Part 1: The Corrupt Unlimited Lending System

What follows are two articles based on conversations I had more than a year ago with a former employee in the litigation finance industry. John contacted me after reading several of my SlimeGate articles on the corrupt financing tools feeding the Predatort beast. He wanted to share more details on what was going on behind the scenes and what needs to change as the greed, lack of ethics and unmonitored practices were destroying the tort law profession. The first article will examine how a litigation finance employee lends to law firms. The second article will shine a light on the investors funding the litigation industry and how they shape the tort law practice, which suits get pursued and how much of the settlements are diverted from the victims to the investors, funds and companies. This whistleblower exposé is important in pulling back the veil of what goes on in the unreported financial institutions feeding funds in, and profiting handsomely from a dark, unregulated and integrity-challenged litigation industry. Names and dates have been changed to protect the whistleblower.

In my three decades in issue management, I have kept to the dictum: Follow the money! Our environmental-health narrative is being defined today by the litigation industry. But the real money we need to follow here is laid out by the litigation finance companies and the investors behind these dark banks. Testimony from this whistleblower helped lay out more breadcrumbs to follow.

John, 30, was an investment analyst at the litigation finance company, Renders. He was fired in November, 2022. It was his first job, starting fresh out of school at the age of 22. His particular fund management office within Renders had six people, all young, which had made a profit of $160 million in the last year with an 18% return. Their office was funding mass tort lawyers (covering any type of cases) as well as litigation aggregators and advertising organizations. What he revealed to me, over a series of calls, was an eye-opening exposé of what goes on behind the dark curtain of the litigation finance industry and the US tort ecosystem.

The litigation finance industry grew rapidly in the wake of the 2010 Dodd Frank Act, that left gaps in the banking industry regulations, creating a niche market. The reactive regulation meant law firms were unable to secure bank loans as they were considered too risky. Litigation finance was then designed as alternative finance to be cashflow friendly (when the law firm makes money, the lender makes money). In the 2010s, there was a lot of private money flowing into alternative finance tools like litigation finance. By the 2020s, with an increase of large mass tort settlements, the money flows became incomprehensible, greed was excessive and all of it was dark, unreported and unregulated.

Ethical Standards?

John had raised ethical issues about the practices at his company, issues of concern with the plaintiff funding models and the quality of the law firms they were funding. When he had joined, he had felt there were high standards, but then the company moved to financing multiple personal injury cases. The higher the amounts lent, the more uncontrolled the spending at the law firms had become. He saw their lending process becoming a Ponzi scheme (John noted my article as motivation to contact me).

One of John’s main observations was that the level of financial sophistication of the clients (the tort lawyers) was very low, and that of the loan managers lending to them was not much better. The decisions of most loans relied on the judgement and word of the tort lawyers. The lenders (including John) did not bother to look at what the lawyers were doing; there was no scrutiny. If there was a bellwether trial that provided proof of settlement, it gave a value upon which the loans could be calculated. There was never a question of how much the law firms needed or should be lent. Litigation finance companies like Renders loaned the maximum according to their calculations with no scrutiny and little due diligence. And no clients ever asked for less than the maximum.

The litigation finance companies had the right to go back to the clients and follow up how the law firms were spending the money – to do an on-site audit – but to the best of John’s knowledge, Renders never did. It didn’t seem to matter to the management or the partners. John was trained to judge the value / character of the cases, but not the value / character of the clients. In one case, a lawyer just made up a claim that he had 20,000 cases to litigate. The character or trust in the clients was not important and did not factor into the loan decision process.

Renders was competing with other litigation finance companies so he knew he was a seller in a buyer’s market. There was a constant pressure on him to make the loans. John was not sure many times whether what he was doing was actually legal (particularly the conditions and rates they were charging). In every loan document, there were 50 pages of conditions to protect them should any client contest the rates. He was pretty sure nobody read them.

