The following is a transcript of a live panel recorded at the Legalweek 2018 Conference in New York. It was moderated by Jim McCarroll (Partner, Reed Smith), and the panel included Jay Greenberg (CEO, LexShares), Christy Searl (Director, Burford Capital), Gary Miller (Partner, Shook Hardy), and Paul Seeman (Chief Business Officer, UI Labs).

Jim McCarroll: Thanks very much to those who are participating here live in person, live via streaming, and later on, in the recorded version. My name's Jim McCarroll and I'm a partner with Reed Smith LLP, based here in New York.

I would venture a wager that everyone in this room and probably everyone attending this conference has some preconceptions, some built-in views, either through experience or just sort of tangential impressions of what litigation finance is, and what litigation finance means. Whether you formed those impressions very recently or over the past decade or so, those impressions may be very, very different. They may differ a lot from the current model of reality.

We're going to talk a bit today about how litigation finance has developed and evolved, and we're going to do this at a high-level, and we're going to get into details. As with any panel, we very much look forward to your questions. This is a massively growing, and constantly evolving, changing area, so it's been a matter of great interest for big firms like mine, and for others participating in the industry from multiple perspectives.

We are fortunate to have a tremendously experienced, tremendously qualified, and well-diversified panel today. Going down, I believe I'm getting this right, from nearest to furthest from me, we have Jay Greenberg, co-founder of LexShares, we have Christy Searl from Burford, Gary Miller, a partner at Shook Hardy and Paul Seeman with UI Labs.

We've got multiple different perspectives represented here, and even among the practicing attorneys on the panel. I head up my firm’s investment management group and deal largely with investment vehicles, family offices, hedge funds. Then we have a hardcore litigator as another practicing attorney here. We have general counsel, and we have quite a lot of diversity of views. I'd like to just start off with brief introductions by the panel members. If we can start with Jay and head down from there.

Jay Greenberg: Sure. Thank you Jim. My name is Jay Greenberg. I am the Co-Founder and Chief Executive Officer of the commercial litigation fund LexShares. I founded LexShares in 2014. Prior to founding LexShares I was at Deutsche Bank doing technology investment banking, mainly mergers and acquisitions and debt equity underwriting for enterprise software companies.

I think unlike everybody else on this panel, I am not an attorney. I was originally attracted to the world of litigation funding from sort of the unique attributes that investments and legal claims have, which I think we can talk a lot more about. My background is more so in corporate finance and statistical reporting and analysis.

When we launched LexShares in 2014 we really set out to create this online retail forward-facing marketplace where we could educate all parties--investors, attorneys, plaintiffs--about what litigation funding was, and in turn take advantage of what I would call security deregulation in the U.S. at that point with the Jobs Act, and capitalize on what was seemingly an under-capitalized market. As Jim alluded to, as I'm sure Christy and everybody else will, the litigation finance industry itself has undergone rapid growth over just the past few years. In turn, so has LexShares.

At this point our business is really comprised of two components. One is our private funds business, so we manage and invest a pool of discretionary capital into litigation-related assets. The other component of our business is very unique in where we believe we operate the world’s only two-sided online marketplace for commercial litigation finance. You can actually go to, register as an investor, and invest in individual legal claims, and we can unpack a lot more about what that means.

Christy Searl: Hi, I'm Christy Searl. I'm with Burford Capital. My background is I started as a lawyer at Chadbourne & Park, I was a general litigator. I worked in house at Lehman Brothers in the litigation group for many years, almost a decade before the Lehman bankruptcy. After Lehman went bankrupt I moved over to the Lehman Bankruptcy Estate where I worked on litigation, both claim sided and defense sided, mainly to recover assets for the creditors. We had a very large book of litigation matters which we had to unwind where the bank was owed money by other counterparties to a very large swaps group. I spent quite a bit of time helping unwind the Lehman Estate and I came to Burford about a year ago.

Burford Capital is considered to be the largest funder in the space. We do big investments, we do small investments, we finance law firms, we finance individual claims and we finance portfolios with claims. I know we'll get more into the details of that but I'm going to leave it until I get to be here and answer any questions you might have.

Gary Miller: Good Morning and thank you for coming. My name's Gary Miller. I'm a partner in the Chicago office of Shook Hardy. Shook Hardy is a national litigation firm. I'm the chair of the business litigation section nationwide and I handle all kinds of litigation disputes and also a fair amount of patent and intellectual property.

Our firm, like I think a lot of large firms, traditionally has defended big multinational corporations in significant lawsuits and has sort of a defense bent, but that's kind of changing in a way. In a lot of commercial cases and IP cases it doesn't matter what side of the V you're on, a lot of times we find ourselves on the plaintiff side. We have used, worked with, litigation funders and I think it can be a good relationship in the right type of case with the right type of client which is why I think I'm on this panel. Thanks for coming.

Paul Seeman: Hi I'm Paul Seeman. I'm the Chief Business Officer and general counsel of UI Labs, which is a nonprofit that's backed by the Department of Defense and the MacArthur Foundation. It's candidly not that relevant to litigation finance. My background before doing that, I was a fund formation lawyer in New York and in Chicago, and worked in a family office for eight and a half years.

I'm on the panel as an investor, I've been investing in litigation finance since 2011. I probably met with 20 or 25 funders from all over, and done north of 10 deals in this space which for a young industry that's a fair number of deals as a third party investor.

Jim McCarroll: I promised you diversification. We got a real well-diversified panel, including a non-lawyer, but we're going to spend some time on that. Old stereotypes of litigation finance: Litigation finance is pre-financing, little personal injury settlements for moms and pops. Litigation finance is popping up and putting small plaintiffs firms into business, keeping them in business and propagating lawsuits that may or may not be of great merit. Litigation finance is champerty, and maintenance will come to what those are all about, and how they don't apply.

All of those are old stereotypes that bear no application whatsoever to what's going on, what the folks on this panel focused on, and what's going on with litigation finance broadly speaking today. I'll start with just an opportunity for each of the panelists to talk a little bit about what litigation finance is and your view on litigation finance.

