD Legal Capital, which "offered investors preferred returns of 1.06% per month (compounded to 13.5% annually)" by going to lawyers who had entered into big class-action settlements with creditworthy defendants but hadn't yet had their legal fees paid, and buying their fee claims at a discount. Or that was the idea:

To another prospective investor, Dersovitz stated the investments the Funds “are dealing with primarily, 100%, are settled cases, so there is no litigation risk in the strategy.” He explained that “the risks are duration and theft.”

But it paid a 13.5 percent preferred return? I love the notion that the only risk was theft by lawyers, but that risk was big enough to pay 13.5 percent a year.

But, no, that wasn't the only risk. According to the SEC, as much as 90 percent of the fund was actually invested in "legal receivables, the collection of which was subject to ongoing—and, at times, protracted—litigation risk." Specifically, RD Legal bought a lot of claims in a risky terrorism class action against Iran...MORE