John felt it was strange, given how much money was moving around, that he did not have the proper resources to do his job. The margins were large enough to absorb any defaults or bankruptcies rather than giving him the tools to reduce bad loans. The partners were only concerned about taking their commissions and not pumping money back into the company or helping the investment analysts do their due diligence.

Case Study: Transvaginal Mesh Loan Cases

A small law firm had amassed thousands of transvaginal mesh cases. Renders loaned them a total of $100 million.

• The litigation finance company ensured a cashflow waterfall provision meaning that 50% of the court payouts went to Renders as the money came in.
• At a 25% loan to value rate, large amounts of the payouts went to Renders (mostly to the partners)
• Loans keep rolling over and increasing as more transvaginal mesh cases were decided and further cases filed.

John never considered how this money was coming from what should have been paid to the plaintiffs. His job was all about the spreadsheet and the margins.

The Industry Evolution Away from Lending Platforms

During John’s time in the late 2010s, there was an important evolution in the litigation finance business. Renders was a member of LitCap – a platform aiming to standardize all litigation finance lending. Each lawsuit would get its own loan. It started out as true plaintiff-attorney lending where, in the early days, the smallest loans were for $30,000.

Both sides found this platform insufficient. Litigation finance firms wanted to diversify and expand their lending and law firms needed more money up front (eg, if a law firm had 15 personal injury cases, they needed to borrow more at one time, and if they had 1500 cases …).

Renders moved into mass tort lending. It was less work to underwrite a large number of personal injury, workers compensation or wrongful death cases. John knew many good cases, with good attorneys, but with these cases, the money was not good enough. Portfolio pressure, more capital coming in and competition led Renders to have to search for new markets and larger volumes.

Renders shifted to funding law firm portfolios of more than 1000 mass tort cases. In such situations, there was no way to determine how much each case was worth. They had data on rudimentary spreadsheets that would take, for example, 30 cases and extrapolate them to 1000 to get an overall value of a portfolio to lend against. The bellwether cases determined the value per case of the portfolio. One portfolio, on hearing loss for firemen (150,000 cases) were determined to not be worth investing in. In most cases, they took the lawyers at their word, not just on the value of each case, but also the number of actual cases.

Fiddling was done on both sides. If there were gaps in the amount promised and the amount available, the underwriter would fiddle it to get the amount available up. Renders had no compliance person or risk manager.

Desperate Law Firms

It became clear to John that most of the law firms they were lending to were desperate. The loans were never restricted to what the money could be spent on, they never asked or audited the firms, and there were no assurances that the cases even existed. They had to take the lawyers at their word.

When lawsuits were settled, sometimes the law firms “forgot to pay” their lenders the 50% they had borrowed on. The lawyers usually needed to be chased down … and this often led to new loans. When settlements were confidential, the litigation finance lender took 10% off of the amount settled plus a percentage of any lending on receivables.

Client Case Study:

Pierce Bainbridge Beck Price & Hecht, known as Pierce Bainbridge, was a rather public case of how litigation finance loans allowed greed to proliferate within the tort industry. After the first loan to Pierce Bainbridge, John was very vocal not to lend more. There were too many red flags like, for example, that the firm was under an Office of Foreign Assets Control audit. The Renders partners were pushing John to lend $18 million. When administrators delayed the loan, the partners pushed harder on their young analysts to release the funds.

Pierce Bainbridge came back every week demanding more money to cover the expansion of cases, payrolls… John sensed that the entire thing was a fraud and was not sure to what extent the Renders partners were in on it. The partners were autonomous and very wealthy so no one would have noticed an increase in their personal wealth. It was not uncommon for them to go out and buy something like an $8 million jet.