Let's go in the opposite direction this time, we'll start from the far side with Paul.

Paul Seeman: From my perspective, litigation finance is a non-correlated asset class that if you structure correctly you can get decent tax treatments and it's a very good way to diversify your portfolio. Personally as a lawyer, I like investing in it because I can actually analyze into like merits in a way that I can't with an algorithm or some sort of technology, where I have to rely on someone to tell me if the machine learning is as good as they say it is.

Gary Miller: Sure, I agree with the stereotypes, and I think for many lawyers who grew up in big law, there's a gag reflex you have to overcome a little bit when you're starting to talk about litigation funding. Then really dig into what's actually happening and it's not in my view supporting frivolous lawsuits. In fact, I think it's just the opposite.

Litigation funders for the right type of clients and the right type of case actually can act as sort of a screen and prevent non-meritorious cases from going forward. Also be able to provide the funding in order to provide maybe more experienced, more sophisticated lawyers to handle litigation in a way that's going to be better for the judicial system overall. In general, I think that litigation funding can be really good for a client that, one, can't afford to fund the litigation without having a material negative effect on the business and some start up, merging company that doesn't have the financing to do this, to provide access to justice without really hurting their business. Then two, the other part of it is, a company that doesn't have sophisticated, experienced in-house counsel who are able to access the risks of the case.

Teaming up with the funder who do have very sophisticated people looking at the cases and determining the risks, and aligning their interests with you, it acts as kind of a risk management function in a way, for certain types of clients.

Christy Searl: Yeah, I agree. I agree with both assessments of what litigation funding is. Burford Capital has been around for nearly a decade. We feel litigation finance is finance for law, meaning we can finance cases, we can finance firms, we can finance legal professionals. Basically the view is that a meritorious litigation that's going to recover money is an asset like any other asset, that can be traded and that can be recovered against, and that capital can be put out against.

We definitely have grown the market. It started with our two founders, one of whom was the general counsel of Time Warner, who was approached by friends who said, "I have this great case and I cannot get our firm contingency committee to approve it." Our founder took a look at the case and liked it and said, "I'll fund it myself." At the same time he hooked up with our other founder who was a professor of law at Georgetown University Law Center where I went. He was writing an article about using litigation proceeds as assets essentially. The two of them teamed up and conceived this idea that while this is an area that people haven't really looked at, this is an asset class that can be exploited.

I think that because of the deregulation of the market, capital starts to flow into our industry. You will see that it's become a crowded space. We feel that there are great opportunities to fund only the most meritorious of cases. We're very careful about the cases we take. We don't fund cases that aren't going to win. It's not in our best interests, it's not in anyone else's best interest, and of course these are cases that would be brought anyway whether or not we finance them on the merits, with respect to the capital, that's the issue that's being addressed.

There are cases out there that need to be brought that can't be brought because people don't have the access to capital.

Jay Greenberg: I think that was all spot on. Right? Litigation finance at its core is when an unrelated third party provides capital to someone who has an economic interest in a claim. Whether that someone be a law firm, attorney or that someone be the claimant them self, in exchange for the potential future recovery of that case. Litigation finance enables claimants and law firms to really unlock value of their cases prior to those claims being resolved, which I think those are extremely powerful tool for everybody involved in litigation because it helps them better manage litigation risk.

One of the more interesting aspects of the asset class to me is really how we structure these deals to align incentives. That's aligning incentives between folks like Paul who are investing in cases, and folks like Gary that are taking on financing, and investors themselves. One of the interesting aspects of litigation finance that I found is really the ability to create these win-win-win situations between all of those parties. I think that's a strong concept that's driving our industry right now.

Christy Searl: Yeah. If I can jump in there, I think, we have a very experienced underwriting team. Folks like me who've been in business for a very long time, we've seen hundreds of thousands of cases, as well as folks who have tremendous analytical abilities. Again, I totally agree the idea is to align the incentives so that the client, the law firm and the funder, at the end of the day everyone is happy with the return that's made and the distribution of the return to the three entities involved.

We try very hard to make sure the incentives are lined up so that at different inflection points in a case, in a lifetime of a case, where you might want to settle the case, where you might want to move on and go to trial, everyone has the same interests so that the outcome is a good outcome for all.

Paul Seeman: I think that's one of the most important points when thinking about investing in a case is making sure that the underwriting is done with realistic expectations on the part of the client. That's something that I've learned through the years.

The returns that are put in front of my group, they've gone down some but it's actually better from an IRR perspective. Because some of the things that have a $100 million case, that you think is a $25 million dollar case, and you negotiate around a $100 million, getting them to actually settle and put it into the case is going to be really hard, because they're going to think, I thought I was going to get $100 million.

Aligning the incentives and making sure that the person you're funding has a realistic view of the case is very, very important.

Christy Searl: Right, because as we all know who are in the business, 85% of cases settle, perhaps even more than that. They settle at different points in time in the lifetime of the case. You do have to take into account if there are three sets of people involved in financing, a funder, a law firm, a client, what's everybody going to want at different points in time of the case? You don't want a situation where a case settles early and a funder takes most of the recovery, which doesn't incentivize the client to want to settle the case, and the client might push on to trial when a better outcome would have been to settle the case in the first place.

I know we're getting ahead of ourselves here, but again, we do try to line up the incentives so that everyone is comfortable with the outcome at the end of the day.

Jim McCarroll: Christy is reading my mind. I want to conflate a couple of our sort of talking points here as we get more into the meat of a few substantive issues. We've heard references to client, I think from a couple of different perspectives, we've heard references to client, we've heard references to investor, funder, law firm. Other sort of bad old stereotypes that had controls come to litigation financiers to find a source of money to pay a law firm to prosecute a hyper aggressive and perhaps not totally meritorious case for the primary benefit of the patent troll who's just trying to take advantage of the little quirk in the US legal system.

That surely has happened in the past. It's very different from the parties involved and the approach to litigation finance in 2018, '17, '16, '15. We have two different approaches to raising money around and executing on litigation finance represented here on the panel. As between LexShares and Burford, we have an investors perspective, a US Government backed perspective, very interestingly.

