Terrorist-Attack Litigation Finance Firm Prefers Semantic Defense Strategy

Hedge fund sues over being asked about its 9/11 and NFL concussion-based portfolio.
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By Till Niermann (Own work) [GFDL or CC BY-SA 3.0], via Wikimedia Commons

By Till Niermann (Own work) [GFDL or CC BY-SA 3.0], via Wikimedia Commons

Long before journalists decided to out Platinum Partners’ (now allegedly fake) sketchy investment strategy of buying annuities on the dying without the knowledge of said dying, there was fascination with another somewhat morbid hedge fund: RD Legal Strategies, and its plan to spend $100 million buying claims against the Iranian government from the families of the 241 Marines killed in the 1983 terrorist bombing of their barracks in Beirut. The same firm was also investing in potential payouts stemming from Sept. 11.

At least in the case of RD, it was buying stakes in those eventual legal payouts with full knowledge of the beneficiaries. It wasn’t always paying them particularly promptly (or at all), or allowing its investors to redeem (even as it was making sure to pay itself), but investors were “aware of the risks,” firm founder Roni Dersovitz assured. Buyer beware.

At around the same time RD was experiencing its “momentary period of illiquidity,” it decided that it didn’t need to be registered with the SEC anymore, since its portion of legal claims against bad guys were “not securities within the meaning of the securities laws.” Too late: In July, the regulator sued, alleging the usual litany of misleading investors, inflating valuations, favoring itself over it clients, etc.

Parsing language doesn’t appear to be part of RD’s strategy for defending itself against the SEC, but the embattled (and possibly unconstitutional) Consumer Financial Protection Bureau had better sharpen its lexicographical skills. The CFPB hasn’t taken any kind of enforcement action against RD yet, and RD intends to keep it that way, suing the regulator for investigating it. Seems that whole probe has nothing to do with the arguably shady way RD does business, but with a simple misunderstanding that Merriam-Webster could clear up in an instant: Buying someone’s legal claim against the Iranians for a fraction of its potential value isn’t only not a security, it’s also not a loan. Nice try, though.

RD Legal Funding sued the Consumer Financial Protection Bureau in federal court Tuesday, arguing that the regulator sought to justify a probe into the firm by mischaracterizing its business as issuing loans….

RD Legal finances law firms’ day-to-day operations and in turn receives a claim from legal judgments, a service that the regulator is wrongly defining as a “consumer financial product or service,” the suit filed in New York’s Southern District says. The CFPB is also asking for documents related to RD Legal’s investments in a victim’s compensation fund stemming from the September 2001 terrorist attacks, as well as a settlement over concussions suffered by players in the National Football League, the lawsuit shows.

Hedge Fund Sues GOP-Hated Regulator for Exceeding Its Authority [Bloomberg Law]

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Private Equity And Litigation Finance

About a month ago, I discussed the venture capital landscape, and why litigation funders are attractive partners for VCs and VC-backed companies in need of resources to adequately defend their businesses. A similar, but distinct, phenomenon exists in private equity.