Update 2025: Pierce Bainbridge Beck Price & Hecht did go out of business. As none of the details were made public (unless there is a lawsuit between law firms, such events happen behind closed doors), it is unclear how much of the $65 million in litigation finance money was lost by Renders. There was a soap opera of lawsuits between the firm and a fired partner, Don Lewis, who charged Pierce Bainbridge with “dysfunction and financial improprieties”.  Lead lawyer, John Pierce, reestablished the firm as Pierce Bainbridge and set up the National Constitutional Law Union in 2021 to take on conservative cases (defending 17 of the Capitol Riots cases). Bankruptcy, to Predatorts, is just an opportunity to transition to new markets so long as financial lending practices go unregulated and remain unlimited.

The Risk Monger’s Observations

John’s testimony to me was valuable not only for the background information on the litigation finance industry, but it allowed me to fill in many of the blanks in my research. Here are some personal observations.

• Shine a Transparent Light on the Rats
  The shenanigans at Pierce Bainbridge Beck Price & Hecht go on all the time when you mix greed, unlimited funding and large egos. Names change, companies reorganise or go out of business but we only hear about what is going on when one partner sues another or the entire firm (usually over more money). This cloud of secrecy protecting the litigation finance industry (claiming attorney-client privilege) is wrong at so many levels. When law firms package thousands of plaintiffs in a short period of time, the public (who will pay for all of this through higher prices and insurance fees) should have a right to know who is behind it. When litigation finance companies are charging loan-shark interest rates and percentages of settlements, then we need to know how much of such pay-outs are going, not to the victims but to lenders and the investors hiding in the shadows behind them.
  
• Call the Extortionists’ Bluffs
  When I started the SlimeGate series in 2018, I felt that the best tactic for the companies, when under pressure from mass tort attacks (like tens of thousands of multi-district litigations), was to drag out the process. The Predatort Playbook is built on the belief that large shareholders will panic at the thought of tens of thousands of lawsuits and force management to settle quickly (as share prices tend to react dramatically to any court decisions). As few cases would ever go to court, settlements meant that most of the payouts would go directly to the law firms and their funders. Extortion works if the target easily capitulates. Learning from John how financially illiterate these Predatorts are, how cash-strapped their offices often are, and the exorbitant loan-shark rates the litigation finance industry was imposing on them, it is clear that most law firms would go bankrupt if companies held firm and drew the process out. Companies should call the Predatorts’ bluff and try each and every case. And if a large number of law firms went bust, the entire house of cards would likely collapse, including the litigation finance industry. I’m not sure anybody would feel sad about that.
  
• Scrutinise the Partners
  The partners at Renders were doing quite well, detached from the business except where they see personal opportunity. They hire young, energetic analysts fresh out of university, pay them more than they could have ever dreamed of as starving students, train them to see the world in a certain way, and don’t expect them to ask too many questions or let their conscience or sense of integrity get in the way. Imagine six people, in their early twenties, at one investment desk turning over a billion dollars in loans without any real monitoring and scrutiny (so long as they meet their 18% return on investment target for the partners). From the time I spent interviewing John, it was clear he was morally shell-shocked from his five years at Renders.
  
• Impose External Auditing and Compliance Regulations
  The numbers beggar belief. Lending tens of millions without scrutiny, due diligence or audits could only happen in shadowy operations. If Renders and other litigation industry companies were forced to be transparent, most of their loans would not go through. At the very least, AI scrutiny would probably have a larger influence on decisions than these young fund managers if the numbers were public. In the end, John was lending other people’s money to clients who were paying it back (maybe) with other people’s money. So long as John met his targets, the partners were happy, the lawyers kept their Gulfstreams in the air and the investors were doubling up on Alpha.
  It was never about the victims.

It is to the investors behind the litigation finance billions that John’s exposé now turns.

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Since 2018, SlimeGate has been one of the few documents, a living research text, trying to expose the corruption and lies behind the litigation industry. If you enjoyed this read (free with no ads) or the entire SlimeGate exposé, why not support The Risk-Monger via Patreon? Become a Gold-Monger patron for 5 € / $ per month and get David’s newsletter.