Paul Seeman: I'm not backed in this context.

Jim McCarroll: Not in this context, totally respect that. I'll save my editorials, okay. We have a National Litigation Department Chair, so if you want to, if the LexShares and Burford representatives want to touch on anything unique about their views, their approaches, I would like to have each of the panel members talk about the parties involved in litigation finance and whether you're looking from an investor's perspective, from the lawyer's perspective or from the finance perspective. More typically or more preferably at a client approaching you, a law firm approaching you, some amalgam, whether you want to invest in or lend to a client, a law firm, someone else. Why don't we start with Jay.

Jay Greenberg: Yes, absolutely. LexShares was founded in 2014, and at that time, like I said, the idea was really to create this online retail forward facing marketplace where we would basically originate underwriting, structure these transactions, and instead of investing off of our balance sheet or a private fund, we would enable a large base of investors to invest directly into these cases. That's one component, one unique component of our business. I'll get to that in a minute.

The market has evolved and so has LexShares, so currently another component of our business is the private funds business where we invest a discretionary pool of capital into litigation related assets. It's very similar to what Burford does. Back to the online marketplace that we operate, because I think that's unique from a source of capital perspective. It enables us to do a bunch of different things structurally.

At this point there are thousands of registered investors on the LexShares platform looking to deploy capital into cases. What that really enables us to do is to instantly spread risk across lots of different investors instead of just investing out of our private fund or off of our balance sheet. The ability to spread risk over that broad of a base typically enables us to provide extremely attractive pricing to recipients of these funds. I'd say that source of capital, given how it impacts the economics, is typically advantageous to recipients of funds, something that's unique to our platform.

I'd say something else that's unique to our platform is the quantum for deals that we'll engage in. A lot of large litigation funders are only able to deploy large amounts of capital because they can't take the time to diligence small claims. What we've found in the market of the past few years that a lot of the times, even big firms and big cases they only need a small quantum of capital for that particular claim. We fund singular commercial cases, we fund portfolios of commercial cases, recipients of our capital are claimants themselves as well as law firms.

Sometimes the claimant only needs $100,000 to hire an expert witness, for instance. Our minimum investment amount into a particular matter, we can go as low as $100,000. We're uncapped on how large we're able to fund. That's the number two differentiator for LexShares. The number three differentiator for LexShares outside our source of capital I think is speed.

I co-founded the business with a gentleman by the name of Max Volsky. Max is what I would call the godfather of litigation finance here in the U.S. He started investing in claims about a decade and a half ago. He also the author of a book called Investing in Justice. I think it's an excellent primer on the industry, I would highly recommend it.

Max really has a streamlined underwriting process from intake, when these claims come in. Jim referenced typically are these claims coming in from claimants themselves or coming in from law firms. Right now our split is really 50-50 on our inbound channel between claimants themselves and firms. I'll also talk about in a bit are outbound channels.

We actually developed a piece of technology that we call the Diamond Mine. Not only do firms and claimants come to us but we actually have an outbound process where we receive highly qualified cases on a daily basis, and have a business development team that makes outbound calls to plaintiffs and attorneys to see if they would be interested in receiving financing.

Back to the speed component, so one is speed in underwriting. Given what we've learned over the past 15 years, it's a very streamlined process there. The other is speed in time to execution. For instance a few weeks ago we posted a $4 million deal to our platform, it was a $4 million investment in the theft of trade secrets matter. That investment was fully subscribed in under three hours. You can actually see the investors demand in real time and how quickly we're able to transact even on a larger funding.

Jim McCarroll: Christy.

Christy Searl: Sure, so just a little bit about our business. I think the question was in respect to how matters come in to us, but we get approached in all kinds of ways to fund all kinds of cases. I think that's the easiest way to say. Burford funds small cases, we fund large cases.

Our minimum investment typically is around $1 to $2 million. We've actually done a deal as big as $200 million in the past year. Our average deal size has been covering around $5 to $10 million in the past couple years. We are funding big cases but we also do fund smaller cases.

We have a very large pool of underwriters, many of them have backgrounds like mine, who are specialized into certain silos that we find to be the most efficient way to work. We typically do not fund cases we cannot diligence. We feel very strongly that again, we really are looking for the most meritorious cases. We want to be sure that there is a good match between our underwriting abilities and the subject matter of the case.

We fund quite a lot of asset cases, we do every kind of commercial cases you can imagine. Increasingly our case load has been moved to just business cases, although we still do some single plaintiff work. We also fund portfolios in cases with respect to law firms. A law firm might come in and have us take a look at their contingency portfolio, which we would take a look at. We could finance across a portfolio of cases.

As you all might imagine, that might make our pricing better because if there's a winner on one side of the portfolio it can finance the fact that there might be a loser on the other side of the portfolio. We can offer what we call portfolio pricing, which is lower than, in some cases, some certain types of single case pricing. I know we might get to pricing risk down the road, so I won't talk more about that right now.

I think the other interesting thing about the cases that we're seeing is the way they come in. There's been a lot of press lately about the litigation finance industry. You guys might have read some articles. We have an asset recovery team who had their faces on the front page of the Wall Street Journal recently. Because we've been chasing a Russian billionaire across the world to try to recover assets, and we do that kind of work too.

I would just say also, we can finance any aspect of a case. We can finance the beginning of the case. A lawyer comes to us and says, "I'd really like to bring this case, our contingency committee doesn't want to take the risk on it, can we team up and I can take the risk with you?" We take a look at the case and we fund that case. That's certainly one model.

We also have people coming to us when they have a judgment that they want to monetize. Your client has won a judgment, and there's going to be an appeal related to that judgment, which means there isn't going to be a payout for some time. We can advance some part of the proceeds to the client so they get some relief while the rest of the case is pending. We can come in at any stage of the case and finance it. There is a good bit of our business related to later stage financing.

Gary Miller: From a litigator’s point of view, we're always looking at what's in the best interest of our client and if you should do this or serve our clients interest, and we also have a duty to our firm to make sure we're making sound financial decisions for the firm. A lot of clients want alternative fee arrangements. 70% or more of the cases we handle now are on some sort of alternative fee arrangement. I think that that can be really good for both us and for the client. There's very few cases though, that are willing to take on a straight contingency, it's too much risk for us.

