Although the broader economic concerns discussed last quarter still prevail, they now include turmoil in the banking industry. The recent regulatory takeover of Silicon Valley Bank (SVB), one of the largest financial institutions that focuses on supporting the tech industry and startups, has also had an impact on the alternative asset industry. However, the Fed's swift extension of a full depositor guarantee ensured that thousands of startups, small businesses, and investment funds could meet payroll the following Monday, quickly containing what could have been a systemic bank run. While crises like these can be unpredictable, we believe that the Fed's response was correct and that we are well-positioned to weather this storm. Fortunately, the situation at SVB did not affect LexShares or the investments that we manage.
During this quarter's legal news cycle, we were impressed to learn about a recent trend in Utah and Arizona that permits non-lawyers to participate in the ownership of law firms. The American Lawyer reported that 91 alternative legal entity licenses have been issued to firms that have non-lawyers as stakeholders, since the state supreme court rulings in those states relaxed the long-standing American Bar Association rule that prohibited fee sharing with non-lawyers. This development is historic and has the potential to upend how legal services are delivered in the US. However, despite this trend, many law firms are hesitant to change their ownership structure due to concerns about ethics, quality of service, and potential conflicts of interest that may arise from non-lawyer participation in the practice of law.
It would be remiss not to mention ChatGPT, which has caused quite a stir not only in the legal industry but also in other sectors, as well. According to a recent article on Bloomberg Law written by two partners at Olshan Frome Wolosky LLP, the release of ChatGPT presents new opportunities for the legal industry. While AI technology is unlikely to replace human involvement in most legal practice areas, it has the potential to greatly enhance the efficiency of individuals within law firms, thereby reducing the costs associated with legal action. With AI technology such as ChatGPT, legal professionals can more quickly and accurately analyze large amounts of data and identify relevant information, which can ultimately lead to more effective legal strategies and better outcomes for clients. The increased efficiency resulting from the use of ChatGPT and similar technologies is expected to bring about positive change for the legal industry and may also create new opportunities for companies in the litigation finance sector, such as LexShares, to meet changing demands for legal services.
In other legal news, in one of the latest developments relating to the disclosure of litigation finance arrangements in Delaware, the U.S. Court of Appeals for the Federal Circuit declined to overturn the disclosure mandate established by Delaware's chief federal judge, Colm F. Connolly, which requires correspondence and bank statements related to litigation funding to be turned over. Nimitz Technologies, the plaintiff in the case, compared Connolly's order to an "inquisition." However, the Court of Appeals reasoned that Nimitz could sufficiently protect confidentiality by submitting its materials under seal, making the remedy of mandamus improper. We continue to closely monitor developments in Delaware and nationwide concerning the evolving disclosure rules.
The Latest at LexShares
During the quarter, Matthew Oxman, LexShares’ Vice President of Business Development and Investments, authored an article published by Law 360 titled "What to Expect from the Litigation Finance Industry's First Recession (Whenever It Happens)." In the article, he explored how a deteriorating macroeconomic environment and potential recession would impact corporate plaintiffs, law firms, litigation funders, and investors.
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This release may contain “forward looking statements” which are not guaranteed. Investment opportunities posted on LexShares are offered by WealthForge Securities, LLC, a registered broker-dealer and member FINRA / SIPC. LexShares and WealthForge are separate entities. Investment opportunities offered by LexShares are “private placements'' of securities that are not publicly traded, are not able to be voluntarily redeemed or sold, and are intended for investors who do not need a liquid investment. Private placements are speculative. Investments in legal claims are speculative, carry a high degree of risk and may result in loss of entire investment.