An ideal situation in the right type of case, meaning a plaintiff's case without the risk of a significant counter claim and with a lot more at stake than the cost of litigation. In the right type of case I think an ideal situation is where we get a reduced fee, say 50-60%, it's enough for us to pay the rent, keep the lights on, pay associates. As an equity partner, maybe I wouldn't be getting paid for that work, but then taking a risk, and if we have a good outcome, getting paid not only what we would normally make in fees but hopefully getting paid more than that. I like that because it aligns our interests well with the client and also it gives me the opportunity to get paid in a way that's not tied to writing down my time every six minutes, which is nice too.

From the client's point of view, I think, a client would love to have a straight contingency from a lawyer. I think that's probably cheaper for the client. I think that probably the lawyer involved in the case, as much as I completely respect and appreciate the value of funders providing the risk management and the underwriting capability, I think that the lawyer probably knows more, and is able to make a better decision about it. The problem is finding good quality experienced lawyers who are willing to do that. I would submit that that's a challenge, because those same lawyers have people who are willing to pay their hourly rates, so they're not interested in taking a full contingency. I think that's the situation. I think that hybrid is a really good situation that I've used before. When you get a good result everyone is very pleased with it.

Just a couple of more comments on what we've said. One has to do with the stages. Yeah, bringing in a funder at the beginning stage, we've done that before, it's good. Sometimes though what happens is that doesn't make sense at the beginning of the case, but maybe after you've overcome summary judgment, you're at a later stage, things are getting more expensive, you're getting into experts, you know you've tried settling and it hasn't worked. Now you're going to have to go through trial or appeal and sometimes there's litigation fatigue from the client, and that's an appropriate stage.

That's kind of a nice stage for funders to come in too, because we know a lot more about the case at that point. We know more, the client knows more, the funder knows more, and you're able to make a deal with more realistic expectations at that point and less variation in the outcome.

Then final point I had, I agree that there has been probably some abuse with patent trolls. The term troll I get a little, I bristle at it a little bit. It can be used as non-practicing entities, which means the company owning the patent doesn't actually practice the patent. I would say that's meaningless in a way. Many, many major companies own patents that they don't practice right now, that shouldn't be a disqualifying factor.

If it means frivolous cases, cases that have no merit, well no one's going to be willing to invest in those anyway. Also, I'll say, having done lots of patent cases, it's really hard to tell whether your case has a lot of merit at the very beginning stages before you've gone through client construction, and gone through some other stages of litigation. I think that funding the appropriate patent case, even from a non-practicing entity, can be a really good thing to do.

Paul Seeman: I'll actually take that a step further. I think that shareholders at some point will demand that companies fund their patent cases, because they have assets sitting on their shelf that they're not monetizing. At some point they will figure out that they should go get financing to monetize those patents.

Christy Searl: That is a great point. I would just say at old Lehman, so Lehman filed for bankruptcy, we had patented a number of systems from our trading business, and we were actually going out and licensing those patents. We were not patent trolls, we were simply capitalizing on our intellectual property. To the extent that we needed to sue anyone it would have been tremendous value to have used Burford's capital to go out and do that. Non-recourse capital means that if you lose, the funder takes the risk on that.

I think you're quite right. There are lots of litigation assets out there that remain unmonetized, and that is the sector of the market we're looking at. It is a win-win situation. You have a company who's using its own capital to pursue its line of business that it is an expert in. They are not in the business of litigation. We are, and so when we invest side by side with an asset that's not being monetized, like a patent or something else, it can be a real win for a company.

They use our capital, our non-recourse capital, to pursue litigation, that's what we do with their appropriate counsel. That's the line of business we're in, financing those cases. Then they use their own capital to pursue their core business. We think that's a great strategy going forward.

Paul Seeman: It's the holy grail of not being a customer. It's in house legal counsel should be educated themselves, absolutely, on litigation finance and how they can monetize assets that are on the shelf, because all companies have them.

Jim McCarroll: Just to add a little additional, really confirmatory outside practice's lawyer's perspective, that's something we're seeing quite a lot of.

Paul Seeman: Yep.

Jim McCarroll: Big, public and private operating companies, some of whom have invented or developed tremendous products, tremendous capabilities, and patented them, or they've through merger and acquisition ended up with them. Acquiring real valuable patents that are not in active use, that are being infringed, and they're not being prosecuted.

We start with the bad old stereotype of the patent troll, and then you helpfully clarified, Gary, the reality of big companies holding real valuable patents in subsidiaries, in other active or dormant entities, but there's enormous value. Enormous value, and I think every practicing lawyer, every lawyer on the panel, I think Jay's about to agree with this, but I think the full panel is in accord that the prosecution of patent portfolios is a great untapped resource for companies and their shareholders.

Jay Greenberg: It's not only patents.

Christy Searl: Right.

Paul Seeman: Yeah, for sure.

Jay Greenberg: To Paul's point, I think shareholders are going to start to put more pressure on corporates to say, "All right, you do have these unmonetized litigation assets." It could potentially be the largest asset on your balance sheet, but you have yet to monetize. I do think we'll start to see more shareholder pressure to use litigation finance.

Paul Seeman: It's the pesky business judgment rule that's in the way of the strike suits that should come.

Christy Searl: Right. You see it with different types of companies, so like a real estate company for instance might have a litigation asset. In other words, it bought a property, the property wasn't properly cleaned up, and the property itself that they just bought has a claim, an environmental related claim. Which would be something that the acquiring company should want to monetize. Again, the real estate company uses its own capital to pursue its real estate business, and they use Burford capital to pursue the litigation assets.

That puts all the work, at the end of the day, it's just the identification of an asset class that has gone unrecognized. It is finding value in a spot that people didn't think it was before. It is not going out and manufacturing ambulance chasing lawsuits against people. I think that's ... litigation finance is a business, and it should be viewed that way.

Jim McCarroll: In addition to getting to posit all the bad old stereotypes for these folks to shoot down, I have the added benefit of getting to try to keep us all on schedule. I'm going to move on to our next topic, which has quite a lot packed into it. Challenges and benefits of litigation finance. We've talked a little bit about who's who. We've talked a little bit about whether the client's going to see the financier, whether the law firm's going to see the financier.

I would wager that likely Gary, but if not many of his partners have had the same experience that I did some time in the early 2000's, where a client said, "Hey, I don't have the money to pay for this. I can't pay your full hourly rate. I can't pay any amount, but you think this is a good claim, right Jim?" Yeah, I do. I think this is a claim, I want to go forward with it. I'm going to go seek out the litigation funder, and I'm going to seek to get funding to pay your fees. To pay a portion of your fees, maybe to pay all of your fees. We're going to get the litigation funder involved.

Well, it's 15 years ago, 20 years ago, 10 years ago even, this was new ground. When I first encountered it, I said, "I can't answer to two masters. Who am I representing? What am I doing here?" I believe this is worked through fully in the litigation funding world and in the law firm world, and top emphasis of opinions, private opinions for funders, for law firms, for clients on the subject of legal ethics, and who's who, and what roles they're playing.

I'll just go down, starting with the funders. Who's in charge?

Jay Greenberg: Yes, exactly. From a control perspective, once we make the initial investment, our funding documents state explicitly that we take absolutely no control over the litigation. No control over the litigation strategy, that's no control over settlement negotiations. Once we've done our diligence and our capital has been deployed, we absolutely take no control over the litigation. Really, everything is still between the client and their counsel.

Christy Searl: Right. Our funding documents are exactly the same way. We consider the attorney-client privilege sacrosanct. We're all, some of us are lawyers up here. We don't want to get in the way of the attorney-client relationship. That's why I was saying earlier, we try to be smart and know where the case is headed before it actually goes there so that again, the incentives are lined up, and we don't need to be in control.

I think there's been quite a lot of case law that has come out with respect to some of the other issues that one sees with respect to work product and the attorney-client privilege, which I can just touch on really quickly?

Jim McCarroll: Please.

Christy Searl: Yeah. There is quite a lot of case law saying that communications between client, funder, lawyer are protected by the work product doctrine. The attorney-client privilege is dicier, and so as funder what we try to do when we're diligencing a matter is that we try not to ask for attorney-client information. We work on public documents as much as possible. To the extent that we have to have conversations, we make sure that we have a nondisclosure agreement that is signed ahead of time, so that any communications that are had with respect to the case are protected under the work product protection.

There's been quite a bit of case law too with respect to whether or not litigation funding is champertous. It really goes back to the control issue, and also too, sometimes the underlying terms of the funding agreement itself. To the extent that we're not directing the litigation, and that it's directed appropriately by counsel, that mitigates the champerty issue. There are some jurisdictions which still have champerty laws on the books. There are other jurisdictions in which we are more free to work.

I don't know if you have any comments on that.

Jay Greenberg: Yeah, I think it also plays into a public policy perspective, right?

Christy Searl: Yeah.

Jay Greenberg: I think overarching public policy is that access to justice is a good thing. Champerty in feudal days was really meant to protect access to justice, and I think that sort of gets flipped on its head with litigation finance.

A bunch of states, like my great state of Massachusetts, repealed champerty entirely. There are a lot of other large commercial litigation centers, New York, New Jersey, Texas, California, who have never actually adopted champerty to begin with.

Christy Searl: Yeah, so champerty is not really an issue. Again, I think the control issue is important because we don't want to interfere with the attorney-client relationship.

Gary Miller: Yeah, and that one, I don't really see it as that difficult of an issue. We've been representing ... Long history of representing clients where fees are being covered by insurance companies, and where the insurance company is going to pay any judgment. In those cases, despite the fact that we're getting paid by the insurance company, we take directions from the client in all strategic decisions. We as lawyers make all tactical decisions with input from the client. There's no difference here in my mind. There's no analytic difference, I don't think.

I think that the more interesting issue maybe is what do you do when you're negotiating a deal with a funder? I'm an interested party. It's really a three-party deal in a way, and if you have an in-house counsel, that makes it pretty easy. They're kind of looking after the interests of the client with respect to that agreement. If you're dealing with a client that doesn't have in house counsel, I think the ethical opinions have said, even then you don't have to advise a client to get an attorney, but you might want to think about it, even though you don't have to. Just make sure your client's sophisticated enough to understand what they're getting into.

Paul Seeman: One of the pieces, interesting, about four years ago I invested in a case, I don't know if this has happened recently, where the funder ended up getting deposed.

Christy Searl: Yeah.

Jay Greenberg: It happens.

Christy Searl: Yeah.

Paul Seeman: That was a wrong turn, because the guy was not ... He knew the case backwards and forwards, and it was a real mistake to depose him. It was a pretty interesting twist in the litigation, because he was a third party, so he could give his unshackled view of everything that was right or wrong with the case. The case ended up settling pretty soon after his deposition.

Christy Searl: Yeah, and that typically does not happen. I think that's the exception from the rule maybe. We very much remain in the background.

Paul Seeman: Yeah. You don't want that, but it does sometimes happen.

Christy Searl: No, we don't.

Audience: Are there contemplated returns?

Christy Searl: Typically, no, because typically we're not disclosed in an investment. Again, we want to remain in the background, and that's a private contract which I believe there's even some case law about protecting those agreements.

Jay Greenberg: Yes. Pretty strong precedent, a growing body of case law that actually says that the funding arrangement itself will be protected by work product.

Christy Searl: The exception to that would be where we are disclosed. In the instance where we're working on behalf of, and we're doing this increasingly with respect to litigation trust and a bankruptcy type of situation, where we are assisting the debtor or the creditors in bringing money into a bankruptcy state. We are typically disclosed, and approved by the court, and in those instances our funding agreement may be disclosed to and approved by the bankruptcy judge. Sometimes on camera, and sometimes it's open court.

In those instances, also we are sometimes competing in a beauty contest, a process, a public process that's run for a submission of bids, that we would bid like any other bidder. Like a hedge fund or another person who might want to bid on financing a litigation trust in that instance. In that case, we would be disclosed and our terms would be disclosed.

Actually, an interesting case that just came up in the Caymans with respect to a financier being involved, I believe the terms were disclosed in that case, and the Cayman court found that even outside of the consultancy context, which is what I was just talking about, litigation funding is not champertous in the Cayman Islands. We had the decision in our favor.

Gary Miller: I was involved in that case that you're referring to, and some related litigation, and so I can say from that experience, I haven't done a 50 state survey, but I would not take great comfort in the idea that it's never going to be disclosed for discovery. The law is not settled on it, and in fact, I think a good argument can be made just in the initial disclosures you file with the court to decide whether the court has a conflict, where you have to disclose who's really behind litigation, I have a hard time seeing why it wouldn't have to be disclosed as part of that. I'm not taking a position on that, or I don't know-

Christy Searl: Let me push back on that, and say since we're not in control of the litigation, we don't need to be disclosed. Just like nobody discloses their bank clients, right? If someone were to use litigation financing, they wouldn't have to disclose our contract and also disclose their bank lines. I don't know if you have bank lines, but you get my point.

Gary Miller: It's a good point, but I'm making a point, it's unresolved. I wouldn't go into it thinking that you're going to be able to keep it secret for sure.

Christy Searl: Right, which is again why we have nondisclosure agreements, why we try to be careful about protecting these types of arrangements.

Jim McCarroll: We want to save some time for questions, and let folks get to lunch, and other appointments in a reasonable timeframe. We've got a couple more topics to cover. We have talked a little bit, we've sort of touched on individual case financing, small or large versus portfolio financings.

If everyone can give some thoughts on portfolio, individual, diversification of risks, diversification of opportunity, and just sort of structure.

Jay Greenberg: Yes, absolutely. When we started the LexShares platform in late 2014, we really started off funding single commercial cases. It's interesting. You fund a single commercial case with somebody, and then that law firm comes back to you and says, "Hey, well, I have this pool of contingent cases. Do you think you would be able to collateralize this entire pool of contingent cases instead of just collateralizing a single claim?"

We started off funding singular cases, now we also fund pools of cases as well. That's pools of cases that law firms have taken on contingency. That's also pools of cases that corporates have, right? We'll fund medium to large sized business that has extensive, ongoing plaintiff side litigation, and we'll basically monetize that pool of litigation collateralized by all of those cases.

I think like Christy alluded to before, taking on singular case risk, that I'm sure as Paul is well aware of doing a bunch of transactions in this space, outcomes are typically binary. In a single case, you typically have a zero or you have a pretty sizeable return. For portfolio funding, with cross collateralization, that typically does allow us to provide better rates than single case funding, because your risk is just better diversified across that pool.

For LexShares, we only engage in non-recourse financing, whether that's single case funding or portfolio funding. Which means that if all of the cases let's say in that pool ended up not recovering, the law firm or the claimant who we funded have no obligation obviously to repay LexShares or LexShares investors.

Jim McCarroll: Jay, just to see if you can put any kind of trend or parameters around this, do you have any kind of breakdown of what percentage of inbound requests or what percent of deals you're seeing in 2017-'18 for portfolios versus individual cases?

Jay Greenberg: Yeah, absolutely. I'd say it really depends on who is approaching us. If the plaintiff is approaching us, I would say that 80% of the time it's for single case funding, I would say 20% of the time is to fund a portfolio of cases or multiple cases. I would say the exact inverse when a law firm or an attorney approaches us. I would say that 20% of the time they're looking for funding on an individual and 80% of the time they're looking for funding on multiple cases.

Christy Searl: Yeah, and I think our portfolio is slightly different, again because I think we work in slightly different sectors of the market. There's been a tremendous opportunity for portfolios. I would say our business is broken up into, let's call it a third, a third, a third. Single case financing, portfolios, and then what we maybe would call other, which would be bankruptcy type matters where we're financing a trust.

I would say this, though. With respect to portfolios, I'll just give you an example. It's not just law firms who are coming to us, and I think that what's interesting is the concept of corporate portfolio. Let's call it a very large EPC, a foreign contractor. They do infrastructure work across the globe. They have a portfolio of matters which kind of can go both ways.

If you think of the construction industry, somebody is always suing somebody else with respect to a project that didn't go quite the way they might have liked.

Gary Miller: Yes.

Paul Seeman: All the time.

Christy Searl: When you think about it, there's cash flows going either way, right? In some instances, the developer's up, and some it's down. That's a very good target for us to go ahead and help out with financing, because since the cash flows are moving in either direction, we can finance a portfolio at attractive prices and free up some cash for these folks to pay themselves on a project.

Increasingly, we're seeing companies come in with portfolios of cases where it's both plaintiff and defense side work that we're securing across.

Gary Miller: I haven't done portfolios. I've only done large individual cases, but I definitely get the concept. I'd much rather, it's less risky for our firm to have five of those than to have one of those, for the reasons we just talked about.

Paul Seeman: The structure I like to invest in at this point is primarily sort of a club deal, where there's funder that are not, like no one's heard of on purpose. They bring us deals. Last week, we put in an allocation for one of them and passed on one of them. We're sort of doing a portfolio construction ourselves. I think that structure, the fund structure in funds, the incentives are trickier as the industry matures and sort of figures out. Another thing that's quirky about this is the way the capital gets called is a little harder to predict. Your capital commitment versus what actually gets called is a little unusual.

The other thing, for investors that are not used to litigation, which I'm in a group with a bunch of hedge fund guys, there isn't much information. They get very frustrated, because you're used to getting a quarterly letter from a hedge fund that has a lot of detailed information about the portfolio. That's not how litigation works. The club deal structure works better for us.

Jim McCarroll: All right, aspiring to keep us somewhere near time. I'm going to go with one last question to each of the panel members. We've seen huge uptick and interest in and money pour into litigation funding over the past call it 12 to 24 months. I personally don't believe the statistics are accurately maintained or accurately reported, because I just don't think there's full reporting. I don't think there's full transparency into the market. I think it's actually probably significantly larger than what's being reported, particularly in reference to the club deals that Paul's described. Where there just isn't reporting the full spectrum on it.

Paul Seeman: There's also some small firms that are sharing risk. That's not technically litigation finance, but it is. They're risking their portfolios, so it's way broader than what's reported.

Jim McCarroll: Absolutely. We could spend time on the insurance products, we could spend time on reinsurance firms, reinsurance ventures absorbing some of that risk. Just indisputably, a whole bunch more interest and a whole bunch of money flowing into the space. Thoughts on why and also who is investing?

I'm going to start with Burford, I'm going to start with Christy. I'd love to hear any thoughts on why, and in terms of who was investing, I know that you and LexShares have different sort of investor bases, and Burford's a public company. Its investor base is what it is, but there's also some private money, and you also have some great market intel. Why the upsurge and who's investing?

Christy Searl: Right. Well, why the upsurge? I've come out of the banking world. Why the upsurge is because capital is flowing to our industry, because the regulations are strangling innovation with respect to the banks. Most of the banks have lost their trading desk, their top trading desk that used to take this kind of risk.

In terms of who's investing, well let me just say Burford is a publicly traded company. We're traded on the London stock exchange. We've done four bond offerings and raised quite a bit of money as well. We also have a private funds business, and what everyone was talking about. We have our capital is smooth and lumpy at the same time, which allows us to take risks where we want to, but be sure that the company is not going to blow itself up any time soon, which is also something that I just want to say you should look for in a funder is a funder who's going to be around with you for the long haul, because litigation takes a long time to resolve, as we all know.

There's one other question, sorry.

Jim McCarroll: I don't think you've answered who's investing.

Christy Searl: Who's investing.

Jim McCarroll: What I'm looking for is, are there more hedge funds pouring in? Are there more private equities?

Christy Searl: Oh yeah, yeah.

Jim McCarroll: High net worth individuals? In your business, who's the client?

Christy Searl: The question is whether the hedge funds, whether private investors, whether other people can properly diligence the opportunities. We feel like that's one of the things we bring to the table is because we all are experienced litigators, and so we can diligence the opportunities, and understand how the cases are going to play out at the end of the day. That's what we feel like our edge, what we bring to the table is.

Yeah, there's money pouring in. Hedge funds want to get involved, particularly in the bankruptcy space, and again we do see private investors. I guess the last thing I would say is we're doing all kinds of really fun, innovative stuff, and so if you can find the opportunity and we can diligence it, we will figure out how to price it. Just one really interesting opportunity that's coming, which I think you guys will find interesting, is we had a private equity fund come in. They have a fund that has been holding a bunch of assets relating to a particular business that they had invested in. They had wound down and performed most of the operations in this side type of fund, but they had a liability back against them in a lawsuit.

They had an affirmative claim and a counterclaim, and they wanted us to come in and sit essentially as reinsurance above the reserve that they were going to take, because they needed to pay out their investors. It was a really interesting kind of structure to take a look at. These are the kinds of things that are coming inbound to us these days, where people are asking us to do really cool, wonky, creative things. It's not your mother's litigation finance anymore, and we're happy to take a look at all of these opportunities and try to noodle over how to get the best returns for everyone.

Gary Miller: I was just, I heard Judge Posner speak on litigation funding last week, I think he was asked this exact question, so I can't really do better than he can. His answer from the lawyer's side was basically, we just hadn't thought of it, which I think is kind of a fair answer.

Jim McCarroll: It's a pretty fair statement.

Gary Miller: It's a pretty fair statement. There was institutional bias against it, and it just never occurred to us that maybe our clients would benefit from it. I think there's a lot of times that's the answer.

Jim McCarroll: Yeah, no, of course. In the United States at least, there's the persistent issue that non-attorneys can't own law firms. There are limits on the ways that law firms can raise capital, ways that law firms can be capitalized. That creates some interesting dynamics, interesting opportunities.

Christy Searl: Well, there are some claimants with some pretty nice private jets, so to a certain extent, they've been doing litigation finance for quite some time.

Jay Greenberg: The why the upsurge, I think so there's a confluence of two factors. It's one factor that Gary pointed to previously, which is 70% of his clients are on alternative fee arrangements or pushing for alternative fee arrangements. In order to enable that, firms like Gary's, his clients need to look to litigation funders in order to engage top tier counsel. I'd say that's number one, it's really client driven.

The other confluence is what Christy alluded to, which is where we are right now from a global, macroeconomic standpoint. We're in a historically very, very low yield environment, and I think a lot of people would say that equity markets are richly valued. A lot of individuals as well as institutions are looking to take some capital off the table and put it into uncorrelated alternatives, like litigation finance.

I think Jim's second question was who's investing? We obviously have a very unique perspective because we get individual investors as well as institutional investors on our platform. We have other litigation funders come to us to access our deal flow, we have multi strategy hedge funds that don't have in house expertise, but are looking for deal flow ultimately on our platform to invest in cases sort of similar to what Paul was talking about, from a club deal perspective. Then we have individual investors as well on our platform. I would say right now the LexShares platform is really bifurcated 50-50 between institutional investors accessing our deal flow and individual accredited investors.

Christy Searl: Yeah, can I just say one thing? At some point in time, capital might end up flowing out of the industry, right? All these hedge funds are going to chase some other deal. We'll still be here because this is what we do. I just kind of leave you with that thought.

Jim McCarroll: Paul, any further with respect to investors, why they're flooding in or what types of investors are doing it?

Paul Seeman: I think it's been pretty well covered.

Jim McCarroll: Yeah. All right, we are over in terms of time, and we'd love to hear and try to respond to any questions the folks in the audience might have. We'll start over here.

Audience: Gary mentioned that 70% are alternative fee arrangements. Is that for your locations clients? Location funding cases, or is that all your cases?

Gary Miller: That's across the board. Really, a very small minority of cases we've used funders on to date. We're looking to maybe do it more, but all kinds of cases. Plaintiff side, defense side, fixed fee, capped fees. We have some clients who pay us a certain amount every year no matter what we do that year, so we have all types of different arrangements. That's what I was referring to.

Audience: Okay. Can I ask a follow up question maybe just to understand? Jay, you say you don't have control, but how do you incentivize the law firms to efficiently and effectively handle the litigation? I'm in discovery and litigation support, and given you will play back some discovery to see what's coming. What keeps funders encouraged to do that?

Christy Searl: That's a good question, I think sometimes that's why we ask for them to take risk alongside us in a case. That's what a contingency arrangement allows you to do. Which is to say you're both incentivized to do the case as cheaply as possible, because otherwise it's money out of your own pocket.

I will say this though, we have tried to figure out how to work in other structures in ways, with firms who are more comfortable with billing by the hour and getting their full rack rate. We're playing with that to try to come up with a model that works, but yes. Cost control is an issue, and I would say from the discovery perspective, which might be interesting to the audience members here, we're always looking to squeeze a dollar out of a case. Any thoughts that you have on how you might work well with litigation finance would be interesting to us.

Jim McCarroll: All right, further questions, I think the gentleman in the back had his hand up first.

Audience: Sure. I'm a big believer in the asset financial classes. In your talks [inaudible] and ultimately maybe returns from investment capital, where those returns are. What I'm curious about is as funders and users of funders, what keeps you up at night? This is clearly an industry that has a lot of finance perspective, it's clearly more hand in the risk, buy right now, [inaudible].

I'm not a banker, and I need to be in these deals, so I want to really see what keeps you staying up at night, and the chance for building and advancement opportunities in the space with regards to getting support from that particular area. Both for Forex investors and [inaudible], but I'm also scared when I think about something's coming down the pipe to stop the party. What keeps you up at night in this particular space?

Christy Searl: Can I take that really quickly? It's interesting because you see all the news about Bitcoin, right? My husband is actually trying to work on a blockchain related company, and the blockchain and Bitcoin are two completely different things. With litigation finance, litigation funding, I think my personal biggest fear, and I'm not saying this is a Burford fear, but it is Christy Searl's fear is you don't want to see anybody blow themselves up.

Hey, I worked at Lehman Brothers and I know how that goes, but I'm just saying I don't think it would be very good for the industry for a financier to crater. I'm sorry, we're just one of the leaders of the space. I don't want to sound obnoxious about it, but it certainly doesn't do ... It's not good for the sector itself it somebody goes down. That's what keeps me up at night.

Audience: What do you mean goes down?

Christy Searl: I mean like if you ... I'm sorry. Because everybody is chasing deals, you just don't want people doing deals that shouldn't get done. We're very disciplined about what we do, I cannot emphasize that enough. I certainly hope that all of our competitors are as well. That is I guess my point.

Jay Greenberg: No, I think Christy has a-

Christy Searl: I know you guys are as well.

Jay Greenberg: No, no. I think Christy has a good point there, right? You look at all the capital that's flowing into the space. When these funds get raised, there's a target return profile that's associated with these funds, so that funders are pressured to go ahead and invest at deals at certain price points. I actually don't think pricing is going to become lower as more capital rushes into our space, as happened with private equity. What I think is going to happen in the near term is that for some funders, their underwriting standards will drop, because they're able to get the pricing that they're looking for, but they're only able to get that pricing for lesser quality deals. That's definitely something that keeps us up at night.

Christy Searl: Yes.

Gary Miller: I sleep pretty well, actually.

Jim McCarroll: You know, I was waiting for something close to the Secretary Mattis response, and I think I just got it.

Paul Seeman: Yeah, I think the sector's getting crowded. I would be very careful about who you invest with. I think you need someone with a large platform like Burford or someone that you ... I mean, there's a lot of noise and there's a lot of frustrated lawyers who want to be funders, because they want to chase. I hate being a litigator, I'm not paid enough, and so I want to start a fund because I've been a big shot litigator for X number of years, and therefore that makes me a good funder. It's a different skillset, so I just would be careful about who you invest with.

Jim McCarroll: Any more? Right here.

Audience: I had a question for Gary. You approved a business case for litigation funding where you can track finances and legal department in house can be. I haven't heard a lot from in house counsels about whether to move internally when trying to monetize a department and not being able to see it. What are you hearing from your clients? Is that resonating with them or is it not there yet?

Gary Miller: I think it goes into two buckets that you just put it in. Mostly what I've seen so far is we have a good claim, and we just are really, it's going to cost $5-$6 million for us to get this claim through, and we can't afford that because of where we are as a company. That's what we're seeing a lot, and that's what I've seen a lot of. In terms of monetizing an asset and not wanting to tie up money in pursuit of that litigation as opposed to other pursuits, we have seen that more. We have a couple of clients now that are really taking a hard look at, exactly what Paul said, making the legal department a profit center, and bringing in money to the company.

We've seen that. We have one client in particular who hit it out of the park last year, and is really happy. We're doing more for them this year. We're seeing more and more of that too, so yeah, I am seeing more of it.

Christy Searl: Yeah, and I hate to talk so much, but I will say I was in house for like 20 years. Most in house legal departments think of themselves as a cost center. They are mostly defense minded. They don't typically think like plaintiff's lawyers, so when a prospective claim comes in, they don't necessarily, myself included, handle it perhaps in the best way that you could actually monetize the claim. As I said, old Lehman was going in the direction of trying to make our litigation department into a profit center by monetizing our IP contracts. We were heading that direction before everybody else blew the firm up.

Christy Searl: I think it's a really good idea. To the extent that you all have the ear of people in house, you should really be pushing this. Thank you, because I think it would really help move the business forward, and I think it would be super helpful for the companies themselves, obviously in bringing us more business.

Paul Seeman: And offense is more fun.

Christy Searl: Much more fun.

Paul Seeman: That's the trick.

Jim McCarroll: All right, well, I am told we are going as far over as we possibly can here. I'd like to thank the audience, those live and virtual, and in particular I'd like to thank Paul Seeman, his company UI Labs, Gary Miller from Shook Hardy, Christy Searl from Burford, and Jay Greenberg from LexShares for a helpful and informative panel. Thanks very much, everyone.